We won’t know until June at the earliest how much prison time former KPMG executive director Cynthia Holder will get for her involvement in a scheme to steal confidential audit inspection information from the Public Company Accounting Oversight Board.
Holder was supposed to be sentenced in Manhattan federal court on April 5, but her sentencing was postponed for two months, according to a tweet from ALM Media legal reporter Jack Newsham.
— Jack Newsham (@TheNewsHam) April 5, 2019
Holder, a former FBI agent, is among four former KPMG executives and one former PCAOB staffer who either pleaded guilty or were convicted in the scandal. Holder 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 could face up to 20 years in prison.
Thomas Whittle, 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.
A Manhattan jury on March 11 convicted David Middendorf, national managing partner for audit quality and professional practice at KPMG, and 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.
KPMG partner Brian Sweet pleaded guilty to conspiracy and wire fraud charges in January 2018. 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.
Sweet and Whittle testified against Middendorf, whom they reported to. Holder did not testify.
Authorities said that Holder, Middendorf, Whittle, Sweet, and Britt were the beneficiaries of secret PCAOB audit inspection information that was leaked to them over the course of about two years.
Holder, who was a PCAOB inspections leader before joining KPMG in 2015, used her position with the audit regulator to share confidential information about certain pending inspections with Sweet, who she knew from his time as an associate director at the PCAOB. She did this while simultaneously seeking employment with KPMG.
The firm was coming off hideous inspection reports from the PCAOB in 2013 and 2014. In KPMG’s 2013 inspection report, the firm had deficiencies in 46% of audits inspected by the PCAOB; in 2014’s report, the PCAOB found deficiencies in more than half (54%) of audits inspected. So, the KPMG executives put a plan in place to cheat the regulatory system.
Once she left the PCAOB to become an executive director at KPMG, Holder took some more inspection information out the door with her and gave it to Sweet, her new boss.
In March 2016, Wada provided Holder, his former colleague at the PCAOB, with confidential information on certain PCAOB 2016 inspection selections. Holder passed this info along to Sweet, who then gave it to Middendorf, Whittle, and others.
In 2017, Wada allegedly read Holder a “grocery list” of about 50 stock ticker symbols, which represented the full confidential list of KPMG clients to be inspected by the PCAOB that year. Authorities said Wada was again willing to leak secret inspection information to Holder because he had just been passed up for a promotion at the PCAOB and was hoping this could help him land a job at KPMG.
But the scheme started to unravel in February 2017 when a KPMG partner in Chicago learned from Sweet that one of her audits was on the PCAOB inspection list and told her supervisor about it.
Sweet, Holder, Middendorf, Whittle, Britt, and Scott Marcello, a partner and the head of the KPMG’s audit practice, were fired in April 2017. Unlike the other five, Marcello was not indicted.