UNITED STATES DISTRICT COURT FOR THE DISTRICTOF COLUMBIA

SECURITIESAND EXCHANGE COMMISSIONPetitioner,
v.
DELOITTE TOUCHE TOHMATSU CPA LTD. I Respondent. CivilActionNo. 11-mc-512 (GK/DAR)

MEMORANDUM OPINION 

### Petitioner Securities and Exchange Commission ("SEC11 ) 

### filed
an Application for Order to Show Cause and for Order Requiring Compliancewitha Subpoena onSeptember 8 1 

### 2011 [Dkt. No. 1]. On August 71 

### 2012 1 

### Magistrate Judge Deborah A. Robinson entered a minute order granting an Unopposed Motion for Stay of this Action. On December 3 1 

### 2012 1 

### the SEC filed a Motion to Lift the Stay [Dkt. No. 36]. Respondent Deloitte Touche Tohmatsu CPA Ltd. ("Deloitte11 ) 

### opposed that Motion on January 7 1 

### 2013 [Dkt. No. 42] 1 

### and filed a Motion to Extend the Stay [Dkt. No. 43]. The SEC opposed Deloitte 1

### s Motion on January 24 1 

### 2013 [Dkt. No. 45] and filed a Reply in Support of its Motion to Lift the Stay [Dkt. No. 44]. On March 4 1 

### 2013 1 

### the Magistrate Judge issued a

### Memorandum Opinion and Order granting the· SEC's Motion to Lift the Stay and denying Deloitte's Motion to Extend the Stay ("Order") [Dkt
. No. 49]
. Deloitte objected to the Order within fourteen days as permitted by Federal Rule of Civil Procedure 72(a) [Dkt. No. 53]
. The SEC responded to Deloitte's Objections [Dkt. No. 55]. Upon consideration of the Order, the Objections, the Responses, the lengthy, and informative, oral argument held before this Court onApril 11, 2013, andthe entirerecordherein, the Court upholds the Magistrate Judge's decision to grant 

### the SEC's Motion to Lift the Stay and to deny

### Deloitte's Motion to Extend the Stay. Deloitte 1

### s Objectionsareoverruled. 

### Deloitte opposed a lifting of the stay and requested its extension "pending the expeditious resolution of a parallel, consolidated, and profession-wide administrative proceeding," pending
.at the SEC. Opp 1

### n of Deloitte to Motion to Life the Stay 1.1 

### Deloitte1

### s central argument is that the Magistrate Judge applied the incorrect legal standard for determining whether or not to grant a stay. The Court concludes that she did apply the correct legal standard, relying upon Landis v. N. Am. Co., 299 U.S. 248 (1936), namely, that in order to prevail,

1 

### Deloitte later substantially modified its position and requested a stay until the Administrative Law Judge issued his InitialOpinion. -2-

### the party requesting a stay must "make out a clear case of hardship or inequity in being required to go forward." Id. at 255. Moreover, as she also pointed out, if the stay is of "indefinite duration," the party must establish a "pressing need" for it. Id.; Belize Soc. Dev. Ltd. v. Gov't ofBelize, 668 F. 3d 724, 731-32 (D.C. Cir. 2012) (quoting Dellinger v. Mitchell, 442 F.2d 782, 787 (D.C. Cir. 1971) (noting that indefinite stay order must be supported by a "balanced finding that suchneedoverrides the injuryto thepartybeing stayed"), cert. denied, 133 S. Ct. 274 (2012). This Court will now analyze whether Deloitte is correct that the two proceedings overlap in such a way that Deloitte will suffer "hardship or inequity in being required to go forward inthiscase." Landis, 299U.S. at 255.2 A. OverlappingAdjudications 

### Deloitte insists there is significant overlap between this
case and the Administrative Proceeding, In the Matter of BDO China Dahua CPA Co. Ltd., et al., A.P. No. 3-15116, Order Instituting Proceedings Pursuant to Rule 102(e)(1)(iii) (Dec. 3,
2 

