Longtop Financial Technologies Ltd.(fka LFTGY)

[NHNMx]

http://blogs.wsj.com/corruption-currents/2012/07/18/sec-in-talks-with-chinese-regulators-on-document-sharing/?mod=google_news_blog

The Securities and Exchange Commission said Wednesday that it was in negotiations with Chinese regulators to establish a framework for the production of documents from China-based accounting firms involved in SEC investigations.

The disclosure came in court filing in the SEC’s ongoing legal battle with Deloitte Touche Tohmatsu’s Chinese arm, in which it asked for an extension so it could continue working with Chinese regulators to avoid subpoenaing documents from the accounting firm.

The outcome of those negotiations could have huge implications for the future of SEC investigations involving China as well as the expansion of U.S. accounting firms into the Chinese market.

Short term, the request appeared to temporarily defuse the Commission’s clash with the Deloitte China affiliate that began last September, when Deloitte refused to comply with an SEC subpoena seeking documents relating to its client Longtop Financial Technologies Ltd. Deloitte cited concerns that Chinese authorities could penalize the firm or its partners under China’s state-secrecy laws. The SEC filed suit in September to enforce the subpoena, and that case remains pending in U.S. District Court in Washington.

On Wednesday, the SEC asked U.S. Magistrate Judge Deborah Robinson for a six-month stay because of “ongoing negotiations” with the China Securities Regulatory Commission. SEC attorney Mark Lanpher explained in court papers that in early July, SEC Chairman Mary Schapiro visited China to meet with the chairman of the CSRC and other Chinese government officials.

“In the course of these meetings, the parties discussed, among other things, the need to develop a mechanism by which the SEC can obtain audit workpapers and other documents from audit firms based in China (including DTTC and other firms) in connection with its enforcement investigations,” Lanpher wrote.

Lanpher said that if the negotiations produced a “viable alternative” to the subpoena, it could have a “significant impact” on the resolution of the case.

An SEC spokesman declined to comment beyond the filing. A Deloitte spokeswoman said the firm welcomed the extension request.

“We are pleased that the SEC and the CSRC are making progress in their discussions regarding the production of documents from China-based accounting firms and are hopeful that the two sides will be able to reach an agreement through diplomatic efforts,” she said.

In May, the SEC said in an administrative proceeding that the Shanghai-based Deloitte affiliate was violating the Sarbanes-Oxley Act by refusing to turn over audit work papers requested for a Deloitte client the agency was investigating. If the proceeding is ultimately decided against the Chinese firm, it could be barred from auditing U.S.-traded companies.

It marked the first time the Commission had brought an enforcement action against a foreign audit firm for failing to comply with a request under Sarbanes-Oxley, which requires foreign firms that audit U.S.-traded companies provide documents to the SEC on request.

Deloitte had previously argued that its employees in China could face jail time and the Shanghai unit could be dissolved by Chinese authorities if it were forced to respond to an SEC subpoena.

The SEC was supposed to file a brief by July 23. Lanpher said Wednesday that that if the extension is granted, the SEC would file a status report no later than Jan. 19, 2013.