Score:   1
Docket Number:   SD-NY  1:18-cr-00037
Case Name:   USA v. Lias et al
  Press Releases:
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that JEFFREY WADA, a former employee of the Public Company Accounting Oversight Board (the “PCAOB”), was sentenced today to nine months in prison for participating in a scheme to defraud the PCAOB by obtaining, disseminating, and using confidential lists of which KPMG audits the PCAOB would be reviewing so that KPMG could improve its performance in PCAOB inspections.  Wada was convicted of wire fraud charges in March 2019 following a month-long trial before U.S. District Judge J. Paul Oetken, who imposed today’s sentence. 

Manhattan U.S. Attorney Geoffrey S. Berman said:  “Jeffrey Wada violated not just the terms of his employment with the PCAOB but also the law when he provided confidential information about upcoming audit reviews to co-conspirators at KPMG.  Wada hoped to secure a job at KPMG.  What he got was a nine-month prison sentence.” 

According to the evidence presented at trial:

The PCAOB is a nonprofit corporation overseen by the SEC that inspects the audit work performed by registered accounting firms (“Auditors”) with respect to the financial statements of publicly traded companies (“Issuers”).  The PCAOB inspects the largest U.S. accounting firms on an annual basis.  As part of the inspection process, the PCAOB chooses a selection of audits performed by the accounting firm for a closer review, commonly referred to as an inspection.  Until shortly before an inspection occurs, the PCAOB does not disclose which audits are being inspected, or the focus areas for those inspections, because it wants to ensure that an Auditor does not perform additional work or modify its work papers in anticipation of an inspection.  Following the completion of an inspection, the PCAOB issues an Inspection Report containing any negative findings or “comments” with respect to both the specific audits reviewed and the accounting firm more generally. 

KPMG is one of the largest accounting firms in the world.  In recent years, KPMG fared poorly in PCAOB inspections and in 2014 received approximately twice as many comments as its competitor firms.  By at least in or about 2015, KPMG was engaged in efforts to improve its performance in PCAOB inspections, including but not limited to recruiting and hiring former PCAOB personnel.   

KPMG’s efforts to improve inspection results, however, were not limited to legitimate means.  Instead, between 2015 and 2017, KPMG executives worked to illicitly acquire valuable confidential PCAOB information concerning which KPMG audits would be inspected in an effort to game the system and improve inspection results. 

WADA was an Inspections Leader at the PCAOB, who was obligated to keep confidential the PCAOB’s nonpublic information.  WADA joined the conspiracy in the fall of 2015 and began passing confidential information to KPMG.  In March 2016, WADA provided Cynthia Holder, a KPMG employee, with confidential information on certain of the PCAOB’s 2016 inspection selections.  Holder, in turn, provided the 2016 inspection selections to Sweet, who passed them to KPMG executives David Middendorf, Thomas Whittle, and David Britt.  Middendorf, Whittle, Sweet, and Britt then agreed to launch a stealth program to “re-review” the audits that had been selected, and agreed to keep their stealth re-reviews within their “circle of trust.”  In order to cover up their illicit conduct, other KPMG engagement partners were given a false explanation for the re-reviews.  The stealth re-review program allowed KPMG to strengthen its work papers, and, in some cases, identify deficiencies or perform new audit work that had not been done during the live audit.

In January 2017, WADA, who had been passed over for promotion at the PCAOB, again stole valuable confidential PCAOB information, misappropriating a preliminary list of confidential 2017 inspection selections for KPMG audits and passing it on to Holder, referring to it in a voicemail as the “grocery list.”  At the same time, WADA provided Holder with his resume and sought her assistance in helping him to acquire employment at KPMG.  Sweet shared the preliminary inspection selections provided by WADA with Whittle, who in turn shared it with Middendorf, who approved its use to improve the audits on the list.

In February 2017, WADA texted Holder saying “I have the grocery list. . . . All the things you’ll need for the year.”  WADA then spoke to Holder and provided her with the full confidential 2017 final inspection selections.  Holder again shared the stolen information with Sweet, who shared it with Middendorf, Whittle, and Britt, so that it could be acted upon to improve the audits on the list. 

In 2017, a KPMG partner who received early notice that her engagement was on the confidential 2017 inspection list reported the matter to her supervisor.  The matter was ultimately reported to KPMG’s Office of General Counsel.    

*                      *                      *

In addition to a prison sentence, WADA, 55, of Tustin, California, was sentenced to three years of supervised release.  Restitution amount was deferred to a later date.   

Mr. Berman praised the investigative work of the United States Postal Inspection Service and also thanked the Securities and Exchange Commission. 

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Rebecca Mermelstein, Jordan Estes, Margaret Graham, and Martin Bell are in charge of the prosecution.

Docket (0 Docs):   https://docs.google.com/spreadsheets/d/1Z3RelpYwuQVpvcHE9sk00xw37XnwvL0zhsLcKMLPld4/edit#gid=0
  Last Updated: 2020-11-01 19:26:50 UTC
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Data imported from FJC Integrated Database
Magistrate Docket Number:   SD-NY  1:17-mj-07528
Case Name:   United States v. Cervantes
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Description: Statistical year ID label on data file obtained from the AOUSC which represents termination year
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Data imported from FJC Integrated Database
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