Cynthia Holder, a former inspections leader at the Public Company Accounting Oversight Board and former executive director at KPMG, pleaded guilty to scheming to defraud the PCAOB and the Securities and Exchange by getting confidential lists of which audit clients the PCAOB planned to inspect and giving the information to KPMG employees to improve the firm’s performance on inspections.
She pleaded guilty Tuesday in a federal district court in New York. Holder has been charged along with several other former KPMG and PCAOB employees, whose cases are still pending (see
The Justice Department pointed out that KPMG had fared poorly on several PCAOB inspections and in 2014 received approximately twice as many comments as comparable firms. By 2015, KPMG tried to improve its performance, in part by recruiting former PCAOB officials such as Holder and another PCAOB supervisor, Brian Sweet, to come work at KPMG.
Between 2015 and 2017, Holder and the other defendants worked to acquire confidential PCAOB information about which KPMG audits would be inspected. After Sweet started working for KPMG, but while Holder was still working at the PCAOB, she gave him confidential PCAOB information about some upcoming inspections, even as she was looking for a job at KPMG. Despite the conflict of interest, she continued to work on KPMG inspections at the PCAOB. Once she succeeded in getting a job at the firm, Holder took confidential information on her way out of the PCAOB and gave it to Sweet, her new supervisor at KPMG.
In March 2016, Holder also got confidential PCAOB 2016 inspection selections for KPMG from Wada, who was still working at the PCAOB but had recently been passed over for a promotion. Wada wasn’t responsible for KPMG inspections at the PCAOB, but according to prosecutors he was able to steal confidential information from the PCAOB and pass it along to Holder. She, in turn, provided the 2016 inspection selections to Sweet, who then passed them to Middendorf, Whittle and Britt. They agreed to launch a secret program to “re-review” the audits selected for PCAOB inspection. To cover up their conduct, Britt gave other KPMG engagement partners a false explanation for the re-reviews. The stealth re-review program enabled KPMG to double-check its audit work, fix up its work papers, and, in some cases, identify audit deficiencies or perform new audit work that hadn’t been done during the original audit.
Then in January 2017, Wada, who had again 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 to Holder. At the same time, Wada gave Holder his resume and asked her to help him get a job at KPMG. Sweet shared the preliminary inspection selections provided by Wada with Whittle and Britt, while pointing out that the information was only preliminary. Whittle’s response was to ask Sweet to confirm that they would get the final list as well.
In February 2017, Wada sent a text message to Holder, writing, “I have the grocery list. . . . All the things you’ll need for this year.” Wada also talked with Holder and gave her the full confidential 2017 final inspection selections. Once again she shared the stolen information with Sweet, who in turn shared it with Middendorf, Whittle and Britt. They told the engagement partners to pay extra attention to the audits ahead of the upcoming PCAOB inspections.
“Holder undermined the work of the SEC and the PCAOB by stealing confidential inspection information from her former employer, the PCAOB, and helping insiders at her new employer, KPMG, to cheat the regulatory system put in place to protect the investing public,” Manhattan U.S. Attorney Geoffrey S. Berman said in a statement. “This was a revolving door tainted by fraud and today we hold the defendant accountable for her conduct.”
In 2017, a KPMG partner who received early notice that an engagement was on the confidential 2017 inspection list reported the matter. In response, KPMG’s Office of General Counsel launched an internal investigation. After that, Holder and Sweet took steps to destroy or fabricate evidence related to the investigation. For instance, Holder deleted some text messages, emails and documents, and said she was going to purchase a “burner phone” so her conversations couldn’t be monitored. Sweet also burned evidence of the 2017 inspection list and gave a falsified version of the list to KPMG counsel.
Holder, 52, pleaded guilty to one count of conspiracy to defraud the United States, and faces up to five years in prison and a $250,000 fine, or twice the gross gain or loss from the offense. She also pled guilty to one count of conspiracy to commit wire fraud, which means up to 20 years in prison and a fine of up to $250,000 or twice the gross gain or loss from the offense; and two counts of wire fraud, which each carry a sentence of up to 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss. Sentencing is scheduled for April. The other defendants are scheduled to go on trial in February.
