Court: District Court, S.D. New York; June 26, 2014; Federal District Court
An accounting firm faced significant repercussions when it was revealed that Puda Coal Inc., which it had audited for several years, had ceased to exist as a viable company. Puda's chairman and his brother had secretly transferred the company’s operational assets, effectively leaving Puda as a shell entity with no revenue. This transfer, made in September 2009, was documented in shareholder meeting minutes and filings with China’s State Administration of Industry and Commerce. Despite this significant change, the auditing firm, Moore Stephens Hong Kong (MSHK), continued to issue clean audit opinions on Puda's financial statements, which were incorporated into SEC filings and publicly discussed by Puda.
The situation unraveled in April 2011 when a research report revealed the asset transfer, causing Puda's stock to plummet and trading to be halted by the SEC. Subsequently, numerous lawsuits were filed, leading to a Second Consolidated and Supplemental Amended Complaint (SCAC) alleging securities law violations against various parties, including the Auditors. The plaintiffs accused the Auditors under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934.
As of February 14, 2014, the Auditor defendants sought summary judgment, arguing that the plaintiffs had not demonstrated the subjective falsity of the misstatements or established the necessary scienter. Additionally, MSHK moved to exclude the plaintiffs’ proposed auditing expert, asserting that she lacked the relevant expertise. These motions were fully briefed by May 7, 2014.
Hou submitted two declarations opposing the Auditors’ motions for summary judgment on March 28, 2014, alongside her expert report. MSHK and MSPC subsequently moved to strike these declarations on May 7, 2014, with the motion fully briefed by June 6, 2014. On the same day, plaintiffs sought to exclude the Auditors’ proposed experts—Mackintosh, Nurczynski, and Weimin—arguing that the former two submitted inappropriate rebuttal reports and that Weimin lacked necessary expertise. This motion was fully briefed by May 28, 2014. The plaintiffs also moved to strike MSHK’s reply regarding its Local Civil Rule 56.1 statement, which was opposed by the defendants on June 6, 2014. The court granted the Auditors’ motions for summary judgment and to exclude Hou and her declarations, rendering the plaintiffs’ motions regarding Nurczynski, Mackintosh, and Weimin moot and denying them. The plaintiffs’ motion to strike MSHK’s reply was also denied.
Key undisputed facts include that Puda, incorporated in 2001, acquired Puda Investment Holding Limited in 2005, which owned Shanxi Putai Resources Ltd. Puda operated solely through Shanxi Coal, a PRC limited-liability company. By November 2007, Putai held 90% of Shanxi Coal, with the Zhao brothers owning the remaining 10%. As of December 31, 2009, the Zhao brothers controlled 60% of Puda and the remaining shares of Shanxi Coal. M. Zhao served as chairman of both Puda and Shanxi Coal in 2009-2010 and was identified as a legal representative for Shanxi Coal. The Zhao brothers’ legal representative status facilitated subsequent fraudulent transfers. In December 2009, Puda shifted its business strategy to include mining, and by September 2009, M. Zhao orchestrated the transfer of Shanxi Coal’s ownership from Puda to himself, with Y. Zhao authorizing the transfer. M. Zhao’s ownership in Shanxi Coal increased to 99% after further transfers, and Liping Zhu, the CEO, was aware of the initial transfer but failed to inform other directors. In July 2010, M. Zhao signed documents to transfer 49% ownership of Shanxi Coal to CITIC, while pledging the remaining 51% ownership without actual transfer.
Putai’s transfer of its interest in Shanxi Coal to M. Zhao, who later transferred 49% of his interest to CITIC and pledged 51% with Wei, was not disclosed in Puda's 2009 or 2010 SEC financial statements, which falsely indicated a 90% indirect interest in Shanxi. As of September 2009, Puda had no interest in Shanxi Coal, leading to materially misstated financial statements not compliant with U.S. GAAP. A short seller report by Alfred Little on April 8, 2011, revealed these transfers, followed by the resignation of the auditors on July 7, 2011. Puda's Form 10-Ks for 2009 and 2010 inaccurately included Shanxi’s assets and revenues, reporting over $200 million for 2009.
