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United States S.E.C. v. Deloitte Touche Tohmatsu CPA Ltd.

United States District Court, District of Columbia

March 4, 2013

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Petitioner,
v.
DELOITTE TOUCHE TOHMATSU CPA LTD., Respondent.

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[Copyrighted Material Omitted]

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David Stuart Mendel, Mark Lanpher, Securities & Exchange Commission, Washington, DC, for Petitioner.

Michael Dana Warden, Sidley Austin, LLP, Washington, DC, Miles N. Ruthberg, Jamie L. Wine, Latham & Watkins LLP, Gary Bendinger, Sidley Austin, LLP, New York, NY, David A. Gordon, Sidley Austin, LLP, Chicago, IL, for Respondent.

MEMORANDUM OPINION AND ORDER

DEBORAH ANN ROBINSON, United States Magistrate Judge.

Petitioner United States Securities and Exchange Commission (" SEC" ) initiated this miscellaneous action by moving for an order to show cause why Respondent, an accounting firm based in the People's Republic of China, should not be ordered to comply with an administrative subpoena that Petitioner served on Respondent in connection with an SEC investigation, In the Matter of Longtop Financial Technologies Limited (" Longtop investigation" ).[1] See Application for Order to Show Cause and for Order Requiring Compliance with Subpoena (Document No. 1). The court granted Petitioner's application for an order to show cause, Memorandum Opinion and Order (Document No. 10), and issued an Order to Show Cause (Document No. 11).[2] At the request of Respondent, the

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court set a briefing schedule in order to permit the parties to address, in writing, the various issues presented by Petitioner's application. See Unopposed Motion of Respondent Deloitte Touche Tohmatsu CPA LTD to Vacate the Schedule Set Out in the Order to Show Cause and Require the Parties to Negotiate a New Schedule (Document No. 12); 01/13/2012 Minute Order; Order (Document No. 15); Scheduling Order (Document No. 22).

After the parties commenced briefing, Petitioner filed an Unopposed Motion for Stay of This Action (Document No. 29), representing that it was engaged in discussions and negotiations with Chinese regulatory officials to discuss a " mechanism by which the SEC can obtain audit workpapers and other documents from audit firms based in China [ ] in connection with its enforcement investigations." Following a status conference, the court granted the request for a six-month stay of the proceedings. 08/07/2012 Minute Order. The parties were ordered to file a status report by January 18, 2013, but in advance of that date, Petitioner filed a Motion to Lift the Stay (" Petitioner's Motion" ) (Document No. 36) and Respondent subsequently filed a Motion to Extend the Stay (" Respondent's Motion" ) (Document No. 43).

At a status conference conducted on January 29, 2013, the undersigned heard the arguments of counsel with respect to the stay, and extended the stay pending resolution of Petitioner's Motion to Lift the Stay and Respondent's Motion to Extend the Stay. Upon consideration of the motions, the arguments of counsel at oral argument on the motions, and the entire record herein, the court will vacate the stay of this proceeding.

CONTENTIONS OF THE PARTIES

In seeking to lift the stay, Petitioner represents that its negotiations with the China Securities Regulatory Commission (" CSRC" ) were unsuccessful, that " the CSRC remains unwilling or unable to provide the SEC with meaningful assistance in its enforcement investigations," and that accordingly, Petitioner must proceed " through efforts such as this subpoena enforcement action." Petitioner's Motion at 5.

Respondent does not dispute that the initial reason for staying this matter— negotiations with the CSRC— is no longer a basis for staying these proceedings. Respondent's Motion at 1 (acknowledging that the " direct government-to-government negotiations" were " unsuccessful" ). Rather, Respondent, advancing a new reason for staying this matter, contends that " a consolidated and profession-wide administrative proceeding against the five major China-based audit firms, including [Respondent]" is a " parallel litigation of core issues...." Id. at 1-3. Respondent requests that the court extend the stay " pending further developments in the consolidated administrative proceedings ... captioned In the Matter of BDO China Dahua CPA Co. Ltd., et al., A.P. No. 3-15116." Proposed Order (Document No. 43-1). In support of its request, Respondent argues, inter alia, that the administrative proceeding will include consideration of similar " core questions" and that a stay will " avoid piecemeal, unfair, and inefficient resolution" and will further " judicial economy" ; Respondent will be " unfairly singled out" absent a stay; " parallel litigation also risks generating conflicting decisions on a matter of significant public (and international) importance" ; and the court does not have the benefit of " all the key industry participants before it and is not addressing the issue on a profession-wide basis." See generally Respondent's Motion; Opposition of Deloitte Touche Tohmatsu CPA LTD to Motion to Lift the Stay (" Respondent's Opposition" ) (Document No. 42).

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Petitioner, in response, contends that the " Administrative Proceeding involves different legal claims that arise from different SEC investigations and present different legal standards." Securities and Exchange Commission's Reply Memorandum in Support of its Motion to Lift the Stay (" Petitioner's Reply" ) (Document No. 44) at 5. Specifically, Petitioner submits that " [t]he Longtop investigation is not at issue in the Administrative Proceeding, nor can the Administrative Proceeding compel the production of any documents." Id. Petitioner contends that extending the stay would " essentially put[ ] the SEC's Longtop investigation on indefinite hiatus." Securities and Exchange Commission's Memorandum of Points and Authorities Opposing ...


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