Deloitte & Touche LLP was sued by a group of investment funds over “tens of millions of dollars in losses” allegedly caused by the accounting firm’s failure to properly audit ChinaCast Education Corp.
The funds, including Columbia Pacific Opportunity Fund LP and Fir Tree Value Master Fund LP, are seeking to recover losses in ChinaCast securities purchased from March 31, 2008, to March 30, 2012, according to a lawsuit filed in federal court in Manhattan.
“Deloitte recklessly failed to conduct even the most basic audit procedures and blatantly violated numerous accounting standards,” the funds said in the Feb. 15 complaint, citing losses in the “tens of millions.”
The company at issue in the case was formed originally as Great Wall Acquisition Corp., a special-purpose entity created with the intent to merge with another firm, the funds said in the complaint. In 2006, it purchased Chinese e-learning company ChinaCast Communication Holdings Ltd. and began trading on the Nasdaq exchange under the name of ChinaCast Education Corp., according to the filing.
The company took out massive loans and pledged its assets to third parties without making disclosure to investors, according to the complaint. Its former chief executive officer also engaged in “brazen looting” by diverting $35 million in cash to parties outside the company, the funds alleged.
ChinaCast said in May that Nasdaq had decided to delist it from the exchange.
Chris Faile, a spokesman for Deloitte, didn’t immediately return a call seeking comment on the lawsuit.
The case is Special Situations Fund II QP LP v. Deloitte Touche Tohmatsu CPA LTD., 13-cv-1094, U.S. District Court, Southern District of New York (Manhattan).