KPMG resigns as auditor for Herbalife, Skechers


he accounting firm KPMG has resigned as the auditor for nutrition company Herbalife and shoe retailer Skechers after a rogue partner allegedly leaked information about the companies to someone who used it to trade stocks. (Patrick T. Fallon/Bloomberg)
April 9, 2013

The accounting firm KPMG has resigned as the auditor for nutrition company Herbalife and shoe retailer Skechers after a rogue partner allegedly leaked information about the companies to someone who used it to trade stocks.

KPMG said it fired the partner and has no reason to believe that there were any problems with the financial reports for Herbalife or Skechers.

Skechers said KPMG told it that the ex-partner provided the inside information in exchange for money and is under federal investigation. A spokesman for the Securities and Exchange Commission declined to comment. A message left for the U.S. attorney’s office in Los Angeles brought no response.

KPMG confirmed media reports that the fired partner was Scott London, the executive in charge of the firm’s audit practice in Southern California. It was not clear to whom he allegedly leaked information. There was no answer at a home phone number listed for London.

The development is a headache for Herbalife and Skechers. KPMG withdrew its recent audit reports of both companies because it felt that its independence had been compromised.

David Weinberg, chief operating officer and chief financial officer of Skechers, was spending Tuesday looking for a new auditor. He learned the news Monday afternoon when two KPMG employees came to tell him in person.

“I don’t think it’s catastrophic because we have the greatest confidence in the financial statements that were released and that he [the KPMG partner] acted alone,” Weinberg said.

Still, he called the news “an unfortunate development” as the company prepares to report first-quarter earnings, and he said he was shocked when he learned it. He said he didn’t know of anything he might do differently in hiring a new auditor: “I don’t know that it’s up to me to give them a polygraph test,” he said.

KPMG announced late Monday that it had fired a partner who had leaked private information about clients. It said it was resigning as auditor for two of its clients, but didn’t identify them.

Herbalife and Skechers made their own announcements Tuesday confirming that they were the companies involved.

KPMG sought to distance itself from the partner. In its statement, the firm said: “This individual violated the firm’s rigorous policies and protections, betrayed the trust of clients as well as colleagues, and acted with deliberate disregard for KPMG’s longstanding culture of professionalism and integrity.”

Investors knew something was wrong when Herbalife shares failed to open along with the rest of the stock market Tuesday morning. Skechers opened as normal, but it was halted later in the morning. Both stocks resumed trading later Tuesday, with disparate results. Herbalife fell 3.75 percent to $36.95, while Skechers rose nearly 2 percent to $21.91.

Los Angeles-based Herbalife sells energy drinks and stress-management pills and recruits people to work as independent sales representatives. On its Web site, it promises to “change people’s lives” — either by their selling Herbalife products or by taking them. Skechers, which is based outside Los Angeles, is a well-known shoe retailer.

— Associated Press

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