When former KPMG partner Thomas Whittle goes before U.S. District Court Judge J. Paul Oetken to hear his sentencing, scheduled for Dec. 2, he will be the last of the five ex-KPMG executives who were indicted in January 2018 for their roles in a scheme to steal confidential audit inspection information from the PCAOB to be given his consequences.
Most recently it was another former partner, Brian Sweet, who heard what his punishment would be from Oetken, and because Sweet—who previously worked at the PCAOB before joining KPMG—cooperated with the government as part of his plea deal, he got off easy.
Law360 reported on Nov. 20:
A former financial watchdog staffer accused of feeding stolen information about audit inspections to KPMG employees will avoid prison after a New York federal judge on Friday lauded his “crucial” cooperation with the government’s investigation of other alleged co-conspirators.
Brian Sweet, a former Public Company Accounting Oversight Board employee who later worked for KPMG, was sentenced to time served, three years of probation and “significant” restitution in an amount yet to be determined. He admitted in 2018 to charges of conspiracy to defraud the United States and conspiracy to commit wire fraud.
Sweet, a former associate director at the PCAOB, was a star witness for prosecutors in the jury trial of David Middendorf, KPMG’s former national managing partner for audit quality and professional practice, in February and March 2019.
He spilled the tea on his early interactions with Middendorf right after he joined KPMG from the PCAOB in May 2015, which got the ball rolling on the info-stealing scheme.
Here’s what we reported on Feb. 20, 2019, a day after Sweet took the stand:
During Sweet’s first week on the job, Middendorf asked him at lunch “whether a particular issuer would be the target of a PCAOB inspection; and […] more generally, which KPMG engagements would be subject to inspection that year,” according to the indictment against Middendorf, Sweet, and three others who were charged for their roles in the scandal.
The indictment also said, “Sweet […] copied [PCAOB] documents, as well as other confidential documents, from Sweet’s PCAOB computer to a personal hard drive.” These included “internal PCAOB manuals and guidance; […] comment forms issued in connection with inspections on which Sweet had worked; [and] a list of KPMG engagements to be inspected by the PCAOB in 2015.”
Law360 reported that Sweet, who pled guilty to conspiracy and wire fraud charges in early January 2018 and is cooperating with the government, testified Tuesday that at that lunch with Middendorf, he asked Sweet whether PCAOB inspectors would be reviewing the firm’s audit of Wells Fargo at a meeting the regulators had requested in San Francisco:
“I remember kind of shrugging my shoulders and indicating, ‘Well, could it be anyone else?’” Sweet said.
“Why didn’t you just say yes?” asked Amanda Kramer, an assistant U.S. attorney.
“Directly answering ‘yes’ was a very clear violation of the PCAOB ethics code,” Sweet said. “I wanted to answer the question … but do it in such a way that might give me an out.”
“How did [Middendorf] respond?” Kramer asked.
“I remember him getting very animated and slapping the table and saying, ‘I knew it!’” Sweet told the jury.
Also during the trial, Sweet confirmed what was in the indictment—that both Middendorf and Whittle told him “to remember where Sweet’s paycheck came from and to be loyal to KPMG.”
Middendorf was convicted by the jury on three counts of wire fraud and one count of conspiracy to commit wire fraud on March 11, 2019, and exactly six months later, he was sentenced to one year and one day in federal prison. Middendorf is currently appealing his conviction.
The only other one of the “KPMG 5” to receive a prison sentence was Cynthia Holder, a former PCAOB inspections leader who eventually got a job as an executive director at KPMG. She was sentenced by Oetken to eight months in federal prison on Aug. 9, 2019.
Holder 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. Holder reported to jail on Oct. 15, 2019, and served her sentence at a minimum security federal prison camp for women in Bryan, TX. She was released from custody on June 13.
David Britt, who was a co-leader of KPMG’s Banking and Capital Markets Group, was sentenced last month to six months of home confinement and ordered to be deported to his native Australia to serve his punishment. Britt pleaded guilty to one count of conspiracy to commit wire fraud on Oct. 3, 2019.
Whittle, who is scheduled to be sentenced on Wednesday, pleaded guilty to wire fraud and conspiracy charges on Oct. 29, 2018, as part of a plea agreement with the government. So there’s a good chance Whittle, who was the national partner-in-charge of inspections at KPMG, will get a similar punishment as Sweet.
The only non-KPMGer who was indicted, Jeffrey Wada, was given a nine-month jail sentence in October 2019 after the same jury that convicted Middendorf also convicted him of one count of conspiracy to commit wire fraud and two counts of wire fraud in March 2019.
Wada was a former PCAOB inspections leader who gave Holder, a former colleague at the PCAOB, additional secret information on which KPMG clients would be inspected by the audit regulator in 2016 and 2017 in the hopes of eventually landing a job at the House of Klynveld. He also is appealing his conviction.
Cooperation In KPMG Case Spares Ex-PCAOB Staffer Prison [Law360]