Charges expected soon in insider trading scheme*

***Update below

The man who traded on information provided by former KPMG partner Scott London has been identified as Bryan Shaw, co-owner of Shaw Diamond, a small jewelry wholesaler in Encino. At some point, a source tells the NYT, Shaw began cooperating with authorities, leading to an FBI sting a few weeks ago. Both men have admitted to the scheme in which London provided inside information about two of his clients, Herbalife and Skechers. Shaw said he "profited substantially" by trading on London's stock tips, while London said he accepted about $25,000 in cash and gifts, including a Rolex watch. "What I have done was wrong and against everything that I had believed in," London said. Based on the reports thus far, the scheme involves only London and Shaw. From DealBook:

Mr. London said in his statement that his tips did not involve divulging any confidential company documents but was instead "in the form of a suggestion." Mr. London said Mr. Shaw would ask how his clients were doing and he would give him his thoughts on whether the companies' stocks were a buy or a sell. Appearing on CNBC Wednesday afternoon, Harland Braun, Mr. London's lawyer, said that his client, who earned millions of dollars over the course of his KPMG career, knew that he was violating the law. "But he just can't understand why he did it, and it's hard to understand why he did it," Mr. Braun said. "It makes no sense. He's looking back on the years that he did it. It made no sense from a dollar-and-cents point of view; it made no sense in terms of his ethics. He's not trying to justify it in the slightest."

From the WSJ:

Although Mr. London "initially" wasn't aware that his friend was trading on the tips, he knew he was breaching his duty of confidentiality to his employer by sharing such information, Mr. Braun said. He added that once Mr. London agreed to accept payment for the tips, "He was really compromised." Mr. London worked at KPMG for 29 years. He said in an interview with The Wall Street Journal Wednesday that he became an accountant because his father was one and stayed at the firm his entire career because he loved the people there, and interacting with clients. Interviewed in front of his home Wednesday afternoon, Mr. London wore a faded blue T-shirt and jeans and sipped a Dr Pepper. He said he was resigned to dealing with the aftermath of this week's revelations. Mr. London, who said he had returned from setting up the field for his son's baseball team, said he "hopefully will get past" the trading episode. "I've made my bed," Mr. London said. "Now I just want to protect my family."

*Update: Prosecutors charged London this morning with one criminal count of conspiracy to commit securities fraud through insider trading. According to the complaint, London fed Information on Herbalife, Skechers and Deckers to his friend Bryan Shaw, which led to trades that generated more than $1 million. London faces five years in prison and a $250,000 fine. Separately, the SEC announced the filing of civil charges against London and Shaw. The criminal affidavit contains more details about the scheme:

From late 2010 and continuing until March 2013, London secretly passed highly sensitive and confidential information to Shaw regarding upcoming earnings announcements by certain KPMG clients, including Herbalife, Skechers, and Deckers Outdoor Corporation, before that financial information was disclosed to the public. On some occasions, London called Shaw two to three days before press releases were issued for KPMG clients and read confidential information from the draft releases to Shaw. London also disclosed to Shaw confidential information about impending mergers concerning KPMG clients before that information was made public. At times, London even discussed with Shaw how to structure Shaw's purchases of the stock in certain companies in order to protect them from being discovered. In exchange for passing the confidential information about KPMG's clients, Shaw gave London tens of thousands of dollars in cash, typically arranging with London to meet him on a side street near Shaw's business in order to give him bags containing $100 bills wrapped in $10,000 bundles. Shaw also gave London a Rolex Daytona Cosmograph watch worth an estimated $12,000, as well as jewelry and concert tickets, in exchange for the confidential information.