WASHINGTON The U.S. securities regulator can pursue efforts to obtain certain audit work papers from Deloitte's China unit, a federal judge said on Monday, giving some latitude for the U.S. government to investigate potential misconduct at Chinese companies listed in the United States.
The U.S. Securities and Exchange Commission can move forward with its attempt to force Deloitte Touche Tohmatsu CPA Ltd to comply with a subpoena related to a fraud investigation into a Chinese technology company Longtop Financial Technologies Ltd, Magistrate Judge Deborah Robinson said.
The SEC has sought documents in connection with its inquiry but Deloitte has resisted citing Chinese secrecy laws.
U.S. stock markets were rocked by a string of accounting scandals at China-based companies in 2010 and 2011, but the SEC has struggled to take any action because it has faced difficulties in obtaining evidence, such as audit work papers, kept in China. Auditors have turned over few such documents, arguing the SEC's requests conflict with Chinese laws.
The regulator tried to reach a diplomatic solution to the wider problem of obtaining audit documents in China through negotiations with the China Securities Regulatory Commission (CSRC) and put its Deloitte action on hold.
Those talks failed, leading the SEC in December to ask to reopen the case and separately charge in administrative court the Chinese arms of Deloitte and four other top audit firms with securities violations over their refusal to turn over work papers.
Deloitte argued in January its individual case should be postponed pending the outcome of new action taken by the SEC.
In the Monday order, Robinson said the two proceedings were sufficiently different to proceed separately.
"Although not dispositive, the facts underlying the two proceedings differ," she said.
A hearing on the merits of subpoena application is scheduled for March 13.
(Reporting by Aruna Viswanatha; Editing by Lisa Shumaker)