Chinese and US affiliates of Deloitte have been sued by a quorum of US investment funds over tens of millions of dollars of investment losses at ChinaCast Education Corp, for which Deloitte audited company statements.
Education and e-learning provider ChinaCast was delisted from the New York Stock Exchange in 2012 after failing to file its 2011 annual report.
The company claimed to have found potentially illegal business conducted by its former chief executive Ron Chan.
Although Chan denied any malfeasance to shareholders last year, Deloitte’s not identifying anything untoward in the ChinaCast financial statements was cited in a complaint filed at the US District Court in Manhattan last Friday, by plaintiffs including Fir Tree Value Master Fund, Columbia Pacific Opportunity Fund, Lake Union Capital Fund and Ashford Capital Management.
Deloitte’s affiliate headquartered in Shanghai audited ChinaCast’s annual reports from 2007 to 2010. Plaintiffs argued that Deloitte’s US audit firm controlled the audit of ChinaCast’s financials.
In a statement issued to IAB today, a spokesperson for Deloitte commented: "We do not believe that the plaintiffs have a valid basis for bringing this action against Deloitte Touche Tohmatsu CPA Limited (DTTC) and, accordingly, we will defend ourselves vigorously."
Deloitte was among several companies, including representatives of all Big Four firms, to have administrative procedures begun against it in December by the US Securities and Exchange Commission (SEC) over refusal to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against US investors.
Previously, the SEC had begun but halted court proceedings against Deloitte in China in the summer of 2012 for failing to provider audit work papers.