The State Administration for Industry and Commerce (SAIC) regulates enterprise registration in China, issuing business licenses that do not disclose shareholder identities but require such details in the company’s articles of association. Changes in shareholder equity must be reported to the SAIC, and a capital verification report (CVR) is needed when capital contributions are made, with certain exceptions. MSHK conducted audits of Puda according to PCAOB standards, utilizing resources from U.S. firms and ensuring a high level of assurance for their audit conclusions. The audit team was experienced in both PRC and U.S. companies and was multilingual, facilitating effective communication and compliance with PCAOB and U.S. GAAP standards.
MSPC conducted an Appendix K review for Puda and issued a clearance letter to MSHK, affirming that Puda’s financial statements complied with GAAP and PCAOB standards. No direct audit opinion from MSPC was provided to Puda, nor was MSPC a signatory on any audit opinion included in Puda’s financial statements or Form 10-K. MSHK auditors dedicated significant time at Shanxi Coal for the 2009 and 2010 audits, with four to five auditors spending about a month each year conducting fieldwork, including asset inspections and evidence collection. Puda’s controller, Irene Cheong, regularly interacted with the audit team, and the chairman of Puda’s Audit Committee praised MSHK’s work quality.
During the 2009 audit, MSHK completed a "Fraud Risk Identification Form," identifying a potential fraud risk due to management's dominance by a single individual, and outlined procedures to mitigate management override of controls. MSHK employed various methods to confirm Puda’s 90% ownership of Shanxi Coal, including reviewing management representation letters, legal opinions, board minutes, inquiries to the CFO, SEC filings, and share registries.
MSHK's working papers for 2009 included an "Audit Program for Capital Stock and Other Equity Accounts," noting no equity transactions or director meetings in the current year. They compared equity account balances with prior years, finding no changes, and tested significant transactions affecting capital accounts. Documentation indicated no movements in registered capital for Shanxi Coal, with an unsigned resolution from a 2008 shareholder meeting referenced for context.
An unsigned shareholder resolution referenced an unpaid dividend as of March 31, 2009, which Puda disclosed in its 2009 and 2010 Form 10-K filings. MSHK's working papers emphasized the need to identify all group undertakings for consolidation, specifically confirming Puda's 90% ownership of Shanxi Coal. MSHK's engagement team member, Ida Law, stated that they confirmed with management that there were no changes in the group structure. MSHK received a business license for Shanxi Coal from Puda’s CFO, Laby Wu, dated September 2007, which was sent before the required annual inspection period. No other business license was presented in the motion record. Counsel for some Puda directors submitted a business license from September 9, 2009, showing a registered capital increase. MSHK obtained an unsigned draft legal opinion from Puda’s PRC counsel indicating no changes in capital structure for 2009. MSHK's audit procedures included reviewing board and shareholder meeting minutes to identify related party transactions, but these minutes were reportedly missing despite requests. MSHK did not acquire Shanxi Coal’s SAIC filings for the 2009 audit, with Law noting that circumstances did not warrant hiring an agent for such searches. The governing rules of Shanxi Coal required quarterly shareholder meetings, and MSHK was aware of significant shareholder transactions in 2009, including an acquisition related to Shanxi Jianhe Coal Limited, which raised substantial accounting and auditing concerns. MSHK reviewed the Jianhe Coal transaction and its SAIC filing as part of the audit.
On September 3, 2009, Shanxi Coal's shareholders' meeting authorized the transfer of Putai's 90% ownership in Shanxi Coal to M. Zhao and Y. Zhao. MSHK issued a clean audit opinion for Puda’s 2009 financial statements, stating they presented Puda Coal, Inc.’s financial position fairly as of December 31, 2009, in line with PCAOB standards. For the 2010 audit, MSHK did not obtain Shanxi Coal's SAIC filings but received a capital infusion confirmation (CVR) from Puda’s management, indicating over 466 million RMB injected into Shanxi Coal. The May 2010 CVR was valid for 90 days and included details on ownership interests. Shanxi Coal's May 2010 business license required registration of any changes in "registered items," contrasting with its 2007 license, which described it as a "limited liability company," while the 2010 license referred to it as a "limited liability company (stock controlled by natural person or private enterprise)." MSHK provided a clean audit opinion for Puda's 2010 financial statements, asserting they conformed to U.S. GAAP. Plaintiffs allege that MSHK's audit reports were false and misleading due to non-compliance with PCAOB standards, misrepresentation of financial statements, ineffective internal controls, and failure to adhere to GAAP. MSHK's reports claimed adherence to PCAOB standards for both 2009 and 2010 audits. On July 14, 2011, Puda filed a Form 8-K with the SEC, announcing MSHK's resignation as auditor and stating that its prior audit opinions could no longer be relied upon.
