Deloitte lost a round in its battle with the SEC over Longtop yesterday.
Judge Deborah Robinson of the U.S. District Court for the District of Columbia ordered Deloitte to "show cause" for not producing the Longtop working papers. The case has been tangled up in her court since October over the issue of whether Deloitte had to be served before she enforced the show cause order. She has concluded that service is not necessary.
On May 27, 2011, the SEC staff served a subpoena on Deloitte's former U.S. counsel, who represented he had the authority to accept service of the subpoena. That appears to have been a misjudgment that resulted in Deloitte getting a new law firm. Deloitte did not appear in court in October when the SEC asked the judge for the "show cause" order. That might indicate that Deloitte now intends to avoid being served so it can try to avoid being hauled into court. That might be a good legal strategy, but it is going to hurt them in the court of public opinion. At any rate, the ball is now in Deloitte's court. Will they thumb their nose at the SEC and U.S. Courts? If they do, what will the SEC and the Courts do? Deloitte China's right to audit U.S. listed companies, including subsidiaries of U.S. MNCs, is at stake.