The SEC alleges that Scott London tipped Bryan Shaw with confidential details about five KPMG audit clients and enabled Shaw to make more than $1.2m (£750,000) in illicit profits trading ahead of earnings or merger announcements.
The two men had met at a country club several years earlier and became close friends and golfing partners. London said that he provided the inside information about his clients to help Shaw overcome financial struggles after his family-run jewellery business began faltering in the economic downturn.
In exchange for the illegal trading tips, Shaw paid London at least $50,000 in cash that was usually delivered in bags outside of his Encino, California jewellery store. Shaw also gave London an expensive Rolex watch as well as other jewellery, meals and tickets to entertainment events.
London, who worked at KPMG for nearly 30 years, recently informed the firm that he was under investigation by the SEC and criminal authorities for insider trading in the securities of several KPMG clients. The firm immediately terminated him.
Michele Wein Layne, director of the SEC's Los Angeles Regional Office, said: 'As a leader at a major accounting firm, London's conduct was an egregious violation of his ethical and professional duties.'
In a parallel action, the US Attorney's Office for the Central District of California has announced criminal charges against London.
According to the SEC's complaint, London was the lead partner on several KPMG audits including Herbalife and Skechers USA, and he was the firm's account executive for Deckers Outdoor Corp.
Therefore, London was able to obtain material, non-public information about these companies prior to their earnings announcements or release of financial results. Shaw grossed profits of more than $714,000 from trading based on confidential financial data about Herbalife, Skechers, and Deckers.
The SEC alleges that London also gained access to inside information about impending mergers involving two former KPMG clients - RSC Holdings and Pacific Capital.
The SEC's complaint charges London and Shaw with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a final judgment permanently ordering them to repay ill-gotten gains plus pay prejudgment interest and financial penalties.