E. Anita C.M. Hou is presented as an expert in auditing standards from Hong Kong and the PRC. She highlights several critical issues regarding the auditing processes of Puda and Moore Stephens, including: (1) the similarities in auditing concepts across the U.S., PRC, and Hong Kong; (2) a significant omission of control and ownership considerations between parent and subsidiary companies; (3) inadequate audit procedures to address identified risks, with reliance on the Audit Committee and Puda's internal personnel; (4) the use of outdated or irrelevant audit evidence; (5) lack of review for key audit documents by audit management; and (6) failure to respond to apparent red flags regarding risk management. While Hou references relevant standards from the Ministry of Finance in the PRC and the Hong Kong Institute of Certified Public Accountants and compares them with PCAOB standards, she clarifies her lack of qualifications to opine on PCAOB compliance, stating she has no experience with PCAOB engagements.
Alexander H. Mackintosh, a U.S. CPA since 1979 with extensive experience at Ernst & Young, also provides expert testimony. He asserts that the auditors' work for Puda complied with PCAOB standards. Mackintosh explains that PCAOB standards do not mandate auditors to test every account or transaction, and he contends that the planning for the 2009 and 2010 audits adhered to PCAOB requirements, adequately addressing identified risks. He opines that the engagement team's planning was properly supervised and that MSHK's assessments of internal controls and related party transactions were compliant with PCAOB standards. Additionally, he states that obtaining independent confirmations from the SAIC during the 2010 audit was not necessary under PCAOB guidelines.
Peter S. Nurczynski is presented by MSPC as an accounting expert, having provided a report assessing whether MSPC conducted a proper "Appendix K" review in compliance with SEC regulations. Nurczynski, a U.S. CPA with 38 years at Ernst & Young, discusses the relevant SEC regulations and professional standards, noting that Appendix K does not require audit steps or direct interaction with the audit client, implying reliance on the engagement team's work. He concludes that MSPC appropriately executed its Appendix K review for MSHK's 2009 and 2010 Form 10-K filings.
Wang Weimin is introduced by MSHK as an expert in PRC law, specializing in mergers and acquisitions. He highlights inconsistencies in document maintenance by local SAIC offices and the incomplete nature of information from these searches. Weimin reviews a CVR in the case and confirms its stated contents. He explains that Shanxi’s business license was valid until the next annual inspection in 2010 or upon changes to essential information and emphasizes the importance of shareholder registers under PRC law, asserting that shareholders can rely on this register.
The document also outlines principles governing summary judgment. Summary judgment can only be granted when there is no genuine dispute over material facts, with the moving party responsible for demonstrating this lack of dispute. The court must view evidence favorably for the nonmoving party, who must counter with specific, affirmative evidence rather than speculation or vague assertions. Only disputes over material facts that could affect the case's outcome can prevent summary judgment.
Conscious misbehavior involves deliberate illegal actions, while recklessness refers to highly unreasonable conduct that significantly deviates from ordinary care standards, indicating that the danger was known or obvious to the defendant. An egregious failure to recognize obvious risks may suggest recklessness. For plaintiffs to assert recklessness against a non-fiduciary accounting firm, they must present facts demonstrating that the conduct was not merely substandard but approached an intent to facilitate fraud. It must be shown that the audit was so inadequate that it could be considered a "pretend" audit, essentially not performed at all. The SEC must establish that the accounting practices were so poor that they amounted to no audit, or that there was a blatant disregard for obvious issues, or that the decisions made were beyond the realm of reasonable accounting practices. Merely suggesting that an audit could have been improved does not suffice for proving scienter, as this constitutes "fraud by hindsight." The standard of care for accountants is determined by whether their conduct was consistent with, exceeded, or egregiously fell short of industry expectations, and expert testimony is not necessarily required to establish this standard.
Securities fraud cannot be established without evidence of fraudulent intent, as highlighted in several cases, including Chill and In re Worlds of Wonder, indicating that mere violations of accounting standards (GAAP and GAAS) alone do not constitute fraud. The court must determine if the requisite accounting skill is something a lay juror can understand, referencing McKowan Lowe, where lack of expert evidence on an auditor's recklessness led to summary judgment for the auditor. In accounting malpractice claims, expert testimony is generally required to establish the standard of care, as demonstrated in SG Industries and Dapremont cases. However, this requirement may be waived if the fact finder’s ordinary experience suffices to assess the adequacy of professional services.
