September 20, 2019

Ex-KPMG Partner’s Fraud Trial: David Middendorf and Jeffrey Wada GUILTY!

A Manhattan jury on Monday convicted former KPMG partner David Middendorf and former Public Company Accounting Oversight Board staffer Jeffrey Wada for their roles in one of the biggest accounting scandals in recent years.

Law360 court reporter Jack Newsham broke the news on Twitter earlier this afternoon:

Newsham wrote that the verdict could indicate that jurors rejected prosecutors’ argument that by defrauding the PCAOB, Wada and Middendorf had also defrauded the Securities and Exchange Commission, which oversees the accounting regulator.

Middendorf, 54, and Wada, 43, are expected to be sentenced in August, according to Newsham.

In a statement, Geoffrey Berman, U.S. attorney for the Southern District of New York, said: “As this trial revealed, David Middendorf and Jeffrey Wada were two links in a chain of corruption, where confidential PCAOB inspection information was taken at the behest of high-level executives at KPMG so they could cheat on inspections. This confidential information was critical to the PCAOB and its core mission of ensuring audit quality. As a unanimous jury found, the actions of Middendorf and Wada defrauded the PCAOB.”

Nelson Boxer, an attorney for Middendorf, said in a statement that while he was happy with the one not guilty verdict on the charge of conspiracy to defraud the U.S. government, overall he was “very disappointed with the result.”

“We’ve been saying from the outset, in our court filings and arguments, that what occurred here was not a wire fraud, and we intend to continue to vigorously press that argument on appeal,” Boxer said.

Justin Weddle, an attorney for Wada, declined to comment.

David Middendorf

Authorities said that Middendorf and four of his former KPMG colleagues—Thomas Whittle, Brian Sweet, David Britt, and Cynthia Holder—were the beneficiaries of secret PCAOB audit inspection information that was leaked to them over the course of about two years.

The five KPMG executives were accused of using the confidential information on which KPMG clients’ audits the PCAOB would be reviewing so the Big 4 firm could get a better grade on regulatory inspections.

Wada was accused of leaking internal PCAOB documents and tips about its inspection plans to Holder, his former colleague at the PCAOB, who passed that information along to Sweet and the others at KPMG.

KPMG declined to comment on the verdict. In a statement emailed to Going Concern, PCAOB Chairman William Duhnke said: “Maintaining the integrity of the PCAOB’s confidential information is critical to fulfilling our statutory mission. The misconduct that led to the trial directly contradicts the public’s expectations of the auditing profession, as well as the mission, vision, and values of the PCAOB.”

The SEC did not respond to a request for comment.

Sweet, Holder, and Whittle all pled guilty to conspiracy and wire fraud charges. Sweet and Whittle, who took plea deals, testified against Middendorf, whom they reported to. Holder did not testify.

Britt is expected to go on trial in September.

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