Why We Are Publishing Today

Longtop Financial Technologies is the signature case of the 2011 China-listed-issuer forensic-short wave. The May 22, 2011 resignation letter from Longtop's auditor, Deloitte Touche Tohmatsu CPA Ltd., is among the most-cited single documents in modern forensic accounting: Deloitte alleged that bank confirmations the firm had previously received were not genuine and that company officers had interfered with the audit process. The subsequent NYSE delisting and SEC enforcement constitute one of the cleanest closed-loop confirmations in the genre.

Section 1 — The Citron Thesis (April 2011)

Citron Research's April 2011 commentary on Longtop Financial — alongside parallel short-side work by Carson Block / Muddy Waters, Jon Carnes / Alfred Little, and others — alleged that Longtop:

• Misrepresented its underlying banking-software customer relationships;
• Inflated reported revenue and earnings;
• Carried disclosed cash balances at China banking institutions that materially exceeded the cash the operating business could plausibly generate.

Citron disclosed a short position.

Section 2 — The Deloitte Resignation Letter (May 22, 2011)

The post-publication sequence was unusually rapid, and unusually well-documented at the auditor level. On May 22, 2011, Deloitte Touche Tohmatsu CPA Ltd. resigned as Longtop's auditor and filed a public resignation letter with content that has been re-circulated in subsequent forensic-accounting literature:

• The letter alleged that, in attempting to verify cash balances at certain Chinese banks during the 2010 annual audit, Deloitte had received bank confirmations that the firm subsequently determined had been fabricated;
• The letter alleged that Longtop officers had interfered with the audit process, including by directing bank staff to provide false confirmations;
• The letter stated that Deloitte was unable to rely on previously-issued financial statements that the firm had audited.

The directness of the public resignation letter is unusual for a Big-Four auditor and remains the most-cited single example in the modern China-short canon.

Section 3 — NYSE Delisting and SEC Enforcement

• May 2011 onward. NYSE trading suspension; delisting follows.
• November 2011. SEC files civil fraud charges against Longtop Financial Technologies and former CFO Derek Palaschuk.
• Subsequent dispositions. Default judgment against Longtop; contested civil-procedure outcomes against Palaschuk. Permanent bars and civil money penalties against named individuals.
• Parallel SEC action against Deloitte's Chinese audit affiliate under Section 106 of the Sarbanes-Oxley Act, in connection with requests for audit working papers — a track that became part of the broader HFCAA / China audit-access controversy that recurred through the 2010s and ultimately resulted in the 2022 PCAOB inspection access agreement.

Common equity in Longtop Financial was effectively zero in subsequent dispositions.

Section 4 — Where Things Stand (December 2013) and What Muddy Insights Takes From The Case

As of December 2013:

• Longtop Financial Technologies is defunct as a US-listed entity;
• SEC enforcement matters are substantively closed;
• The case is foundational in the post-2011 PCAOB / HFCAA literature on China-audit access.

What Muddy Insights takes from the Longtop case:

1. Fabricated bank confirmations are the cleanest forensic signal. The Deloitte May 2011 resignation letter remains the gold-standard auditor-disavowal document in the modern China-short literature.
2. The case catalyzed the China-audit-access policy track. The subsequent PCAOB / HFCAA / SEC Section 106 contestation, which ran for more than a decade and resolved partially in the 2022 PCAOB-CSRC inspection-access agreement, was substantively triggered by the Longtop and adjacent 2011-cohort cases.
3. 2011 was a watershed cohort. The Longtop case sits alongside Sino-Forest, China MediaExpress, and others in a single calendar year that re-set the disclosure baseline for US-listed Chinese issuers.

Source Index (selected)

• Citron Research, "Longtop Financial: Citron Reports on the Audit," April 2011.
• Deloitte Touche Tohmatsu CPA Ltd. — auditor resignation letter / public disclosure, May 22, 2011.
• US Securities and Exchange Commission — SEC v. Longtop Financial Technologies Limited and Derek Palaschuk, civil-fraud filing, November 2011.
• SEC Section 106 (Sarbanes-Oxley Act) proceedings against Deloitte Touche Tohmatsu CPA Ltd. relating to Longtop audit working papers.
• PCAOB and SEC public statements on the post-2011 China-audit-access track, through to the 2022 PCAOB-CSRC inspection-access agreement.

— Muddy Insights, December 15, 2013.