Regarding expert testimony, a trial court acts as a gatekeeper to ensure the admissibility of such evidence under Daubert standards. Expert testimony should aid the jury in understanding complex concepts, and Rule 702 outlines that experts can testify if their knowledge assists in determining facts, provided it is based on sufficient data. The court has a regulatory role in determining the appropriateness of the subjects and theories presented by experts.
To determine whether an expert meets the requirements of Rule 702, the court evaluates four key criteria: the reliability of the principles and methods used, the application of those principles to the case facts, the qualifications of the expert, and whether the testimony would assist the trier of fact. The qualifications assessment is critical and involves examining the expert’s educational background, training, and relevant experience. Courts aim to ensure that the proposed expert possesses superior knowledge in the area related to their testimony, and a lack of formal training does not automatically disqualify an expert if they have significant practical experience in the field. The inquiry emphasizes the reliability and relevance of the expert's methodology rather than the conclusions drawn from it. Expert testimony is also subject to Rule 403, which allows for exclusion if its probative value is outweighed by potential unfair prejudice or confusion. The Second Circuit adopts a liberal interpretation of qualification standards under Rule 702, allowing for practical experience to suffice in place of formal training when closely related to the subject matter.
Reliability of an expert's testimony requires a preliminary assessment of the scientific validity of the underlying reasoning and methodology, as established in Daubert v. Merrell Dow Pharmaceuticals. Key factors to evaluate include testability, peer review status, potential error rates, and general acceptance within the scientific community. Courts can limit qualified experts from commenting on the credibility of other witnesses or evidence. Testimony deemed speculative or conjectural does not meet the standards set by Rule 702, which demands that expert knowledge surpass mere belief or speculation. The Daubert inquiry is flexible but necessitates reliability at every analytical step.
Expert testimony must assist the trier of fact without overstepping its role. Relevant expert evidence may be excluded under Rule 403 if it poses a substantial risk of unfair prejudice or confusion. Experts cannot instruct on the law or determine factual issues for the jury but may provide opinions on factual matters. However, ultimate legal conclusions based on facts are inadmissible, even if framed as industry practice.
Federal Rule of Civil Procedure 26 outlines the requirements for disclosing expert witnesses, mandating that parties disclose the identities of any witnesses they intend to use at trial.
Disclosures under Federal Rule of Civil Procedure 26(a)(2)(B) must be accompanied by a written report unless otherwise ordered by the court. Parties are required to make these disclosures according to the court's schedule. If a party intends to introduce evidence solely to contradict or rebut another party's evidence, this must be done within 30 days after the opposing party's disclosure as per Rule 26(a)(2)(D). The rule also allows for the supplementation of disclosures under Rule 26(a)(2)(E). Evidence is categorized into two types: evidence supporting a party's case in chief and rebuttal evidence that counters an adverse party's claims. Generally, rebuttal evidence can only address new facts introduced in the opposing party's case. Courts must assess whether evidence is rebuttal by determining if it counters the opposing party's evidence or merely continues a party's case in chief. A party cannot present rebuttal evidence if the adverse party has not raised an issue to which the evidence responds. Courts have significant discretion in deciding the admissibility of rebuttal evidence. In summary judgment motions, only admissible evidence is considered, and if expert declarations are contested, the court must resolve those motions before considering the expert testimony in relation to the summary judgment.
Plaintiffs rely on expert Hou to establish the auditing standards applicable to the Auditors' work and to demonstrate the reasonableness of their actions. Previously, plaintiffs had proposed Barry Epstein as an expert on accounting standards but later withdrew him before the Auditors could disclose rebuttal experts, leading to the argument that rebuttal experts Nurczynski and Mackintosh are now moot. The Auditors intend to introduce Weimin as an expert, but plaintiffs contend that Weimin lacks relevant experience. Plaintiffs allege securities fraud under Section 10(b) and Rule 10b-5, with defendants seeking summary judgment on grounds that plaintiffs have not established the scienter element. Plaintiffs do not present direct evidence of intentional fraud but argue that the Auditors acted recklessly, constituting a severe deviation from ordinary care. The Court must assess whether Hou's opinions are relevant and if she possesses the requisite expertise, as per the Daubert standard. Relevant evidence must make a fact at issue more or less probable. The applicable standard of care for evaluating the Auditors’ conduct is based on PCAOB (United States) standards, referenced in their audit opinions, which plaintiffs assert were breached. Hou is presented as an expert in Hong Kong and PRC auditing standards, and plaintiffs argue that MSHK's expert, Mackintosh, has not demonstrated any differences between PCAOB, Hong Kong, and PRC standards regarding the audit procedures for non-routine transactions.
