Cynthia Holder, a former PCAOB inspection leader and executive director at KPMG US has been jailed for eight months after she was found guilty of stealing confidential information regarding upcoming Public Company Accounting Oversight Board (PCAOB) inspections.
The United States Attorney for the Southern District of New York sentenced Holder to 8 months in federal prison for participating in a scheme to defraud the Securities and Exchange Commission (the “SEC”) and 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.
According to the allegations contained in the indictment filed against Holder and statements made in related court filings and proceedings:
Between 2015 and 2017, Holder and her co conspirators Former PCAOB associate director and later director at KPMG Brian Sweet and PCAOb employee Jeffrey Wada, along with KPMG’s then-national managing partner for audit quality and professional practice; Thomas Whittle, KPMG’s then-national partner-in-charge for inspections, and another high-level partner at the firm, David Britt, 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.
It claims after Sweet began employment at KPMG, but while Holder was still employed by the PCAOB, she fed Sweet confidential PCAOB information about certain pending inspections. She also did so while simultaneously seeking employment at KPMG and also continued to work on KPMG inspections at the PCAOB.
Once she secured a job at KPMG, Holder stole valuable confidential information on her way out of the PCAOB and then passed it on to Sweet, her new boss at KPMG.
Middendorf, Whittle, Sweet, and others then agreed to launch a stealth program to “re-review” the audits that had been selected. In order to cover up their illicit conduct, the KPMG engagement partners were given a false explanation for the re-reviews. The stealth re-review program allowed KPMG to double-check its audit work, 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 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 on to Holder. At the same time, Wada provided Holder with his resume and sought her assistance in helping him to acquire employment at KPMG.
Sweet then shared the preliminary inspection selections provided by Wada with Whittle and Britt, while noting 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 2017, a KPMG partner who received early notice that her engagement was on the confidential 2017 inspection list reported the matter, as a result of which KPMG’s Office of General Counsel launched an internal investigation. Thereafter, Holder and Sweet took a number of steps to destroy or fabricate evidence relevant to the investigation.
In addition to a prison term, Holder, 53, of Houston, Texas, was sentenced to two years of supervised release.