* Deloitte said to cite falsity in records, interference
* CFO Palaschuk recently quit Renren board
* Longtop's records questioned by Citron, OLP
* Shares of Longtop halted since May 17
(Adds details, Deloitte comment, paragraphs 2, 12)
By Jonathan Stempel and A. Ananthalakshmi
NEW YORK/BANGALORE, May 23 The
auditor at Longtop Financial Technologies Ltd LFT.N quit and
a U.S. regulator has opened a related probe, deepening concern
about possible accounting irregularities at Chinese companies.
The resignation on Sunday of the auditor, Deloitte Touche
Tohmatsu CPA Ltd, came three days after Longtop, which makes
software for Chinese financial services companies, said its
chief financial officer offered to resign.
Based in Xiamen, Longtop had a $1.08 billion market value
before a May 17 trading halt in New York, though that value had
fallen by more half since November.
It is among the largest of several Chinese companies --
such as China MediaExpress Holdings Inc CCME.PK -- that were
hit recently by accusations of accounting fraud, including from
short-sellers or regulatory probes. [ID:nN06271838]
According to Longtop, Deloitte said its resignation stemmed
in part from "recently identified falsity" in Longtop's
financial records, as well as "deliberate interference" by
Longtop management in the audit process.
Longtop also said Deloitte could no longer rely on its
prior audit reports for the company.
Separately, Longtop said the U.S. Securities and Exchange
Commission has opened an inquiry. It intends to cooperate, and
has hired legal counsel and authorized the hiring of forensic
accountants to examine matters raised by Deloitte.
Longtop said it is also considering whether to accept the
resignation of CFO Derek Palaschuk, offered on May 19.
Palaschuk said he quit the board of Renren Inc (RENN.N)
three weeks ago, just before it went public on May 4, to
protect the Chinese social networking company from any fallout
from accounting fraud accusations at Longtop. [ID:nN02237672]
"It doesn't appear that Chinese companies have withstood
the types of scrutiny by auditors that American companies have
faced -- for decades," said Richard Riley, an accounting
professor at the West Virginia University College of Business &
Economics in Morgantown, West Virginia.
"As these companies get bigger, they get more attention,
and inconsistencies, anomalies or things that don't make sense
may become more apparent," he said.
Neither Longtop nor Palaschuk returned requests for
comment. Deloitte had no immediate comment. SEC spokesman John
Nester declined to comment.
In an April 27 letter, SEC Chairman Mary Schapiro said that
since December the regulator revoked registrations for eight
China-based companies, and that since March more than 24 such
companies revealed auditor resignations or accounting
The SEC has created a task force to probe fraud by non-U.S.
companies listed on U.S. exchanges. [ID:nN04270845]
Longtop went public in 2007 in an offering led by Goldman
Sachs Group Inc (GS.N) and Deutsche Bank AG (DBKGn.DE).
Its shares last traded on May 16 at $18.93.
Christopher Shutler, a William Blair & Co analyst, wrote
that Deloitte's resignation should "weigh heavily" on shares of
other China information technology services companies it
audits, including Camelot Information Systems Inc CIS.N,
HiSoft Technology International Ltd HSFT.O, iSoftStone
Holdings Ltd ISS.N and VanceInfo Technologies Inc VIT.N.
These companies' shares fell between 6.4 percent and 9.6
percent on Monday, Reuters data showed. Shares of HiSoft fell 9
percent, but rose after-hours as the company reported quarterly
revenue that exceeded analyst forecasts. [ID:nASA027EU]
HiSoft spokeswoman Jessica Cohen and iSoftStone spokeswoman
Kathy Li declined to comment. The other companies did not
answer requests for comment.
Longtop's finances have been called into question by the
research firms Citron Research and OLP Global LLC.
Citron said the company inflated margins, while OLP said
Longtop underpaid employee benefits.
On Monday, Longtop said it does not know when it will
release results for its fiscal fourth quarter ended March 31.
It also named Wei Dong, a senior vice president, as its chief
(Additional reporting by Brenton Cordeiro in Bangalore.
Editing by Maju Samuel, Robert MacMillan, Gary Hill)
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