Please ensure Javascript is enabled for purposes of website accessibility
September 25, 2023

$50 Million Fine SEC Is Reportedly Giving KPMG Over PCAOB Scandal Isn’t Big Enough

Dave Michaels of the Wall Street Journal broke some huge news late last night about a huge fine the SEC could levy against KPMG later this month because of several former partners’ involvement in one of the biggest U.S. accounting scandals in recent years—stealing secret audit inspection information from the PCAOB.

KPMG LLP is preparing to pay as much as $50 million to settle civil claims related to the conduct of former partners who learned which of their audits would be subject to surprise regulatory examinations, according to people familiar with the matter.

The fine would be the highest ever imposed on an auditor in a Securities and Exchange Commission action. The details could change as agency commissioners debate the final details of the settlement.

Michaels reported that the SEC is expected to vote later this month to approve the settlement, which would include the fine and a requirement that KPMG retain an independent compliance monitor for at least a year.

If approved, the $50 million fine would more than double the $22.5 million KPMG had to give the SEC in 2005 to settle a lawsuit over incompetent audit work the firm did for Xerox Corp., which is currently the largest penalty the SEC has doled out to an audit firm.

When I first read Michaels’ article last night, my first reaction was, “Damn, that’s a lot of money KPMG is going to have to pay.” But the more I thought about it, the more I realized that KPMG is getting off easy, if this is indeed the fine it’ll be given.

You want to stop this type of shit from ever happening again, SEC? Fine KPMG $100 million, or $300 million, or $500 million, or more. Make an example out of them. And I’m not just saying this because it’s KPMG. If this cheating scandal had been going on at PwC, EY, Deloitte, Grant Thornton, BDO, Moss Adams, wherever, that firm should be fined a lot more than $50 million, too.

KPMG made $29 billion in revenue globally last year, and that was the lowest of the Big 4 firms. A $50 million fine is nothing, especially for the nature of the crimes that were committed by the executives to cheat the regulatory inspection process. You want the other Big 4 or top-tier audit firms in the U.S. to take notice? Fine KPMG $500 million. You’d definitely get their attention then.

Four of the five KPMG officials who participated in the information-stealing scheme, which started in 2015 and ended in February 2017, have either pled guilty to or have been convicted of conspiracy and wire fraud charges.

David Middendorf

The highest-ranking KPMG executive involved in the scandal, David Middendorf, the firm’s former national managing partner for audit quality and professional practice, was convicted by a jury in March, along with former PCAOB inspections leader Jeffrey Wada, of conspiracy to commit wire fraud and wire fraud, but both were acquitted of conspiracy to defraud the United States.

As part of the scheme, Wada would provide KPMG partners with a “grocery list” of stock ticker symbols, which represented the full confidential list of KPMG clients to be inspected by the PCAOB, authorities said. He agreed to leak the secret inspection information to KPMG officials because he had just been passed up for a promotion at the PCAOB and was hoping this would help him land a job at the firm.

Wada and Middendorf are expected to be sentenced in August.

Former KPMG executive director Cynthia Holder, who had previously worked with Wada at the PCAOB, 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. She is supposed to be sentenced later this month.

Thomas Whittle, former national partner-in-charge of inspections at KPMG, pleaded guilty on Oct. 29 to wire fraud and conspiracy charges, pursuant to a plea agreement with the government. He is expected to be sentenced on Sept. 13.

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.

A fifth ex-KPMG executive, David Britt, co-leader of the firm’s Banking and Capital Markets Group, is expected to go on trial in September.

Latest Accounting Jobs--Apply Now:

Have something to add to this story? Give us a shout by email, Twitter, or text/call the tipline at 202-505-8885. As always, all tips are anonymous.

Related articles

PwC Canada Totally Blew Their Perfect Score on PCAOB Inspections This Time Around

A few days ago the paper-pushers at the PCAOB released 15 new inspection reports and three expanded reports for the following firms: Inspection reports De Visser Gray LLP (Canada) Ernst & Young Limited Corp. (Panama) Frost, PLLC Harbourside CPA LLP (Canada) Keith K Zhen CPA Maggart & Associates, P.C Miller Wachman LLP PBMares, LLP PKF […]

Burnt and melted trash bin from fire

The SEC Has Charged Marcum’s Former National Assurance Services Leader With Being Ass at His One Job

The SEC’s rock-hard justice boner for Marcum continues, this time it’s charges against the firm’s former national assurance services leader for “causing widespread quality control deficiencies.” Or in casual parlance, “totally fucking up.” From today’s news release: The Securities and Exchange Commission today charged Alfonse Gregory Giugliano, CPA, the former National Assurance Services Leader at […]