Last week, we discussed the case of Scott London, KPMG’s Chief of Audit Practice, for their southwestern office. Mr. London has been charged with insider trading violations for disclosing confidential information in regard to several of KPMG’s publicly traded companies…clearly a business ethics violation and an 
illegal act. He told a friend things about those companies that were about to affect their stock prices. The friend then took the information before the general public knew and bought stock in the companies.
Over three years, the friend made more than $1 million trading on the information given to him by Mr. London and he, in turn, thanked the Chief of Audit Practice in the form of large bundles of $100 bills along with a Rolex watch and concert tickets valued in the tens of thousands of dollars.
The FBI caught the friend, and in turn, the friend helped the FBI snare Mr. London.
What I Know
I don’t know how much the Chief of Audit Practice for a major accounting firm might make. Given the level of responsibility (he was a partner), the 500 employees he supervised and the location of Southern California, his salary must have been very substantial.
He had status certainly; he lived in an affluent area of Southern California and he was a family man that many must have envied.
Yet, there are FBI pictures all over the internet of Mr. London accepting cash in parking lots and on street corners, not much different than a thief receiving money for a truck full of stolen televisions.
When Mr. London was caught, he profusely apologized; he expressed his sorrow to just about anyone who would listen.
In an article appearing in the Los Angeles Times (April 11, 2013), it stated:
“The Agoura Hills resident [London] intends to plead guilty next month, defense attorney Harland Braun said. He said London still can’t explain why he violated his clients’ trust for money that he didn’t need.
‘It’s just inexplicable,’ Braun said. ‘I’m sure somewhere deep in his psyche; someone might be able to explain it, because things don’t happen without a cause.’”
What I Teach in My Classes
I am neither a judge nor jury, but having walked a similar road to the one Mr. London is about to walk, and now devoting my life to helping people understand the consequences of their ethical indiscretions, I believe I can offer some insights as to what happened. We will call these insights “Need, Opportunity and Rationalization.”
Need
In terms of need, the quote above points out (or at least London’s lawyer points out) that London didn’t need the money. I don’t think that’s much of a comfort. In fact, it’s an even more profound character flaw.
If there was sickness in the family and no insurance, or if there were massive gambling debts or perhaps the need to hide a dalliance, we might understand what it was that led to this behavior and down-fall. So far, nothing has been mentioned along any of those lines.
We know that the ill-gotten gains were used for very high-priced concert tickets and for an expensive watch to be flaunted about for the world to see.
It would suggest that the need might stem from one of the most basic drives of them all: the need to get away with something. The behavior might have been his way of showing that the rules apply to any one of the 500 people who worked for the Chief of Audit Practice at KPMG, but not to the Chief himself.
Who hasn’t been tempted to get away with something? But being tempted, and doing something so serious as to throw away a career, credentials, reputation, family and friends, shows an utter disregard for anything but self – and for anything ethical.
Opportunity
Working closely with publicly-traded companies as an auditor is being entrusted to the most confidential financial information the company may possess. It is a professional and tacit agreement between a CPA and CFO that nothing will come in the way of deep trust.
The news may be good or bad but the expectation was that Mr. London would hold company secrets “sacred.” He did not. He saw, instead, an opportunity to tell a friend about confidential information and to advise the friend to trade on that information for the fun or thrill of it.
Rationalization
If we are in a situation where we need to get away with something because our ego tells us to do so, and if we have the opportunity to retrieve important confidential information, we can rationalize just about anything we do if we’re caught.
In the same Los Angeles Times article we quote above, Mr. London appears to be doing some pretty fancy footwork:
“The criminal case filed Thursday in federal court in Los Angeles conflicted with the version a contrite London gave reporters earlier this week; London said that the information he gave his buddy was sparse and that his involvement in the stock trades was minimal.”
The quote is disturbing as it is a statement of rationalization and relativity.
Instead of maintaining his sincere apology and taking his medicine, we get an insight into Mr. London’s character. His first instinct was to apologize, but his second was to rationalize. He is still defiant.
His current, “re-thinking of the situation” position is one that states something like this:
“After thinking about my apology, what I did wasn’t so bad. In fact, it was no big deal at all. I didn’t share much information with my friend and what I did say really didn’t have much of a bearing on how the stocks performed.”
Then why, I might ask did you accept bundles of cash and other perks?
If I were to sit in judgment in a court of law, I might want to ask Mr. London that if I were on his staff of 500, and if I were to trade on insider information, if he would be much bothered by it? Suppose all 500 of us were to do so?
I believe he might not like the idea.
Three factors: Need, Opportunity and Rationalization have led to Mr. London’s indiscretions, however unlike many other cases I have witnessed; he is still hedging his bets under the banner of arrogance.
He is in for a rough ride.
If you worked for Mr. London or have some insight into his NEED or RATIONALIZATION feel free to share. YOUR COMMENTS ARE WELCOME!
