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HK regulator launches legal proceedings against Ernst & Young
HONG KONG |
HONG KONG Aug 27 (Reuters) - Hong Kong's securities regulator said on Monday it had launched legal proceedings against Ernst & Young for failing to produce accounting records related to a Chinese company as specified, the latest auditor to run into trouble over a Chinese client.
Ernst & Young claimed it did not have the relevant records on Standard Water Ltd, which were held in China by its joint venture partner, Ernst & Young Hua Ming, the SFC said in a statement, adding the auditor then said the documents could not be produced due to restrictions under Chinese law.
"Given Ernst & Young was the reporting accountant and EY Hua Ming was Ernst & Young's agent, the failure to produce these records to the relevant mainland authority on the SFC's request is a matter of serious concern," it said.
Ernst & Young did not immediately respond to a call seeking comment.
Standard Water applied for a listing in Hong Kong on Nov. 9, according to the statement.
Ernst & Young resigned as auditor in March 2010 upon discovery of "inconsistencies in documentation" provided by the company and Standard Water withdrew its listing application shortly after, the statement said.
The news follows a series of scandals at mainland Chinese companies which have come under closer scrutiny after scores of accounting or regulatory problems.
One high-profile case was that of Chinese software company Longtop Financial Technologies Ltd, for which Deloitte Touche Tohmatsu quit as auditor.
The U.S. Securities and Exchange Commission last September asked a federal court to force Deloitte to produce records related to possible accounting fraud at Longtop, but Deloitte has resisted, citing Chinese secrecy laws.
In May, Hong Kong's market watchdog said bankers preparing companies for listing on the city's stock exchange should be fined or sent to jail if they are found to have misled investors.
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