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Federal Judge Strikes Down Ex-KPMG Partners’ Request for SEC Evidence Search

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If you’re dying to know what’s going on with David Britt, David Middendorf, and Thomas Whittle, the former KPMG partners who are accused of participating in a scandal in which confidential Public Company Accounting Oversight Board inspection information was leaked to the accounting firm, Law360 has an update:

A group of former and would-be KPMG auditors on [Aug. 17] lost a bid to make prosecutors search the U.S. Securities and Exchange Commission’s files for evidence that might weigh against criminal charges that they ran a jobs-for-intel scheme aimed at an accounting regulator.

It seems that Britt, who was co-leader of KPMG’s Banking and Capital Markets Group, believed the SEC was sitting on evidence that could help keep him and his former colleagues out of the slammer. Desperate times call for desperate measures when you have a possible jail sentence of up to 85 years staring you in the face.

Law360 reported in June that:

In a motion filed on [June 8], Britt asked for an order requiring prosecutors to look through SEC and PCAOB files. Britt told U.S. District Judge Paul Oetken that attorneys from the SEC, which has brought a parallel criminal case, sat in on interviews with prosecutors. SEC attorneys’ notes from those interviews that contain facts that could help Britt should be handed over now, he wrote.

“Courts in this district have repeatedly required the government to review SEC files for Brady material where the government and the SEC engaged in joint fact-finding, and particularly joint interviews,” Britt said in the motion.

Britt believes that the SEC has acted as “an arm of the prosecutor” in this case.

According to Cornell Law School, “Brady material” includes “any evidence favorable to the accused—evidence that goes toward negating a defendant’s guilt, that would reduce a defendant’s potential sentence, or evidence going to the credibility of a witness.”

But Oetken on Aug. 17 “shot down the group’s pretrial motions seeking more details on prosecutors’ claims and potentially favorable evidence from the SEC, which conducted its own investigation into the alleged patronage pipeline,” Law360 wrote.

In his opinion, Oetken wrote:

The Government and the SEC conducted joint witness interviews. And Defendants point to the fact that the entities filed charges against the same group of defendants, on the same day, as circumstantial evidence of strategic coordination. But … according to the Government’s representations during argument on these motions, the SEC was not involved in its grand jury presentation, has not reviewed documents gathered by the Government or shared the fruits of its investigation with the Government, and did not participate in the overall development of prosecutorial strategy. And beyond conducting joint interviews, the Government and SEC have not coordinated their separate fact-finding efforts.

In regards to the PCAOB, Oetken wrote:

The Court concludes that no joint investigation between the Government and the PCAOB took place here. No PCAOB representatives were present at any witness interviews conducted by the Government, nor was the PCAOB involved in developing any prosecutorial strategy.

So, in other words, sorry, try again.

Two ex-PCAOB inspectors, Cynthia Holder, who wound up eventually working at KPMG, and Jeffrey Wada, are accused of illegally leaking the confidential information about planned KPMG inspections to the three accounting firm executives, who allegedly encouraged the malfeasance. At the time, KPMG had a high rate of audit deficiencies, and the executives allegedly wanted the information to help the firm improve its inspection results.

Holder and Wada were each indicted in January on charges of conspiracy to defraud, conspiracy to commit wire fraud, and two counts of wire fraud.

The three former KPMG executives—Britt; Middendorf, national managing partner for audit quality and professional practice; and Whittle, national partner-in-charge for inspections—face similar conspiracy charges as Holder and Wada, as well as three counts of wire fraud.

A sixth participant in the alleged scheme, Brian Sweet, a former PCAOB associate director and former partner at KPMG, pled guilty to conspiracy and wire fraud charges shortly after he was arrested in January.

Sweet admitted that as he was leaving the PCAOB for a role with KPMG, he downloaded confidential inspection-related information that he provided to KPMG executives upon taking a position with the firm.

The trial is scheduled to begin in February 2019.