Accounting firm KPMG has resigned as the auditor for Herbalife (NYSE_HLF), a dietary supplements maker, and the shoe retailer Skechers (NYSE_SKX) after a rogue partner allegedly leaked information about the companies to someone who used it for insider trading.
KPMG said it has fired the partner and had no reason to believe there were any problems with the financial reports of the two companies. KPMG did withdraw its recent audit reports on both companies because it felt its independence had been compromised.
KPMG didn't reveal the partner's identity. It announced the dismissal in a statement late Monday in which it also said it was resigning as auditor for two companies that it didn't identify.
Herbalife and Skechers made their own announcements on Tuesday confirming that they were they companies involved. Skechers said KPMG told it that the ex-partner provided the inside information in exchange for money and is under federal investigation.
An SEC spokesman in Washington declined to comment.
KPMG sought to distance itself from the partner. In its statement, the firm said: "This individual violated the firm's rigorous policies and protections, betrayed the trust of clients as well as colleagues, and acted with deliberate disregard for KPMG's longstanding culture of professionalism and integrity."
Investors knew something was wrong when Herbalife shares failed to open along with the rest of the stock market Tuesday morning. Skechers did open for trading, but it was halted later in the morning.
Both stocks resumed trading later Tuesday. Herbalife fell $1.03, or 2.7 percent, to $37.36 in early afternoon trading. Skechers rose 53 cents, or 2.5 percent, to $22.04.
The development comes at an awkward time for Herbalife. Activist investor Bill Ackman has publicly attacked Herbalife, saying it is distorting the financial information it gives to investors. His rival Carl Icahn has vehemently disagreed and has increased his stake in the company. In February, the wrangling boiled over in public as Ackman and Icahn got in a shouting match on live television.
Herbalife has gone on the defensive against Ackman, disputing his characterization of the company and saying that Ackman wants to push the stock down for his own benefit.
Los Angeles-based Herbalife sells energy drinks and stress management pills and recruits people to work as independent sales staffers. On its website, it promises to "change people's lives" either by the chance to sell Herbalife products, or the chance to take them.
Skechers, which is based outside of Los Angeles, is a well-known shoe seller.(AP:NEW YORK)
By CHRISTINA REXRODE
AP Business Writer