Sufficient evidence is required to support audit conclusions, and Ms. Hou has experience with books and records in the People's Republic of China (PRC). Although she is not a U.S. CPA, plaintiffs argue she can provide relevant information regarding ownership evidence of a PRC-based company, potentially indicating the Auditors' recklessness in failing to recognize the company's absence. However, the Court concludes that Hou lacks the necessary expertise to opine on the applicable standard of care for U.S. auditors under PCAOB standards, as she has never conducted such an audit, lacks relevant training, and acknowledges her qualifications are insufficient. Even under the liberal standards for expert qualifications in the Second Circuit, her expertise does not meet the required threshold. Thus, the Court finds her opinions will not assist in determining whether the Auditors' conduct deviated egregiously from the standard of care. Furthermore, her opinions on auditing standards from Hong Kong and the PRC are deemed irrelevant and are excluded under Rule 402 of the Federal Rules of Evidence. While she asserts that the auditing standards across these regions are similar, the Court finds her assertions vague and insufficient to establish relevance or reliability concerning U.S. standards. It clarifies that the Auditors' conduct should not be evaluated against PRC or Hong Kong standards merely because the company is based in the PRC, and any relevant information she could provide is intertwined with her comparative analysis of auditing standards, which does not hold significance in this case.
Hou's expert opinions pose a significant risk of misleading the jury regarding the applicable standard of care for auditors. The Court has determined that Hou's statements about specific records, such as SAIC records and CVRs, cannot be presented separately from her overall opinions, as this could lead to confusion about the standard of care. Since Hou will testify as the primary accounting expert for the plaintiffs without any supporting expert on PCAOB standards, her assertions regarding the inadequacy of the Auditors’ performance are deemed unreliable due to her lack of relevant expertise. Consequently, MSHK's motions to exclude Hou’s expert report and testimony, as well as to strike her declarations, are granted.
Regarding the plaintiffs' attempt to exclude experts Mackintosh and Nurczynski, the Court finds their procedural argument unconvincing. Although these experts were disclosed as rebuttal experts rather than case-in-chief experts, the plaintiffs had sufficient opportunity to depose them and thus will not be prejudiced at trial. Mackintosh and Nurczynski's testimonies are relevant to whether MSHK and MSPC met the standard of care, directly countering the plaintiffs' claims that the Auditors' actions were grossly inadequate. The Court emphasizes that allowing these experts to testify as rebuttal does not unfairly disadvantage the plaintiffs, as they cannot unilaterally dictate the scope of the Auditors' defense based on their own strategic decisions.
Plaintiffs' claim that the Auditors breached their standard of care allows the Auditors to defend against this claim. The court cites relevant case law to emphasize the discretion of the district court in determining the scope of rebuttal evidence. If plaintiffs withdraw their claim, the necessity for certain witnesses and motions would also cease. The court views the plaintiffs' decision to withdraw their primary accounting expert as a tactical move, but they cannot control the Auditors’ expert choices by doing so. The plaintiffs did not disclose their intent to forgo submitting an accounting expert on PCAOB standards during negotiations, which undermines their procedural argument regarding the Auditors’ rebuttal reports. The court confirms that the Auditors' experts, Mackintosh and Nurczynski, properly address the same subject matter as the plaintiffs' expert, Hou, and their reports are admissible rebuttal evidence. The court acknowledges the preclusion of Hou does not automatically preclude the Auditors’ experts. Consequently, plaintiffs' motions to exclude Mackintosh and Nurczynski are denied. Additionally, Weimin, a qualified lawyer practicing in the PRC with relevant experience, is allowed to provide expert testimony as it is deemed helpful to the trier of fact. Plaintiffs' motion to exclude Weimin is also denied. The Auditors have presented multiple grounds for their summary judgment motions.
