Desmond
Scott Eells/Bloomberg via Getty ImagesDesmond "Des" Walsh, president of Herbalife Ltd.
By Martinne Geller

April 9 - KPMG resigned as the auditor of Herbalife Ltd (HLF) after one of its senior partners engaged in insider trading in Herbalife stock, the nutritional products company said on Tuesday.

Herbalife said in a statement that KPMG's resignation had nothing to do with its accounting practices or the integrity of its management – issues called into question by the high-stakes drama between hedge fund titans Bill Ackman and Carl Icahn over the company.

KPMG said late on Monday it had resigned as the outside auditor of two of its clients because of the actions of a senior partner, who was in charge of the audit practice in its Los Angeles business unit. It said the unidentified partner provided inside information about its clients to someone who had used that information in stock trading.

Herbalife is based in Los Angeles. The other company has not yet been confirmed.

KPMG is the smallest of the Big Four global accounting and audit firms. It reported 2012 revenue of $23 billion, up 1.4 percent from the year before. The other three firms are PricewaterhouseCoopers, Deloitte and Ernst & Young. All are U.S.-based and operate affiliate networks around the world.

The outgoing chairman of the U.S. Securities and Exchange Commission, Elisse Walter, declined to comment on KPMG's announcement when asked by Reuters on Tuesday.

Ackman and Icahn were not immediately available to comment on the news.

Any controversy over KPMG's dealings could hurt the firm's reputation.

In 2005, KPMG narrowly avoided a criminal indictment by agreeing to pay $456 million in a deferred prosecution settlement with U.S. authorities over its sale of tax shelters. Three years earlier, smaller rival Arthur Andersen collapsed over its auditing work for energy company Enron Corp.

In addition, KPMG partners were the only ones so far to have been sued by the SEC in connection with the global financial crisis.

Bill Ackman, who has a short position in Herbalife, suffered a blow on Monday when the J.C. Penney Co Inc (JCP) chief executive he handpicked, Ron Johnson, was ousted by the board.

Herbalife shares were down 1.9 percent at $37.66 on Tuesday morning on the New York Stock Exchange.

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