In the on-going dispute as to whether the SEC can enforce an investigative subpoena on an accounting firm in China, Magistrate Judge Deborah Robinson issued a Minute Order on Wednesday February 1, 2012 which reiterated that the SEC can serve the Order to Show Cause on counsel for Deloitte Touche Tohmatsu CPA Ltd. ("D&T Shanghai") by e-mail. The accounting firm has argued that service should have been done through the Hague Convention. Although the dispute is largely procedural, the matter has the potential to establish precedent in future cases when entities located abroad receive SEC investigative subpoenas.
In connection with the SEC’s investigation into Longtop Financial Technologies Limited ("Longtop"), the SEC prepared a subpoena to D&T Shanghai, who has refused to comply because, among other things the production of any documents may subject the firm to sanctions under Chinese law. On September 8, 2011, the SEC filed an Application for an Order to Show Cause, requesting that the Court direct D&T Shanghai to explain why it should not be required to respond to the SEC’s subpoena. In a January 4, 2012 Opinion and Order, Magistrate Judge Robinson stated that she would grant the Application, and issued the Show Cause Order on January 5, 2012, as discussed here. The Show Cause Order directed the SEC to serve the relevant papers "by overnight mail, facsimile or electronic mail delivery upon [D&T Shanghai’s] counsel."
On January 11, 2012, D&T Shanghai filed a motion seeking clarification of the Magistrate Judge’s Order, raising a question of whether the Order was intended to require the SEC to serve D&T Shanghai under the terms of the Hague Convention, or whether the Order was intended to allow service on D&T Shanghai’s counsel by e-mail. D&T Shanghai argued that the language of the Show Cause Order was inconsistent with the Court’s January 4, 2012 Opinion and Order which said that the Court was not ruling on service issues.
The SEC opposed the motion on January 12, 2012, arguing that the "Order to Show Cause plainly authorized" the Commission to serve counsel by e-mail. The SEC asserted that the language in the Opinion and Order reflected the Court’s decision that it did not need to rule on the method by which the SEC served its September 8, 2011 papers (the Application for an order to Show Cause) and that service of the January 5, 2012 Show Cause Order was a different matter entirely, which was clearly addressed in the Show Cause Order itself. The SEC further argued that the Court, by allowing immediate service will prevent "unnecessary and detrimental delay."
Interestingly, the SEC acknowledged that D&T Shanghai could still "object to the manner of service authorized by this Court’s Order to Show Cause … as part of any opposition to the SEC’s underlying application for an order enforcing the subpoena."
In her Minute Order today, Magistrate Judge Robinson stated that D&T Shanghai’s Motion to Clarify is "denied for the reasons offered by [the SEC] in its Opposition to [D&T Shanghai’s] Motion to Clarify … ."
In papers filed with the Court last Friday (and discussed here), D&T Shanghai has already indicated that, in the event the Motion to Clarify was denied, it would move to quash the Order to Show Cause for improper service (reiterating its argument that service must be under the Hague Convention). The accounting firm has proposed a five-week briefing schedule on this issue before the parties take discovery and begin to address whether D&T Shanghai is required to respond. The SEC opposes a bifurcated schedule.
