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February 2, 2023

Another One of the ‘KPMG 5’ Has Pleaded Guilty In PCAOB Scheme

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David Britt is the latest former KPMG partner who has admitted guilt for participating in a scheme to steal confidential audit inspection information from the PCAOB.

David Britt

Britt, 56, who was a co-leader of KPMG’s Banking and Capital Markets Group, pleaded guilty to one count of conspiracy to commit wire fraud on Oct. 3. His trial was scheduled to begin in Manhattan federal court on Oct. 21.

His sentencing has been set for May 8, 2020.

Geoffrey Berman, U.S. attorney for the Southern District of New York, issued the following statement following Britt’s guilty plea:

“David Britt, a former KPMG partner, admitted today to obtaining confidential lists that contained the information on which KPMG audits would be reviewed by the PCAOB. Using the playbook he illicitly acquired, Britt used that information to improve the results of his firm’s audits. Independent reviews of accounting firm audits exist to ensure their integrity and accuracy. David Britt corrupted that process and now faces time in federal prison.”

Now that Britt has admitted guilt, all five of the ex-KPMG executives who have become the poster children for failed ethical leadership in public accounting have either pleaded guilty or were found guilty by a jury for their roles in the scheme, in which PCAOB insiders fed the “KPMG 5” secret plans on which of the Big 4 firm’s public company audits the regulator would be inspecting. And thus far, two of the five have been sentenced to prison.

Cynthia Holder, a former PCAOB inspections leader who later worked as an executive director at KPMG, was sentenced to eight months in federal prison on Aug. 9. She was ordered to report to prison on Oct. 15. She had pleaded guilty to one count of conspiracy to defraud the United States, one count of conspiracy to commit wire fraud, and two counts of wire fraud on Oct. 16, 2018.

David Middendorf, former national managing partner for audit quality and professional practice at KPMG, was sentenced on Sept. 11 to one year and one day in federal prison, exactly six months after he was convicted by a jury on three counts of wire fraud and one count of conspiracy to commit wire fraud.

Thomas Whittle, national partner-in-charge of inspections at KPMG, pleaded guilty last Oct. 29 to wire fraud and conspiracy charges as part of a plea agreement with the government. He was supposed to be sentenced in September, but that was postponed in anticipation of Whittle testifying against Britt had Britt gone to trial, according to Francine McKenna of MarketWatch.

Ex-KPMG partner Brian Sweet pleaded guilty to conspiracy and wire fraud charges in January 2018.

Sweet and Whittle testified against Middendorf, whom they reported to. Holder did not testify.

In addition, ex-PCAOB staffer Jeffrey Wada, who provided Holder, a former colleague at the PCAOB, with confidential information on which KPMG clients would be inspected by the audit regulator in 2016 and 2017, was convicted of one count of conspiracy to commit wire fraud and two counts of wire fraud during the same jury trial as Middendorf’s. Both Wada and Middendorf were acquitted of conspiracy to defraud the U.S. Wada is scheduled to be sentenced on Oct. 11.

The SEC announced a settlement with KPMG on June 17 in which the firm will pay a $50 million fine and take  “significant remedial actions” to improve its ethics and integrity, not only because of the PCAOB cheating scandal, but also because several KPMG auditors, at all levels of seniority, were found to have cheated on internal training exams by improperly sharing answers and manipulating test results.

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