* ChinaCast investors target Deloitte in lawsuit
* Major losses blamed on faulty audit of financial reports
* ChinaCast one of many troubled Deloitte clients in China
NEW YORK, Feb 19 A group of U.S. investment
funds has sued the Chinese and U.S. affiliates of Deloitte
Touche Tohmatsu, blaming them for investor losses at
troubled ChinaCast Education Corp.
The funds are seeking to recover tens of millions of dollars
of investment losses from Deloitte, which audited the Chinese
company's financial statements. The lawsuit was filed in U.S.
District Court in Manhattan.
ChinaCast, which provides post-secondary education and
e-learning in China, sold shares in the United States on the
Nasdaq stock exchange. It was delisted last year for
failing to file its 2011 annual report.
The company has been under pressure since ousting former
chief executive Ron Chan last year. ChinaCast said at the time
that it had uncovered questionable activities and transactions
involving Chan that "raise the specter of possible illegal
Chan could not be reached for comment on Tuesday. In a
statement to shareholders last year, he denied allegations of
ChinaCast assets were transferred to an entity owned by
Chan, "a brazen looting" that Deloitte failed to detect,
according to the plaintiffs' complaint, which was dated Friday.
"Deloitte put its name and brand behind the certification of
financial statements that were almost entirely false," the
Deloitte, the world's second-largest accounting and
consulting firm, has run into problems with several audits of
its China-based clients listing on U.S. exchanges.
A Deloitte spokesman could not immediately be reached for
Deloitte's Shanghai-based affiliate audited ChinaCast's
annual reports for the years 2007 until 2010, according to the
complaint. The complaint said Deloitte & Touche LLP, the U.S.
audit firm, controlled the audit of ChinaCast's financials
because one of its partners was a key audit team member for
issues involving compliance with U.S. accounting standards.
The plaintiffs include Fir Tree Value Master Fund LP,
Columbia Pacific Opportunity Fund LP, Lake Union Capital Fund LP
and Ashford Capital Management Inc.
Last May, Deloitte was charged by the U.S. Securities and
Exchange Commission on allegations it failed to turn over
documents related to its audit of Longtop Financial Technologies
Ltd, a China-based software company under investigation for
accounting fraud. Deloitte has said that China's state secrets
law prevents it from turning over documents.
Investors have suffered massive losses since 2010 because of
a string of accounting scandals at China-based companies, but
the SEC has struggled to take action because it is often unable
to get evidence out of China.
The case is Special Situations Fund III QP et al vs Deloitte
Touche Tohmatsu CPA Ltd, U.S. District Court, Southern District
of New York, No 13-1094.