Deloitte sued by investment funds over ChinaCast Education losses

A group of investment funds is suing the mainland Chinese and United States affiliates of Deloitte Touche Tohmatsu, blaming them for investor losses at ChinaCast Education.

The funds, all in the US, are seeking to recover tens of millions of dollars of investment losses from Deloitte, which audited the Chinese company's financial statements. The lawsuit was filed in Manhattan.

ChinaCast, which provides post-secondary education and e-learning in China, sold shares in the US on the Nasdaq stock exchange. It was delisted last year for failing to file its 2011 annual report.

The company has been under pressure since ousting its former chief executive, Ron Chan, last year. ChinaCast said at the time that it had uncovered questionable activities and transactions involving Chan that "raise the spectre of possible illegal conduct".

Chan could not be reached for comment. In a statement to shareholders last year, he denied allegations of wrongdoing.

ChinaCast's assets were transferred to an entity owned by Chan, "a brazen looting" that Deloitte failed to detect, according to the plaintiffs' complaint.

"Deloitte put its name and brand behind the certification of financial statements that were almost entirely false," the complaint said.

Deloitte, the world's second-largest accounting and consulting firm, has run into problems with several audits of its Chinese-based clients listing on US exchanges.

A Deloitte spokesman could not be reached for comment.

Deloitte's Shanghai-based affiliate audited ChinaCast's annual reports for 2007 to 2010, according to the complaint.

The complaint said Deloitte & Touche, the US audit firm, controlled the audit of ChinaCast's financials because one of its partners was a key audit team member for issues involving compliance with US accounting standards.

In May last year, Deloitte was charged by the US Securities and Exchange Commission on allegations that it failed to turn over documents related to its audit of Longtop Financial Technologies, a Chinese-based software company under investigation for accounting fraud.

Deloitte has said that China's state secrets law prevents it from turning over documents.