deloitte_chinacast education (2)

7/29/2019 Deloitte_ChinaCast Education (2)

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JS 44C/SDNYREV. 7/2012 JUDGE GARDEPHE CIVILCOVE* Sj>lEETierA mhe JS-44 civil cover sheet and the information contained her* neittieWeplace fcr*ipliment the fiftg ari&pleadings or other papers as required by law, except as pro*edV>*cal rulesWcouH. This formfcppro\e/b]Judicial Conference oftheUnited States in September 1974, isrequired for useoftheClerk ofCourt for thepuq

initiating the civildocket sheet.PLAINTIFFSSPECIAL SITUATIONS FUND III QP, L.P. [see attachment]

DEFENDANTSDELOITTE TOUCHE TOHMATSU CPA, LTD.; DELOITTE &TOUCHE LLP;ANTONIO SENA; JUSTIN TANG; YIN JIANPING; RICHARD XUE; MICHAELSANTOS- and NFD SHFRWOODATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER ATTORNEYS (IF KNOWN)

Amiad M. Kushner, Esq.Lowenstein Sandler LLP, 1251Avenue ofthe Americas,NY, NY 10020212.262.6700 .CAUSE OF ACTION (CITE THE U.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE ABRIEF STATEMENT OF CAUSE)(DO NOT CITE JURISDICTIONAL STATUTES UNLESS DIVERSITY)Sections 10(b), 18 and 20(a) of the SE Act of 1934, 15 U.S.C. 78j(b), 78r and 78t(a) , and Rule 10b-5, 17 C.F.R. 240.10b-5.Has this ora similar case been previously filed in SDNY atany time? No [X] Yes D Judge Previously AssignedIf yes, was this case Vol. D Invol. Dismissed. No Yes If yes, give dateIS THIS AN INTERNATIONAL ARBITRATION CASE? No E3(PLACEAN [x]IN ONE BOX ONLY)

Yes DNATURE OF SUIT

& Case No .

TORTS ACTIONS UNDER STATUTES

PERSONAL INJURY PERSONAL INJURY FORFEITURE/PENALTY BANKRUPTCY[ ]422 APPEAL

28 US C 15 8[ ]423 WITHDRAWAL2 8U SC 15 7

1)110[ ]12011130[ ]14011150

I 1151[]152

i 1153

[ 1160[]1901 1195

[]196

INSURANCEMARINEMILLER ACTNEGOTIABLEINSTRUMENTRECOVERY OFOVERPAYMENT &ENFORCEMENTOF JUDGMENTMEDICARE AC TRECOVERY OFDEFAULTEDSTUDENT LOANS(EXCLVETERANS)RECOVERY OFOVERPAYMENTOF VETERAN'SBENEFITSSTOCKHOLDERSSUITSOTHERCONTRACTCONTRACTPRODUCTLIABILITY

FRANCHISE

REAL PROPERTY1)210[ I 2 20[ ]230[]24011245[ ]290

LANDCONDEMNATIONFORECLOSURERENT LEASE &EJECTMENTTORTS TO LANDTORT PRODUCTLIABILITYAL L OTHERREAL PROPERTY

[ ]362[ 1365[ ] 368

11610[ ]62011625

PERSONAL INJURY -MED MALPRACTICEPERSONAL INJURYPRODUCT LIABILITYASBESTOS PERSONALINJURY PRODUCTLIABILITY

PERSONAL PROPERTY[ ]630[ 1640[ 1650[ )660[ ]690

AGRICULTUREOTHER FOOD &DRUGDRUG RELATEDSEIZURE OFPROPERTY21 US C 881LIQUOR LAWSRR & TRUCKAIRLINE REGSOCCUPATIONALSAFETY/HEALTHOTHER

PROPERTY RIGHTS[ ]820 COPYRIGHTS[]830 PATENT[ ]840 TRADEMARK/

1SOCIAL SECURITY

[ ]310 AIRPLANE[ 1315 AIRPLANEPRODUCTLIABILITY[ ]320 ASSAULT, LIBEL&SLANDER[ J330 FEDERALEMPLOYERS'LIABILITY[ ] 340 MARINE[ ]345 MARINE PRODUCTLIABILITY[ J350 MOTORVEHICLE[ ]355 MOTORVEHICLEPRODUCT LIABILITY[ 1360 OTHER PERSONALINJURY

