KPMG said it had fired a partner in its Los Angeles office after the employee had passed on information about the firm's clients to an individual who profited from the disclosures.
The firm did not identify the clients, but the footwear company Skechers and the controversial nutritional company Herbalife suspended trading in their shares and said KPMG had resigned as their auditors because of the allegations.
Skechers said it had been informed by KPMG that its "lead audit engagement partner" on the Skechers account is "under federal investigation for providing non-public information of his clients to a third party in exchange for money. The third party then used that information to trade stocks of several west coast companies."
Herbalife said: "KPMG stated it had concluded it was not independent because of alleged insider trading in Herbalife's securities by one of KPMG's former partners who, until April 5, 2013, was the KPMG engagement partner on Herbalife's audit."
KPMG has not confirmed the federal investigation, but in a statement on Monday, it said: "Late last week, we were informed that the partner in charge of KPMG's audit practice in our Los Angeles business unit was involved in providing non-public client information to a third party, who then used that information in stock trades involving several west coast companies. The partner was immediately separated from the firm."
The disclosure is a major reputational blow to KPMG. Chicago securities attorney Andrew Stoltmann called on the Securities and Exchange Commission (SEC) to charge KPMG over the latest allegations, which he claimed were not an isolated event.
"In 2003, KPMG agreed to pay $125m to settle a lawsuit stemming from the firm's audits of the drug chain Rite Aid. In 2004 KPMG agreed to pay $115m to settle lawsuits stemming from the collapse of software company Lernout and Hauspie Speech Products. In 2005 KPMG admitted to criminal wrongdoing in creating fraudulent tax shelters to help wealthy clients avoid $2.5bn in taxes and agreed to pay $456m in penalties in exchange for a deferred prosecution with federal prosecutors."
Stoltmann said KPMG's "pattern of behaviour" should raise a red flag for regulators. "It appears as though the firm's compliance department missed potential criminal conduct by yet another employee and because of this, at a minimum, the SEC should bring significant civil charges against the company," he said.
US authorities have been cracking down on insider trading recently. Federal prosecutors are still pursuing associates of Raj Rajaratnam, founder of the Galleon hedge fund, now serving 11 years on insider dealing charges.
The allegations were also a blow for Herbalife, which is locked in a bitter fight with hedge-fund manager Bill Ackman, who has called the company "the best managed pyramid scheme in the history of the world".
Ackman has called it his "patriotic duty" to bring down Herbalife, an international multi-level marketing company that sells nutrition, weight-loss and skin-care products. It operates in 88 countries through a network of approximately 2.7m independent distributors.
Last year, Ackman claimed that 1.9 million Herbalife salespeople had failed to make money since the company was founded 32 years ago. Recruits each paid about $2,000 for supplies and training, Ackman calculated, and had collectively lost $3.8bn.
Herbalife chief executive Michael Johnson had his salary cut by 58% in 2012, according to regulatory filings. Johnson, a former Disney executive, was paid $10.3m in 2012, down from $24.6m in 2011.
Rival billionaire investors Carl Icahn and Daniel Loeb have made multimillion-dollar bets that the company will survive and prosper.
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