July 20, 2018

Compliance with an SEC subpoena is not an option

SEC Not Amused By Deloitte’s Failure to Produce Documents Related to Company That Held Their Audit Workpapers Hostage

Remember Longtop Financial Technologies? Deloitte resigned as auditors of the Chinese company back in May after LFT took some actions that were, shall we say, unusual for an audit client. Among them, “interference by certain members of Longtop management in DTT’s audit process; and […] the unlawful detention of DTT’s audit files.” And there may be some financial statement fraud going on, to boot. What’s even slightly weirder is Deloitte’s resignt to Longtop’s Audit Committee that laid out the specifics:

[A]s a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

Right. The auditors-almost-taken-hostage situation. Quite a doozy, this one. Based on the history between Deloitte and Longtop, one would think that Green Dot would jump at any chance to exact a little revenge on these shady bastards. NOPE!


From the
crack squad at the SEC:

The Securities and Exchange Commission today filed a subpoena enforcement action against Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to the SEC’s investigation into possible fraud by the Shanghai-based public accounting firm’s longtime client Longtop Financial Technologies Limited.

According to the SEC’s application and supporting papers filed in U.S. District Court for the District of Columbia, the SEC issued a subpoena on May 27, 2011, and D&T Shanghai was required to produce documents by July 8, 2011. Although D&T Shanghai is in possession of vast amounts of documents responsive to the subpoena, it has not produced any documents to the SEC to date. As a result, the Commission is unable to gain access to information that is critical to an investigation that has been authorized for the protection of public investors.

“Compliance with an SEC subpoena is not an option, it is a legal obligation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The ability of the SEC to conduct swift and thorough investigations requires that subpoena recipients promptly comply with that legal obligation. Subpoena recipients who refuse to comply should expect serious legal consequences.”

Maybe the email/hand-written letter sent by carrier pigeon (whatever method of communication the Commission is using these days) got lost OR maybe no one at Deloitte Shanghai was in the translating mood that day but it seems slightly strange that Deloitte would just blow this off especially since Longtop screwed them 70 ways to Sunday. Of course these documents could show that Deloitte was really a bunch of pansies and we’re letting LFT run the show until the gross negligence got to the point that they simply couldn’t ignore it anymore. It’s anybody’s guess, really.

UPDATE: The Journal reports that Deloitte claims to be “caught in the middle of conflicting demands by two government regulators,” which could be seen as extremely convenient.

SEC Files Subpoena Enforcement Action Against Deloitte & Touche in Shanghai [SEC]
Court Filing [SEC]
Also see: S.E.C. Asks Court to Force a Release of Papers From China [NYT]