A former KPMG leader has pled guilty to four counts of fraud and conspiracy in connection with an operation to subvert the regulatory inspection process.
Cynthia Holder, a former executive director at KPMG and a former inspections leader at the Public Company Accounting Oversight Board, will be sentenced in April. The four charges—two counts of wire fraud and two counts of conspiracy to commit fraud—carry a combined maximum sentence of 65 years in prison and as much as $1 million in fines.
Holder and five others were charged by both the U.S. Department of Justice and the Securities and Exchange Commission with a scheme to steal confidential inspection planning information from the PCAOB regarding which KPMG audits would be selected for inspection. That would give engagement partners an opportunity to review their work before inspectors would begin poring over audit files.
Brian Sweet, a former PCAOB inspection staffer who moved over to KPMG and reportedly helped hatch the plot, settled charges in early 2018. Three more former KPMG audit leaders, including David Middendorf, who was KPMG’s national managing partner for audit quality and professional practice, and Thomas Whittle, the firm’s former national partner-in-charge for inspections, along with another former PCAOB inspections staffer, are scheduled for trial in February.
Authorities say the information leak from the PCAOB to KPMG began with Sweet, who left the PCAOB to take a position at KPMG and immediately faced questions about the PCAOB’s inspection plans. Sweet was well equipped to field those questions, according to the allegations, having taken from the PCAOB inspection-related documents that included the list of audits the PCAOB planned to inspect in the board’s next inspection cycle.
Holder is accused of feeding further information to Sweet and then accepting a position of her own at KPMG. She then obtained inspection information from another PCAOB staffer, Jeffrey Wada, who had been passed over for a promotion and was also looking for a new opportunity at KPMG at the time, the DOJ says.
KPMG’s inspection results from the PCAOB have been among the worst for any of the largest, annually inspected firms. The timelines described in the enforcement actions would suggest the firm faced at least one complete inspection cycle and likely more than one while in possession of the illicit information. The PCAOB has not yet published a 2016 inspection report for KPMG, and it has not said when or whether it will ever publish the report.