The Auditors contend that there is no triable issue regarding their scienter or subjective falsity, supported by case law including Tellabs and Rothman. MSPC asserts it is not a "maker" of any statements as defined in Janus, and the Court concurs with both arguments. The plaintiffs do not claim the Auditors had actual knowledge of the Zhao brothers’ fraud but argue they conducted a deficient audit and overlooked significant warning signs, which necessitates proof of recklessness. To counter the Auditors' motion for summary judgment, plaintiffs must demonstrate that the Auditors’ conduct significantly fell below professional standards. The Court notes that while expert testimony is not always required, it may be necessary here due to the complexity of the standards involved. Plaintiffs acknowledge that assessing the Auditors’ performance is beyond a jury's understanding. They assert that the Auditors failed to identify that Puda no longer owned Shanxi Coal, yet continued to report otherwise, but this simplification does not address the intricate issue of professional standard compliance. The Auditors claim to have adhered to PCAOB standards, while plaintiffs allege non-compliance but fail to provide evidence of specific PCAOB standards that were violated or demonstrate that the Auditors’ practices constituted a serious deviation from these standards. Without such evidence, plaintiffs cannot establish a triable issue regarding the Auditors' alleged recklessness.
Plaintiffs withdrew their only expert on PCAOB standards, Barry Epstein, leaving them with an accountant, Hou, who lacked qualifications to assess compliance with those standards. The Court excluded Hou's testimony, emphasizing that it could not establish a triable issue regarding the Auditors’ adherence to PCAOB standards. Plaintiffs claimed MSHK's failure to obtain Shanxi’s SAIC files indicated recklessness, but the Court focused on whether reasonable auditors would have acted similarly, concluding that determining necessary audit steps under PCAOB standards was complex and speculative. The Auditors provided credible testimony from Mackintosh and Nurezynski, confirming their compliance with PCAOB standards, which remained unrefuted. This testimony suggested that the Auditors did not act negligently or egregiously. Consequently, plaintiffs did not present a triable issue concerning scienter, warranting summary judgment against the Auditors on the Section 10 claim. Additionally, plaintiffs failed to demonstrate subjective falsity regarding the audit opinions, which are considered statements of opinion rather than fact.
Subjective falsity is a requirement under Section 11 of the Securities Act, as established in In re Lehman Bros. Sec. Erisa Litig., where auditors' opinions are explicitly labeled as such and must comply with established standards. The court found no evidence that the auditors were aware of the Zhao brothers' transfer of Shanxi Coal to themselves in 2009, suggesting that the auditors acted as "dupes" rather than knowingly misleading. Without a triable issue regarding subjective falsity, claims against the auditors under Sections 11 and 10 must be dismissed.
MSPC contended it did not "make" the statements as a reviewer of MSHK's opinion and referenced Janus; however, the court's previous rulings provided sufficient grounds for dismissal, making this argument unnecessary.
Plaintiffs' motion to strike MSHK’s reply to the Statement of Material Facts was deemed moot, as the court did not rely on that reply but on the parties’ previously submitted statements of material facts. Consequently, the court granted the auditors' motions for summary judgment and motions to exclude certain declarations, denied plaintiffs' motions to exclude other individuals, and denied the motion to strike MSHK's reply. The court ordered the closure of specific motions and noted that claims against other defendants remain pending.
The procedural history indicates that discovery was completed for the Auditors and plaintiffs before the remaining defendants. MSHK contends that a specific document should be disregarded as plaintiffs did not authenticate it through testimony. However, the Court notes that during summary judgment, documents admissible at trial may be considered. The document in question is viewed as a business record that a corporate witness could authenticate at trial. MSHK’s argument against the document’s admissibility is rejected.
On March 28, 2014, in response to the Auditors’ summary judgment motions, Hou submitted two declarations: the "Summary Judgment Declaration" and the "Documentation Declaration." Defendants moved to strike these declarations, claiming they improperly amended Hou's expert report. Plaintiffs argue that separate declarations from experts are permissible at this stage. Ultimately, the Court ruled to strike Hou’s Summary Judgment Declaration, stating it does not comply with requirements for admissible evidence, particularly because it lacked PCAOB opinions included in her expert report. As a result, her testimony in that declaration is deemed inadmissible.
Additionally, the Court found inconsistencies between Hou’s previous admissions regarding her lack of expertise in PCAOB standards and her assertions in the Summary Judgment Declaration. Consequently, the motion to strike this declaration is granted, while the motion to strike the Documentation Declaration is denied as moot due to the preclusion of her expert testimony. MSHK’s primary arguments are acknowledged, with MSPC adopting them. The Court also corrected typographical errors in its previous opinion without making any substantive changes.
