Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – SFC Commenced Proceedings Against E&Y.

15 October, 2012

 

In August 2012, the SFC commenced proceedings in the Court of First Instance against Ernst & Young Hong Kong (E&Y) for failing to produce to the SFC specified accounting records.
 
Although the case is the first of its kind in Hong Kong, Deloitte & Touche was previously charged by the US Securities and Exchange Commission with violating U.S. securities laws in its refusal to hand over its audit work papers of Chinese computer company Longtop Financial Technologies Limited.
 
The SFC was seeking the audit working papers and underlying accounting documents relating to E&Y’s work as the reporting accountant and auditor for Standard Water Limited (Standard Water). Standard Water applied for listing to the Exchange on 9 November 2009. In March 2010, E&Y suddenly informed the Exchange of its resignation as reporting accountants and auditors of Standard Water upon discovery of certain inconsistencies in documentation provided by the company. Shortly afterwards, Standard Water also withdrew its listing application.
 
E&Y did not comply with this request and claimed that it did not have the relevant records which were held in the Mainland by its joint venture partner in the Mainland, Ernst & Young Hua Ming (EY Hua Ming), whose staff were the ones involved in the engagement. Ernst & Young also claimed the documents could not be produced because of restrictions under PRC law.
 
The SFC is invoking section 185 of the SFO, which empowers the court to inquire into the circumstances of E&Y’s non-compliance with the SFC’s request for these records. The Court can order E&Y to comply with the SFC’s request if it is satisfied that E&Y does not have any reasonable excuse for not complying.
 

 

For further information, please contact:
 
Tony Grundy, Partner, Morrison Foerster
tgrundy@mofo.com
 
John Moore, Partner,  Morrison Foerster
johnmoore@mofo.com

 

 

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