### In discussing the correct legal standard, Judge may have, on occasion, used language more ruling on the underlying merits of the case. clear from her citations to Landis, Belize, Jones, 520 U.S. 681 (1997), that she understood forevaluatinga request for a stay. -3- 

### the Magistrate appropriate to However, it is and Clinton v. the proper test2012) ("Administrative Proceeding") [Dkt. No. 42-2]. In that Proceeding the SEC is seeking an Order, pursuant to 17 C.F.R. § 201.102(e)(1), to bar five China-based auditing companies, including Deloitte, from "the privilege of appearing or practicing" before the Commission. The SEC claims that those firms have willfully refused to produce documents requested by the Commissionpursuant to Section 106 of the Sarbanes-OxleyAct of 2002, codified at 15 U.S.C. § 7126. The companies assert in that Proceeding, as Deloitte does in the present case, that under Chinese law, they will be committing a crime and couldbe subject to prosecution, possible conviction, and possible imprisonment if they produce the requested documents. None of the investigations included in the Administrative Proceeding involve Longtop Financial Technologies, Ltd. ("Longtop"), the companybeinginvestigatedinthiscase. In the Order Instituting Proceedings ("OIP") I the CommissionorderedtheAdministrative Law Judge ("ALJ") to issue
an "Initial Decision"3 no later than 300 days from the date of service, which would be in late September,2013. See 17 C.F.R. § 201.360(a)(2) (directing Commission to specify time period in which hearing officer's Initial Decision must be filed). Deloitte is challengingthe legalityof service, and, therefore, 3 The Initial Decision is the final administrative opinion subjecttoappeal tothe Commission. 17C.F.R. § 201.410(a). -4-the 300-daydeadline for issuance of the decisionmaynot bemet andmaynot evenhavebeguntorunduringthat time frame.4 Once an Initial Decision is filed, any party can then file
a petition for review of the decision with the Commission. 17 C.F.R. § 201.410(a). That decision can then be appealed to our Court of Appeals. 15 U.S.C. § 78y(a)(1) ("A person aggrievedby
a final orderof the Commissionenteredpursuant to this chapter mayobtainreviewof the order in
. the District of Columbia Circuit • II ) • By contrast, this case revolves around the production of documents under the SEC's general subpoena powers, found in section 19(c) of the SecuritiesAct of 1933, 15 U.S.C. § 77s(c), and section 21(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(b). The SEC served an administrative subpoena to Deloitte on May 27, 2011, almost twenty-three months ago, requesting documents related to an investigation into Deloitte's activities as an auditor for Longtop. Application for Order to Show Cause and For Order Requiring Compliance With a Subpoena [Dkt. No. 1]
. Longtop is a foreign issuerwhose securitieswere tradedinUnitedStatesmarkets. Unlike the Administrative Proceeding, the SEC is not seeking sanctions against Deloitte in this case. It simply

4 The 300 days runs fromthedateof service. -5-seeks the production of relevant documents, although the SEC agrees that, if this Court grants its Order Requiring Compliance with Subpoena, and Deloitte continues to withhold the documents, it would "seek any avenue or means" available, including seeking
a contempt order, "to be able to get the documents." Mot. Hr'g Tr. 44; see also 15 U.S.C. § 78u(c) (giving court power to issue
an order requiring the production of records and noting that failure to obey such an order "maybe punishedby [the] court as
a contempt thereof"). If this Court did cite Deloitte for contempt, its order would be appealable to our Court of Appeals. See In re Kessler, 100 F.3d 1015, 1016 (D.C. Cir. 1996) (noting that a court of appeals has jurisdiction over final decisions of the district court under 28 U.S.C. § 1291, and that "[f]or purposes of appeal, an order holding a litigant in contempt for failure to obey a discovery order is considered final")
. Thus, the final decisions emanating from both the SEC and this Court would both be resolved by the same decision-maker, our Court of Appeals. Given that fact, this Court sees little danger of inconsistent rulings on Deloitte's underlying concern about application of Chinese law. Although both proceedings obviously concern document requests to foreign-based auditing firms and the scope of the -6-SEC's authority to order such requests, it is significant that they involve different statutes, with different legal standards, and seek entirely different results. The remedy sought in the Administrative Proceedingdiffers greatlyfromwhat is sought in this case. In the former, the SEC seeks to bar the five firms from "appearing or practicing" before the Commission; in this case, the SEC merelyseeksproductionofdocuments. In sum, Deloitte has failed to show any "hardship or inequity," Landis, 299 U.S. at 255, it will suffer from simultaneous litigation of the Administrative Proceeding with this case. B. BalanceofInterests Not onlyhas Deloitte failed to establishthat requiring it to litigate this case while the Administrative Proceeding is pending will subject it to**~hardship** or inequity," the balance of the interests as a wholedonot supportextendingthe stay. The SEC made clear at oral argument that the Administrative Proceeding didnot concern and couldnot result inproductionof those documents it deems necessary to conduct the Longtop investigation inthis case. Mot. Hr'g Tr. 25-26. The SEC insists that those documents and this investigationare important to its**~central** mission," which involves investigating potential violations of the securities laws and protection of the public. -7-

