How could these guys have been so, well... stupid?

london6.jpg At first Scott London really tried to soft peddle his involvement in the insider trading scandal that has rocked accounting giant KPMG, his former employer, and the five companies that were compromised as a result of his shenanigans. His initial explanation had him passing only a few bits of information to his golfing buddy. "Once he told me he had traded, that's when my heart sank," London told the WSJ. Well, we now know it was not nearly so innocent. Based on court documents, London knowingly fed information to his accomplice, Bryan Shaw, and knowingly accepted $50,000 or so for his efforts. How knowingly? Check out the criminal complaint:

London and Shaw discussed how the stock price for Herbalife had jumped recently when Carl Icahn bought a large block of its stock. Shaw told London, "I wish you would've known that he was going to release that and we could've made some money." London responded, "Yeah, that would've been nice." London then referenced rumors that had been spread recently about Herbalife going private, which had been discussed in various news reports. London stated, "That is where you make a ton of money ... because, you know, we'll know that." London then advised that if that were to take place, "What we oughta do is, when I know that it's gonna start happening, what you do is you start just buying in small blocks, right, so it doesn't draw attention and then, you know, then it doesn't look unusual at all."

Remarkably, the two kept at it even after Fidelity put a hold on Shaw's account. London told Shaw not to worry, that insider trading was like counting cards at a casino in Vegas - if you got caught, they would just ask you to leave because there would be no way of proving their case. Of course, all London had to do was check out the SEC website to see all sorts of insider trading charges. And Herbalife? Of all the stocks they could have played with, why choose one of the most widely watched? You can imagine the honchos at KPMG wincing at London's actions. Is this our lead auditor in L.A.? From the LAT:

"You got two knuckleheads who keep affirming each other's stupid ideas," said Gene Murphy, a white-collar defense attorney at Murphy & Hourihane in Chicago. They kept at their scheme "even when warning flags are going up [and] the hairs are rising on the back of the neck." Even Shaw's attorney, Nathan Hochman, conceded the fatal flaw: "It was probably less greed than stupidity."

Yeah, but that still doesn't answer a more fundamental question: How could they have been so stupid? The presumption that they wouldn't get caught? The thrills from knowing that they could get caught? In London's case, the pent-up frustrations of working in the same place for almost 30 years? Or perhaps other frustrations away from work? Somehow, there's got to be a fuller explanation.

Photo: Scott London (left) receiving payment from Bryan Shaw


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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
 
Mark Lacter, business writer and editor was 59
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