Last week, the SEC asked a federal court to order a six-month stay in its dispute with Deloitte Touche Tohmatsu over the production of certain audit documents. As discussed here, in September 2011, the agency filed an action to enforce a subpoena against D&T Tohmatsu after it failed to produce documents related to its client, Longtop Financial Technologies Limited. D&T Tohmatsu argued that producing the documents might violate Chinese law and subject the firm to severe sanctions including dissolution of the firm and life prison sentences for any of its partners and employees who are involved.

In May 2012, the SEC brought a separate administrative proceeding under Rule 102(e) of the Commission's Rules of Practice against against D&T Tohmatsu over the firm's refusal to produce audit work papers. D&T argued that it could not produce the relevant audit work papers "because of its interpretation that it is prevented from doing so by Chinese law."

Reuters reports that in the filing last week, the SEC asked for the six-month stay so that could continue to negotiate with the China Securities Regulatory Commission (CSRC) on access to the documents sought. A diplomatic solution may be critical to avoiding a situation where Chinese auditors that are unwilling to potentially violate Chinese law by producing documents to the SEC find themselves denied the right to practice before the SEC as a consequence, Reuters reports. 

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