A securities class action lawsuit was recently brought forth against Baker Tilly Hong Kong in relation to their role as an auditor of China North East Petroleum's financial statements.
Baker Tilly Hong Kong, an audit firm, provides accountancy and business services. The firm is a member of Baker Tilly International, which is one of the top 10 accounting and business networks worldwide, according to the Hong Kong-based audit firm's website.
China North East Petroleum is a crude oil exploration and production firm that searches for the raw material in Northern China. The company, which formerly traded over-the-counter under the ticker symbols CNEP and CNEP.OB, operated 289 productive wells in four oilfields in the region as of Dec. 31, 2009, according to Google Finance.
The Rosen Law Firm, P.A. announced on Dec. 31, 2014, that it had filed a securities class action lawsuit to represent all organizations and individuals who purchased China North East Petroleum Holdings Limited's common stock between Jan. 1, 2010, and April 4, 2013, in an effort to obtain compensation under federal securities laws.
The lawsuit alleged that China North East Petroleum's financial statements were false and misleading, and asserted claims against Baker Tilly Hong Kong since the audit firm acted as the auditor for the crude oil E&P firm.
"The lawsuit claims that China North East's auditor Baker Tilly Hong Kong Limited fraudulently issued clean audit reports for China North East's financial statements," Phillip Kim, attorney for The Rosen Law firm, said in a statement. "This appears to be another audit firm that has conducted fraudulent audits of a Chinese company, causing investors to lose nearly the entire value of their investment."
SEC sanctions Baker Tilly Hong Kong
The Rosen Law Firm filed its legal claim after the U.S. Securities and Exchange Commission sanctioned Baker Tilly Hong Kong and also suspended two of the company's employees. The government agency announced these actions in a statement released on Dec. 17, 2014, stating that it provided these penalties since the aforementioned parties did not audit China North East Petroleum properly.
The government agency indicated that according to an investigation, Baker Tilly Hong Kong director Andrew Ross and former director Helena Kwok did not acknowledge warning signs related to roughly $59 million worth of related-party transactions. These warnings were present in China North East Petroleum's internal accounting records, but were not sufficiently communicated in year-end 2009 financial statements.
As part of a settlement agreement, Kwok agreed to pay $10,000, Ross indicated he would give $20,000 and Baker Tilly Hong Kong will pay approximately $84,000, according to Bloomberg. In addition, Ross and Kwok agreed to renounce all rights to practice as accounts for any SEC-regulated organization for no less than three years, the government agency revealed.
"Auditors play a critical gatekeeper role in our financial markets, and Baker Tilly failed to uphold U.S. auditing standards and exercise appropriate professional care and skepticism with regard to numerous related-party transactions," said Antonia Chion, associate director in the SEC's Division of Enforcement.
Information for investors
The Rosen Law Firm has indicated that so far, the court system has not certified a class in the aforementioned legal claim. As a result, investors do not have legal representation unless they opt to go out and obtain such services. Eligible organizations and individuals also have the right to do nothing, in which case they will be absent class members.
The law firm indicated that if investors wish to know more about the securities class action lawsuit, they can reach out to Phillip Kim, esquire, or Laurence Rosen, esquire. In addition, eligible investors that want to serve as lead plaintiff have until March 2, 2015, to move the court.