The U.S. Securities and Exchange Commission filed an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to an investigation of its former auditing client Longtop Financial Technologies Limited.
D&T Shanghai hasn’t provided any documents to the SEC, which issued subpoenas to the firm on May 27, the agency said in a statement today, citing a filing in U.S. District Court in Washington. As a result, the SEC has been unable to access “critical” information in its probe of possible fraud at Longtop, the statement said.
Longtop, based in Hong Kong, said in May that D&T Shanghai quit because of errors in the company’s financial records. The SEC also began an investigation. In July, the SEC and Public Company Accounting Oversight Board met with counterparts in China to discuss cross-border oversight.
Today’s action “essentially is a battle between the SEC and Chinese regulators forcing D&T Shanghai to assert Chinese law as an explanation for why it cannot produce records,” Jacob Frenkel, a former SEC lawyer now with Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland, said in an interview. “Auditing firms know that the SEC has the right to subpoena and review and consider audit work papers. This is about bringing to a head the dispute over access to information relating to audits of Chinese companies.”
Fraud Examination
D&T Shanghai resigned as Longtop’s auditor after discovering numerous 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, according to the court filing.
“Compliance with an SEC subpoena is not an option, it is a legal obligation,” Robert Khuzami, head of the SEC’s enforcement division, said in a statement today. “The ability of the SEC to conduct swift and thorough investigations requires that subpoena recipients promptly comply with that legal obligation.”
Longtop shares started trading over the counter in August. They hadn’t changed hands since May, when the New York Stock Exchange imposed a halt. The SEC is seeking a court order directing D&T Shanghai to show cause why the court shouldn’t enter an order requiring the firm to produce documents responsive to the subpoena, according to the court filing.
A phone call after business hours to D&T Shanghai wasn’t answered. An e-mail to Wilfred Lee, public relations senior manager for Deloitte Touche Tohmatsu, wasn’t immediately returned.
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