### Id. 23-25; see also Gabelli v. S.E.C., 133 S. Ct. 1216, 1222 (2013) (noting that "a central mission of the Commission is to investigate potential violations of the federal securities laws") (citationsandinternalquotationsomitted). The SEC is attempting to investigatewhetherLongtop orany other entity associatedwith it committed fraud on the American investing public. Mot. Hr'g Tr. 24-25. Moreover, if fraud was committed, the SEC argues that it will also attempt to ascertain the scope of that fraud, how it was committed, who was involved, and how it went undetected for so long. Id. These are undoubtedly important questions to the SEC and to the American investorswhomayhavebeendefrauded. It has beenmore than twenty-twomonths since the SEC first sought these documents from Deloitte. Obviously, a thorough, comprehensive investigation only gets more difficult with the passage of time. "If the SEC suspects that a company has violated the securities laws, it must be able to respond quickly; it must be able to obtain relevant information concerning the alleged violation and to seek prompt judicial redress if necessary." SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1377 (D.C. Cir. 1980) (en bane). In short, the SEC has a responsibility to complete this investigation and pursue these documents ina timelyfashion inthevenueavailabletoit. -8-The SEC's interest inobtaining these documents ina timely fashion would be hindered if the stay was granted, particularly because even the modified stayrequestedbyDeloittewould, as a practical matter, be indefinite and could easily extend for a significantperiodof time. See Belize Soc., 668 F.2d at 731-32. Although the Commission ordered the ALJ to produce an Initial Decision in approximately late September, litigation of Deloitte's challenge to the method of service will likely delay that decision. If Deloitte prevailed, the SEC would then be required to proceed under the Hague Convention, which would add at least another sixmonths to the 300 days alreadyallottedthe ALJ to issue his Initial Decision. Thus, for all intents and purposes, Deloitte's request is for an indefinite stay--which must not "override[] the injurytothepartybeing stayed." Id. Such a request for an indefinite stay must not only demonstrate "hardship or inequity," Landis, 299 U.S. at 255, but also be justified by a "pressing need." Id.; Belize Soc., 668 F.3d at 731-32. Deloitte has not met that standard. There is no significant burden placed on Deloitte by requiring it to litigate these two very different proceedings simultaneously. There is no overlap of issues that would justify staying this
case for "judicial efficiency." And the SEC has effectively demonstrated that this case is the only way it can obtain the -9-documents it needs to conduct the Longtop investigation. Thus, after "weigh[ing] competing interests," Landis, 299 U.S. at 254- 55, the Court concludes that Deloitte has not established that it isentitledtoa further stayofproceedings inthis action. C. Conclusion For the foregoing reasons, the Court adopts the Magistrate Judge's conclusion to grant the SEC's Motion to Lift the Stay and deny Deloitte's Motion to Extend the Stay. An Order shall accompanythisMemorandumOpinion.



### /s/ April 22, 2013 Gladys Kessl 1 United StatesDistrictJudge
Copies to: attorneys onrecordviaECF

-10-