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September 29, 2023

Ex-KPMG Partner’s Request to Have His Wire Fraud Conviction Thrown Out Gets Shot Down, Crashes, Burns

Welp, so much for that.

David Middendorf

David Middendorf, former national managing partner for audit quality and professional practice at KPMG, is scheduled to be sentenced in Manhattan federal court tomorrow, according to Law360, for his role in an information-stealing scheme in which PCAOB insiders fed KPMG executives secret plans on which of the Big 4 firm’s public company audits the regulator would be inspecting.

jury on March 11 convicted Middendorf, 55, on three counts of wire fraud and one count of conspiracy to commit wire fraud, while former PCAOB inspections leader Jeffrey Wada, 43, was convicted on two counts of wire fraud and one count of conspiracy to commit wire fraud. But both men were acquitted of conspiracy to defraud the United States.

Middendorf and Wada had both asked U.S. District Judge J. Paul Oetken in May to throw out their wire fraud convictions or grant them a new trial, saying the government didn’t provide enough evidence to support the guilty verdict and didn’t prove they acted willfully.

But Oetken didn’t buy what they were selling. Law360 reported:

U.S. District Judge J. Paul Oetken said Monday [Sept. 9] that former KPMG LLP partner David Middendorf and ex-PCAOB official Jeffrey Wada did not convince him that the government failed to show the two knowingly engaged in the scheme, which allegedly involved Wada stealing information about which KPMG audits would be reviewed by the board and passing it along to a group of executives at the Big Four accounting firm that included Middendorf.

According to Judge Oetken, the evidence presented at trial supports claims of a conspiracy to defraud the regulator of its ability to use confidential inspection information to monitor KPMG’s audits, and the fact that Middendorf and Wada did not personally know each other does not alter this inference enough for him to now acquit them or grant them a new trial.

“Middendorf had every reason to believe that the inspection information was coming from someone at the PCAOB — and every reason to avoid knowing the details about from whom it was coming,” the judge said. “Wada, for his part, was hoping to get a job at KPMG, and had every reason to believe that the information would be useful to KPMG — which plainly involved the firm’s using the information in connection with PCAOB inspections.”

The Law360 article didn’t say when Wada will be sentenced.

Of the five former KPMG executives who were indicted in the scheme, only one has been sentenced thus far. Cynthia Holder, a former PCAOB inspections leader who later worked as an executive director at KPMG, was sentenced to eight months in federal prison by Oetken on Aug. 9. She was ordered to report to prison on Oct. 15.

Two other former KPMG partners have pleaded guilty for their roles in the cheating scandal. 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 is expected to be sentenced later this month.

Ex-KPMG partner Brian Sweet pleaded guilty to conspiracy and wire fraud charges in January 2018. A fifth ex-KPMG executive, David Britt, co-leader of the firm’s Banking and Capital Markets Group, is expected to go on trial on Oct. 21.

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

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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