by T. GormanPosted on Posted in SECActions

Chinese issuers are a current focus for the Commission and the class action bar. The Commission has brought a number of actions involving issuers based in the Peoples Republic of China including dozens of proceedings to under Exchange Act Section 12(j) to revoke their registration statement. One of the largest group of class actions brought last year involved Chinese issuers.

Now the Commission brought a second action against PRC based Deloitte Touche Tohmatsu Certified Public Accountants or D&T Shanghai. This action is based on Rule 102(e)(1)(iii) which concerns willful violations of the federal securities laws. The Order alleges violations of SOX Section 106(b) which requires that foreign public accounting firms produce work papers on the request of the PCAOB or the SEC in connection with any investigation of one of its audit reports. The issuer is not identified. In the Matter of Deloitte Touche Tohmatsu Certified Public Accountants Ltd., Adm. Proc. File No. 3-14872 (May 9, 2012).

Respondent D&T Shanghai is a PBAOC registered public accounting firm based Shanghai, the PRC. Since April 2010 the staff has made extensive efforts to obtain the work papers related to “Client A.” Subpoenas were served on Deloitte LLP, the U.S. member firm of the Global Audit firm. The U.S. firm subsequently produced papers related to certain review work it conducted. That firm also informed the staff that all of the audit work for Client A was done by D&T Shanghai.

The Global Firm informed the staff that it did not have the audit work papers being sought. Rather, that work was done by Respondent who would not produce the papers because, in its view, PRC law precluded such action. International sharing mechanisms failed to yield the requested work papers.

The Order alleges that the failure to produce the requested work papers constitutes a violation of SOX Section 106(b). Under that Section firms such as Respondent consent to producing work papers by registering with the PCAOB. Since Respondent did in fact register, it has an obligation to produce the work papers.

The Order directs that a hearing be held. The remedies which might be sought are not specified.

The first proceeding brought against the audit firm by the Commission was a subpoena enforcement action, filed in September 2011. That case relates to its audit work for Longtop Financial Technologies Ltd., a Cayman Island company based in Shanghai whose ADRs were traded in New York. There the firm resigned from the engagement as outside auditors in a letter dated May 23, 2011 after discovering numerous improprieties during the year end audit. D&T Shanghai is alleged in that proceeding to have not complied with a Commission investigative subpoena for the audit work papers. Subsequently, the SEC initiated an Exchange Act Section 12(j) proceeding against the issuer. Its registration was revoked in December 2011 after the firm failed to answer in the proceeding. In the Matter of Longtop Financial Limited, Adm. Proc. File No. 3-14622 (Order dated December 14, 2011).

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by T. GormanPosted on Posted in SECActions

Earlier this week the Commission went to Montana to name a daughter and her father in an insider trading action. Yesterday the agency went to Hollywood to bring another insider trading case. This time the action named as defendants: Mohammed Mark Amin, the producer or executive producer of 75 Hollywood films and owner of a production company; his brother Robert Reza Amin; Michael Mahmood Amin, Mark’s cousin; Sam Saeed Pimazar, Mark’s friend and long time business manager; Mary Teresa Coley, a long time friend of Mark and his brother; and Ali Tashakori, a contractor who did construction work for Mark and his brother. SEC v. Amin, CV12 – 3960 (C. D. Cal. Filed May 7, 2012).

The action centers on transactions in the shares of DuPont Fabros Technologies, Inc. or DFT, a developer and manager of data centers. The inside information concerns DFT’s pending loans and leases, announced in an earnings release on February 11, 2009. Mark had been a DFT board member since the company went public in October 2007. He is related by marriage to the CEO.

At a special board meeting on December 22, 2009 Mark, along with the other outside directors, were advised that the company was negotiating certain leases and bank loans that were important to the company. Prior to that meeting Mark and the other directors had been advised that the trading window was closed under the company insider trading policy and would not reopen until after the release of earnings.

Subsequently, on January 7, 2009 Mark spoke with the CEO about the transactions for several minutes. Shortly after the telephone call Mark told his cousin and his business manager Mr. Pirnazar about the pending transactions at DFT. The cousin purchased 145,000 DFT shares. Mr. Pirnazar bought 10,500 shares.

At the February 4, 2009 board meeting Mark received additional information about the pending transactions. The next morning he told his brother about the deal. Almost immediately his brother began buying stock. Overall he purchased 214,600 shares. The brother also told his close friend, Mary Teresa Coley, and Ali Tashakori, the contractor. Ms. Coley purchased 20,050 shares while Mr. Tashakori bought 15,000 shares.

Following the close of the market on February 11, 2009 the company issued an earnings release. It highlighted the new leases and lending arrangements. The share price rose 36% to $5.40 per share. The traders collectively had profits of $618,497. The Commission’s complaint alleges violations of Exchange Act Section 10(b).

Each of the defendants settled with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 10(b). Mark also agreed to the entry of an officer director bar for ten years. In addition, the defendants collectively agreed to pay disgorgement of $618,497 along with prejudgment interest and a penalties of over $540,000.

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