SEC files enforcement action against Deloitte's China un it over Longtop
09 September 2011
The US Securities and Exchange Commission has filed an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd after the company failed to produce documents pertaining to an investigation of its former auditing client Longtop Financial Technologies Limited.
According to the agency's statement released today D&T Shanghai had failed to provide any documents to the SEC, which issued subpoenas to the firm on 27 May, citing a filing in US District Court in Washington. The SEC had therefore not been able to access ''critical'' information in its probe of possible fraud at Longtop, the statement said.
Hong Kong-based Longtop, said in May that D&T Shanghai quit due to errors in the company's financial records. Meanwhile the SEC also initiated an investigation and in July, the SEC and Public Company Accounting Oversight Board met with counterparts in China to discuss cross-border oversight.
According to Jacob Frenkel, a former SEC lawyer now with Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland, today's action was essentially a battle between the SEC and Chinese regulators forcing D&T Shanghai to assert Chinese law as an explanation for why it could not produce records.
He added that auditing firms knew that the SEC had the right to subpoena and review and consider audit work papers. He said this was about bringing to a head the dispute over access to information relating to audits of Chinese companies.
D&T Shanghai resigned as Longtop's auditor after it came across numerous improprieties during the year ended 31 March 2011, according to the SEC. The SEC issued a subpoena for documents it said may contain basic information necessary to for determination of a possible fraud, and who could be behind it as also how it was conducted, according to the court filing.