The SEC is getting more aggressive in its investigation of possible accounting irregularities at Chinese companies, as indicated by the "Wells notice" it sent to Longtop Financial Technologies Ltd.  The maker of software for Chinese financial services companies received the "Wells notice on 8/24, indicating that the SEC staff plans to recommend civil charges against the company - but first is giving the company a chance to mount a defense. 

Longtop said the Wells notice stemmed from its 5/23/11 announcement that auditor Deloitte Touche Tohmatsu CPA Ltd had resigned, and that the company's annual reports from 2008, 2009 and 2010 should not be relied upon.  It also said the SEC will decide whether to suspend or revoke its securities.

In May, Longtop linked Deloitte's resignation to what the auditor called "recently identified falsity" in company financial records, and "deliberate interference" by Longtop management in the audit process. Longtop's chief financial officer, Derek Palaschuk, resigned that month.  Longtop is among the largest Chinese companies linked this year to potential accounting fraud, often by research firms and short sellers such as Citron and Muddy Waters.

Since March, about 30 Chinese companies have seen their auditors resign, and more than two dozen have been delisted from U.S. exchanges.    [ThomsonReuters, 8/29/11]