U.S. Securities and Exchange Commission building in Washington, D.C.

Former accountants at the Public Company Accounting Oversight Board and former senior officials at accounting firm KPMG face civil and criminal charges over an alleged scheme to use leaked information about upcoming inspections of KPMG's audits.

The information was allegedly used by former KPMG officials to re-examine their work to avoid potentially negative findings by the oversight board. In a statement, Securities and Exchange Commission chairman Jay Clayton called the alleged conduct disturbing, going to the heart of the commission's disclosure-based regulatory regime.

“A company's financial statements provide investors with a wealth of material information, and independent audits give investors confidence that those statements can be trusted,” Clayton said. “The PCAOB is a critical part of the oversight of our local, national, and international capital markets, in that it helps to promote high-quality audits of the financial statements of issuers and broker-dealers, upon which investors rely.”

According to regulators, Brian Sweet left a supervisory position at the PCAOB to join KPMG at a time when the accounting firm was experiencing a high rate of deficiencies. In 2013 alone, nearly half of KPMG's audits were found deficient, according to the SEC.

During his exit, Sweet allegedly took confidential and sensitive information about inspections to give him a leg up at KPMG. He also kept up with inspectors at the board, who continued to provide him with confidential information. These leaks, from his future co-defendants, followed a pattern: the leakers would go on to seek employment at KPMG and a new leaker was identified internally.

When KPMG supervisors learned about Sweet's information, he was encouraged to share it, according to regulators. Three former KPMG officials—David Middendorf, KPMG's then-national managing partner for audit quality and professional practice; Thomas Whittle, KPMG's then-national partner-in-charge for inspections; and David Britt, KPMG's banking and capital markets group co-leader—allegedly worked with Sweet and another former PCAOB inspector then at KPMG to minimize the risk that inspectors would find faults with the audits of seven unnamed banks.

Participants in the scheme were allegedly told by Middendorf and Whittle to keep mum about the purloined information.

According to the SEC, Sweet settled the civil charges against him. He's agreed to being barred from appearing or practicing as an accountant before the commission. Sweet likewise pleaded guilty to criminal conspiracy charges of wire fraud and defrauding the federal government, according to a Department of Justice spokesman.

Sweet is represented by Orrick, Herrington & Sutcliffe partner Richard Morvillo.

“In stepping up and cooperating with the federal government, Mr. Sweet has taken a first step in addressing his mistakes, ” Morvillo said Monday.

The other five plaintiffs—Middendorf, Whittle, Britt, and two former PCAOB inspectors that joined Sweet at KPMG, Cynthia Holder and Jeffrey Wada—face civil Exchange Act and SEC rules violations, as well as parallel conspiracy charges.

On a conference call Monday, Steven Peikin, co-director of the SEC's enforcement division, described the alleged misconduct as “shocking and serious.”

“Our investigation is continuing, but the people we charged today have all been terminated by KPMG and the PCAOB,” Peikin said Monday.