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. [Bloomberg]
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Another Lawsuit Against Deloitte Is Back from the Dead
- Caleb Newquist
- November 2, 2009
Deloitte has another lawsuit on its hands that is seemingly back from the dead. After last week’s revival of the Washington Mutual shareholders’ lawsuit, a suit in New York has gained new life after Deloitte initially won a dismissal.
The plaintiff in the case, Symbol Technologies, is proving tenacious:
…the panel found that Symbol Technologies had sufficiently alleged that the “continuous representation” exception to the statute of limitations and the company’s amended complaint “trigger[ed]” the “adverse interest” exception to the in pari delicto doctrine.
“Symbol’s pleading is sufficient to establish that the parties mutually contemplated that Deloitte’s work and representation for each audit year would continue after the issuance of the audit opinion/report and, therefore, the continuous representation doctrine applies,” Justice Leonard B. Austin wrote for the 4-0 panel in Symbol Technologies v. Deloitte & Touche, 2008-06642.
He later added, “In its amended complaint, Symbol set forth sufficient allegations that members of its senior management committed accounting fraud for their own benefit and totally abandoned its interest, thereby triggering the adverse interest exception.”
Nothing too fancy. Just a good, old-fashioned case of senior management fraud not being detected by the auditors:
Symbol’s lawsuit against its former auditing firm stems from an accounting-fraud scandal at Symbol that culminated with the technology giant agreeing to pay the Securities and Exchange Commission $37 million and shareholders an additional $100 million.
The SEC had charged Symbol, a Long Island, N.Y.,-based supplier of mobile information systems, and 11 of its former executives with numerous fraudulent accounting practices that together overstated the company’s reported revenue for the fiscal years of 1998 through 2001 by more than $230 million and its pre-tax earnings by more than $530 million.
The fraud resulted in overpayments to Symbol’s senior management of more than $100 million.
At least eight former Symbol executives have pleaded guilty to various charges stemming from the fraud. The company’s former chief executive, Tomo Razmilovic, remains a fugitive, living in Bussevik, Sweden.
Symbol sued Deloitte & Touche, now known as Deloitte, in November 2005, alleging the “Big Four” auditor had failed to detect the fraud. The company’s complaint does not specify the amount of damages sought.
The amount of damages being sought by Symbol hasn’t been disclosed but you’d figure Deloitte could cough up $137 mil just to put the company back to square one. But no, Deloitte is as equally determined, saying ‘the action is without merit and intends vigorously to defend this matter’.
Sorry. With a sub-par year in revenues and breaking ground on the new Animal House, Big D can’t spare the change. We’ll see you in another ten years when this thing is finally settled.
Symbol Technologies’ Massive Malpractice Action Against Deloitte Is Reinstated [New York Law Journal vi Law.com]
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(UPDATE 2) SEC Charges Deloitte Tax Partner with Insider Trading
- Caleb Newquist
- December 1, 2010
~ Update includes clarification of partner’s employment status and statements from accused’s attorneys via MarketWatch.
~ Update at circa 7:20 pm ET includes statement from Deloitte
If you thought all this insider trading fun was just for hedge funds you would be sorely mistaken. Deloitte seems to have another case of a partner who can’t seem to control himself when he gets some insider info. Earlier this year, former Deloitte Vice Chairman Tom Fla > shelled out $1.1 million to settle charges with the SEC.
This time around, it’s still a family affair – husband, wife, wife’s sister and brother-in-law job – and it went overseas:
The Securities and Exchange Commission today charged a former Deloitte Tax LLP partner and his wife with repeatedly leaking confidential merger and acquisition information to family members overseas in a multi-million dollar insider trading scheme.
The SEC alleges that Arnold McClellan and his wife Annabel, who live in San Francisco, provided advance notice of at least seven confidential acquisitions planned by Deloitte’s clients to Annabel’s sister and brother-in-law in London. After receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan’s clients. His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans. Their insider trading reaped illegal profits of approximately $3 million in U.S. dollars, half of which was to be funneled back to Annabel McClellan.
The UK Financial Services Authority (FSA) has announced charges against the two relatives — James and Miranda Sanders of London. The FSA also charged colleagues of James Sanders whom he tipped with the nonpublic information in the course of his work at his London-based derivatives firm. Sanders’s tippees and clients made approximately $20 million in U.S. dollars by trading on the inside information.
So not a bad haul. The kicker is, Annabel was also employed at Deloitte, working in the London, San Jose and San Francisco offices. The McClellans provided information to the Sanders on several companies including Kronos, Inc., aQuantive, Inc. and Getty Images.
The SEC brass gave their standard scolding. First, Enforcement Chief, Robert Khuzami, “The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong.”
And San Fran Director Marc Fagel, “Deloitte and its clients entrusted Arnold McClellan with highly confidential information. Along with his wife, he abused that trust and used high-placed access to corporate secrets for the couple’s own benefit and their family’s enrichment.”
But the real story here is the second instance of insider trading charges against a Deloitte partner this year. The firm successfully sued Tom Flanagan back in January but you have to wonder if there isn’t some flaw with the firm’s internal oversight. Not long after the Flanagan suit, we reported on the 475 reprimands for internal noncompliance in 2009. Those reprimands did not mention insider trading specifically but over 200 of them were related to independence violations. Pattern? You can weigh in below.
Anyone with any knowledge on this story is invited to get in touch with us. as it is not clear if there has been any internal repercussions yet. Messages (including voicemail, carrier pigeon and morse code) left with Deloitte have not been returned (see statement below).
UPDATE: McClellan’s attorneys are not amused by the SEC’s little stunt:
Lawyers for Arnold McClellan denied charges Tuesday by the Securities and Exchange Commission that the former Deloitte Tax LLP partner was involved in a big insider trading scheme. “Arnold McClellan denies the SEC’s claims and will vigorously contest them,” Elliot Peters and Christopher Kearney of Keker & Van Nest LLP said in a statement on behalf of McClellan. “He did not trade on insider information, and there will be no evidence that he passed along any confidential information to anyone.” McClellan “had no financial incentive to commit the actions alleged,” the lawyers added. “He is a conscientious, law-abiding professional with a 23-year unblemished track record of client service at Deloitte to prove it. We will see the SEC in court.”
And just to clarify, McClellan is no longer with Deloitte, leaving the firm in June of this year. Deloitte spokesman Jonathan Gandal emailed us the firm statement (see below) still hasn’t returned our call (busy day, right?) but managed to give a statement to and was quoted by Reuters, saying that he was “shocked and saddened” by the allegations and “If the allegations prove to be true, they would represent serious violations of our strict and regularly communicated confidentiality policies.”
UPDATE 2: Here is the full statement from Deloitte:
“We are shocked and saddened by these allegations against our former tax partner and members of his family. If the allegations prove to be true, they would represent serious violations of our strict and regularly communicated confidentiality policies. Deloitte is committed to safeguarding non-public client information and has cooperated with the SEC throughout its investigation. The SEC does not allege any wrongdoing by Deloitte in this unfortunate matter.”
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Unfounded Crackpot Theory of the Day: Did Joe Echevarria Want to Stick It To Deloitte?
- Adrienne Gonzalez
- August 26, 2014
We've clearly got an Above Top Secret member hanging around the tip box this afternoon: […]