Newspaper article International Herald Tribune

S.E.C. Investigating Chinese Company Linked to Deloitte

Newspaper article International Herald Tribune

S.E.C. Investigating Chinese Company Linked to Deloitte

Article excerpt

Deloitte Touche Tohmatsu CPA of Shanghai ran afoul of U.S. regulators when it refused to give them audit work papers on an unidentified company; it provided papers to Chinese regulators.

The U.S. Securities and Exchange Commission is investigating another Chinese client of the Shanghai affiliate of Deloitte, the large accounting group, on suspicion of accounting fraud. It has not identified the company, but an official said the investigation, which began in 2010, was continuing.

The S.E.C. has filed an administrative action against Deloitte Touche Tohmatsu CPA of Shanghai for its refusal to provide audit work papers related to the unidentified company. Deloitte said it had provided the work papers to Chinese regulators but could not provide them to U.S. regulators under Chinese law.

The case, disclosed Wednesday, will be heard by an S.E.C. administrative law judge under a provision of the Sarbanes-Oxley law that requires auditors of foreign companies whose securities are registered in the United States to provide audit work papers when asked to do so by the S.E.C. It appears to be the first time that provision has been cited in an enforcement action.

Under the law, penalties could range from censoring the Chinese affiliate to barring it from certifying the audits of companies whose securities are traded in the United States.

Scott Friestad, an associate director in the S.E.C.'s enforcement division, declined to say what penalties the S.E.C. might seek but said, "We will be mindful of avoiding sanctions that have unintended consequences." That could mean the S.E.C. would not seek to bar audits by other Deloitte affiliates in which the Chinese affiliate participated but was not the lead auditor.

It is the second S.E.C. action against the Shanghai affiliate of the firm. Last year, the S.E.C. asked a U.S. judge to uphold a subpoena demanding that Deloitte provide work papers stemming from its audit of Longtop Financial, a company whose stock price collapsed after Deloitte discovered fraud there, although the firm had missed it in previous audits.

The S.E.C. has also filed civil fraud accusations against Longtop.

That case is still pending. Deloitte asked the court to quash the commission action and force the S.E.C. to go through The Hague Convention process to seek foreign documents.

Mr. Friestad said in an interview that the investigation into the client in the new case was continuing but had not yet resulted in any charges being filed. …

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