A legal trial that begins Monday might shed extra gentle on a high-profile scandal at KPMG LLP: an effort to assist the Huge 4 accounting agency look higher to its regulator that prosecutors say broke the regulation.

The Red Tea Detox

David Middendorf, a former high-ranking companion at KPMG, is charged with collaborating in a scheme to improperly receive confidential details about which of KPMG’s audits the Public Firm Accounting Oversight Board deliberate to assessment in its annual inspections of the agency.

The concept of the “steal the examination” scheme, prosecutors say, was to permit KPMG to raised put together for the inspections, a carefully watched report card of the agency’s efficiency that it had finished poorly on up to now.

Mr. Middendorf is going through prices of conspiracy and wire fraud in federal courtroom in Manhattan, together with a second defendant, Jeffrey Wada, a former PCAOB inspections chief. They’ve pleaded not responsible. Attorneys for each males declined to remark.

The trial might unearth new details about a scandal that has dogged KPMG when it is usually underneath hearth for failing to search out issues at audit shoppers reminiscent of

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Normal Electrical
Co.

and

Wells Fargo

& Co.

The trial is predicted to final about 4 weeks. Among the many witnesses set to testify are present and former officers from the PCAOB and the Securities and Change Fee, which oversees the PCAOB. Prosecutors have indicated they plan to name Wes Bricker, the SEC’s chief accountant, and Helen Munter, the PCAOB’s former director of inspections, as witnesses.

KPMG shortly fired Mr. Middendorf and different companions who had been accused of being concerned when the data leak got here to gentle in 2017. The agency has condemned their alleged conduct and says it has cooperated with authorities and overhauled its management and inner processes. It hasn’t been charged with any wrongdoing. A KPMG spokesman declined to remark additional.

Two yearly PCAOB inspections of KPMG had been compromised by the agency’s advance entry to the data, in accordance with the PCAOB. When it issued its lengthy delayed reviews on these inspections final month, the PCAOB indicated there have been critical deficiencies in almost half the KPMG audits it inspected.

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The board additionally mentioned it changed some KPMG audits it initially reviewed with new ones as a result of KPMG knew upfront these audits could be inspected. The brand new audits had a a lot larger charge of issues, illustrating the extent to which the advance entry to data might have helped KPMG. A PCAOB spokeswoman declined to remark additional.

These points might come up on the trial. Throughout a latest courtroom listening to, Nelson Boxer, an legal professional for Mr. Middendorf, raised questions in regards to the PCAOB’s timing in releasing the reviews shortly earlier than the trial and in regards to the board’s emphasis on the audits it changed with new ones that appeared extra damning to KPMG. “I believe there can be proof to clarify that that comparability shouldn’t be a good comparability,” he mentioned in the course of the listening to.

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Mr. Middendorf led the audits of KPMG shoppers reminiscent of

Dwelling Depot
Inc.

and

J.C. Penney
Co.

earlier than he grew to become the agency’s nationwide managing companion for audit high quality {and professional} apply, the place he was instantly accountable for coping with the PCAOB.

Three different defendants have pleaded responsible, together with Thomas Whittle, a former KPMG companion who helped oversee audit high quality on the agency, and Brian Candy, a former PCAOB worker who later joined KPMG. Each are anticipated to testify on the trial.

One other former KPMG companion who was charged, David Britt, has had his case severed from the others and can go on trial in October.

Write to Michael Rapoport at [email protected]

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