Herbalife trading halted after auditor KPMG reveals alleged insider trading

A partner at top accountancy firm KPMG has been sacked after giving insider tips to an undisclosed investor, it emerged Tuesday.

Shares in Herbalife, the controversial nutrition company, were halted minutes after US stock markets opened Tuesday as the company disclosed the alleged breach by one of KPMG's former partners.

Trading in shares in the footwear firm Skechers, another KPMG client, were also suspended. Neither the company nor KPMG were immediately available for comment.

KPMG resigned as Herbalife's auditor Monday after firing a senior partner.

"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," the company said in a statement.

KPMG disclosed late on Monday that it had fired a partner in its Los Angeles office after it emerged the employee had given information on KPMG clients to an undisclosed individual who then traded shares in those companies. But it did not name the companies.

"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 firm said in a statement Monday.

The disclosure is a major reputational blow to the top accountancy firm and comes amid a crackdown by US authorities on insider trading. Federal prosecutors are still pursuing associates of Raj Rajaratnam, founder of the Galleon hedge fund, now serving 11 years on insider dealing charges.

The suspension comes as Herbalife 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 the company down.

At the same time, rival billionaire investors Carl Icahn and Daniel Loeb have made multimillion dollar bets that the company will survive and prosper.

Herbalife is 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.