Deloitte Loses Bid to Delay SEC Suit Over China Documents of its fraudulent client Longtop Financial Technologies

Deloitte Loses Bid to Delay SEC Suit Over China Documents

Deloitte Touche Tohmatsu CPA Ltd. lost a bid to delay a lawsuit brought by the U.S. Securities and Exchange Commission seeking documents in an investigation of the auditor’s former client Longtop Financial Technologies Ltd.

U.S. District Judge Gladys Kessler in Washington today rejected Shanghai-based Deloitte’s argument that the case should be put on hold while an administrative judge considers a separate case the regulator brought against the China-based affiliates of the Big Four accounting firms.

“There is no significant burden placed on Deloitte by requiring it to litigate these two very different proceedings simultaneously,” Kessler said.

The decision may quicken the pace of litigation over the Chinese documents sought by the regulator more than 22 months ago.

The Deloitte case has been on hold since August when the U.S. sought a resolution from Chinese regulators. Chinese law bans the removal offshore of audit papers, and foreign regulators aren’t allowed to work inside the country.Talks broke down, and the SEC moved to restart the case in December. The agency that month also brought an administrative action against D&T Shanghai, Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs, claiming they have refused to cooperate with accounting investigations into companies whose securities are publicly traded in the U.S.

Chinese Law

The auditors said Chinese law prevents them from complying with the SEC’s demands, hindering U.S. efforts to probe allegations of fraud.

D&T Shanghai resigned as Longtop’s auditor after discovering improprieties during the year ended March 31, 2011, according to the SEC. The SEC issued a subpoena for documents it said may contain basic information necessary to determine whether there was a fraud, who was behind it and how it was conducted.

The New York Stock Exchange delisted Longtop’s American depositary shares in August 2011.

Deloitte lawyers Michael Warden and Miles Ruthberg didn’t immediately respond to e-mail messages seeking comment on the ruling.

Deloitte sought to keep the case on hold until at least a judge in the administrative action has a chance to rule on requests to dismiss it filed by the accounting firms.

Deloitte’s Arguments

Deloitte argued in court filings and at an April 11 hearing that lifting the stay would put the court into the middle of an international dispute between China and the U.S. government.

The action might undermine a resolution to a three-year impasse over whether auditors can share work documents with regulators investigating possible accounting fraud at companies selling securities in the U.S., Deloitte said.

Delaying the case is an effort by Deloitte “to kick the can down the road” and prevent investigators from learning “what led to this massive financial fraud” with $1 billion in losses to investors, including some in the U.S., David Mendel, an SEC lawyer told Kessler during the hearing.

The judge said today that the SEC demonstrated that the only way it can obtain the documents needed for its Longtop investigation is through the federal court suit. Waiting for resolution of the administrative case, which doesn’t involve the Longtop probe, might take more than a year.

“The SEC has a responsibility to complete this investigation and pursue these documents in a timely fashion in the venue available to it,” Kessler wrote.

The case is U.S. Securities and Exchange Commission v. Deloitte Touche Tohmatsu CPA Ltd., 11-mc-00512, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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