FAQ on SEC
Q 1: What is SEC’s Action Seeking PRC Audit Papers Moves Forward
A:
The SEC’s action seeking to compel the production of documents from the Chinese affiliate of Deloitte and Touche is moving toward resolution.
The Court rejected a request by the audit firm for a stay pending the resolution of a Commission administrative proceeding which is based on similar issues. SEC v. Deloitte Touche Tohmasu CPA, Ltd., Civil Action No. 11-mc-512 (D.D.C. Ruling dated April 22, 2013 (“subpoena enforcement action”).
The subpoena enforcement action: The subpoena enforcement action seeks an order requiring the production of PRC based audit work papers held by Deloitte Touche Tohmasu relating the audit of a Chinese issuer. The audit firm has refused to produce the material citing Chinese law which generally precludes such production absent consent.
The audit firm requested a stay based on related administrative proceedings in which similar but not identical issues are being considered. Initially the firm requested a stay until motions to dismiss were resolved. Later that request was modified and a stay was sought until the conclusion of the proceeding.
The Court denied the request of Deloitte Touche Tohmatsu for two reasons. First, there is no real hardship for the audit firm to litigate both cases simultaneously, contrary to its claim. There is little overlap in the actions. Each seeks a different remedy. In the subpoena enforcement action only the production of the work papers is sought. In the industry wide action, in contrast, sanctions are being requested not the production of work papers. Thus, not only is there minimal overlap, but there is also little potential for inconsistent adjudications since any appeals would go to the same court of appeals.
Although that case is to be completed within 300 days under the Commission’s Order, since jurisdictional issues are being raised it is possible that service would have to be effected through the Hague Convention which can be a lengthy process. Likewise, the final resolution of the proceeding may not take place until the conclusion of appeals. Such a delay could be harmful to the Commission’s investigation thus arguing against a stay. Accordingly, after considering the interests of each party the Court concluded that the proceeding should move forward.
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