Don’t get out those orange prison jumpsuits just yet for former KPMG partner David Middendorf and former PCAOB inspections leader Jeffrey Wada. The two men are asking a Manhattan federal court to throw out their wire fraud convictions or grant them a new trial, saying the government didn’t provide enough evidence to support the guilty verdict and didn’t prove they acted willfully, according to Law360.
A jury on March 11 convicted Middendorf, former national managing partner for audit quality and professional practice at KPMG, on three counts of wire fraud and conspiracy to commit wire fraud, while Wada was convicted on two counts of wire fraud and conspiracy to commit wire fraud, for their roles in an information-stealing scheme in which PCAOB insiders fed KPMG executives secret plans on which of the Big 4 firm’s public company audits the regulator would be inspecting.
Their legal fight continues to center on their belief that the lists of which audits of KPMG’s would be inspected by the PCAOB are not considered “property” under the wire fraud statute; therefore, their wire fraud convictions should be tossed, according to a Law360 report.
In Wada’s words, the lists are “intangible features of the PCAOB’s regulatory mission.”
However, prosecutors strongly disagree:
“The evidence showed that the inspection lists had significant value to the PCAOB, that the PCAOB considered the information to be confidential, and that the PCAOB took steps to treat the information as confidential,” prosecutors said.
The government pointed to trial testimony that the lists took thousands of hours of employee time to create. PCAOB employees testified that the lists were kept secret and they were made to agree to an ethics code that prohibited leaking confidential info.
Middendorf’s and Wada’s legal teams have said their clients’ cases are similar to Cleveland v. U.S., in which the U.S. Supreme Court ruled that state and municipal licenses, such as those for alcoholic beverages, that have not yet been issued don’t rank as “property” under federal mail fraud laws; therefore, an applicant can’t be prosecuted for mail fraud for obtaining a license through deceptive means.
But according to Law360, the judge in U.S. v. Middendorf et al, U.S. District Judge J. Paul Oetken, had already shot down that argument from the defendants last July in a ruling on a motion to dismiss the case, when he said “while the licenses in Cleveland were not property before they were doled out …, the confidential PCAOB information that the scheme targeted was property before it was leaked.”
After Middendorf and Wada also claimed that the government’s evidence was insufficient, prosecutors pulled out some evidence from the trial; for example, Middendorf telling Thomas Whittle, former national partner-in-charge for inspections at KPMG, who testified against Middendorf during the trial, to “get that list” from a PCAOB insider (most likely Wada), according to Law360.
Middendorf, 54, and Wada, 43, are expected to be sentenced in August.
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