1 137011371[ I 3 80[ ]385

OTHER FRAUDTRUTH IN LENDINGOTHER PERSONALPROPERTY DAMAGEPROPERTY DAMAGEPRODUCT LIABILITY LABOR

11710117201 1730

[ ]861 HIA(1395ff) \[ J862 BLACKLUNG(923).[ J863 DIWC/DIWW (405(g))[ ]864 SSIDTITLE XVI[ ]865 RSI (405(g))PRISONER PETITIONS

ACTIONS UNDER STATUTESCIVIL RIGHTS[ ]441 VOTING[ I442 EMPLOYMENT[ 1443 HOUSING/

ACCOMMODATIONS[ ]444 WELFARE[ J445 AMERICANS WITHDISABILITIES -EMPLOYMENT[ )446 AMERICANS WITHDISABILITIES -OTHER[ ]440 OTHER CIVIL RIGHTS(Non-Prisoner)

[]510 MOTIONSTOVACATE SENTENCE20 USC 2255 [ 1740[ ]530 HABEAS CORPUS [ 1 790[ ]535 DEATHPENALTY[ ]540 MANDAMUS &OTHER [ 1791

PRISONER CIVIL RIGHTS[ ]550 CIVILRIGHTS[ ]555 PRISON CONDITION

FAIR LABORSTANDARDS ACTLABOR/MGMTRELATIONSLABOR/MGMTREPORTING &DISCLOSURE ACTRAILWAY LABOR AC TOTHER LABORLITIGATIONEMPL RE T INCSECUR ITY ACT

FEDERAL TA X SUITS[ ]870 TAXES (U.S. PlaintifforDefendant)[ ]871 IRS-THIRDPARTY

26 USC 76 09

IMMIGRATION

I 14621 146311465

NATURALIZATIONAPPLICATIONHABEAS CORPUS-ALIEN DETAINEEOTHER IMMIGRATIONACTIONS

OTHER STATUTES[ ]400[141011430I 1450[ ]46011470

[ ]480[ ]490[1810W850

STATEREAPPORTIONMENTANTITRUSTBANKS & BANKINGCOMMERCEDEPORTATIONRACKETEER INFLUENCED & CORRUPTORGANIZATION ACT(RICO)CONSUMERCRfeDITCABLE/SATELLITE TVSELECTIVE SERVICESECURITIES/ 'COMMODITIES/EXCHANGECUSTOMERCHALLENGE12 U SC 3 41 0OTHER STATUTORYACTIONSAGRICULTURAL ACTECONOMICSTABILIZATION ACTENVIRONMENTALMATTERSENERGYALLOCATION AC TFREEDOM OFINFORMATION AC TAPPEAL OF F EEDETERMINATIONUNDER EQUALACCESS TO JUSTICECONSTITUTIONALITYOF STATE STATUTE

[1875

[ 1890[1891[ ]892[ ]893I 1894[ ]895[ J900

[ J950

Check if demanded in complaint:CHECK IFTHIS ISA CLASS ACTIONUNDER F.R.C.P. 23

DOYOU CLAIM THIS CASEIS RELATED TOACIVIL CASENOW PENDING IN S.D.N.Y.?IF SO , STATE:

DEMAND $_ OTHERCheckYESonlyif demanded in complaintJURY DEMAND: YES NO

JUDGE DOCKET NUMBER_

NOTE: Please submitat the timeoffiling an explanation ofwhy cases are deemed related.


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(PLACEAN x INONEBOXONLY) ORIGINIXl 1 r,riir,=,i n o j. I-! * n.mmHi [~] 4 Reinstated or Q 5 Transferred from D 6 Multidistrict D 7 Appeal to DistrictpZ!L LI 2 Removed from U3 Remanded L_l LJ |strict) uition JudgefromProceeding State Court from rwupo, ^ ^ Magistrate Judge a. all parties represented court"3'6 Judgment

L] b. At least oneparty Is pro se .

(PLACEAN x INONEBOXONLY) BASIS OF JURISDICTION IF DIVERSITY, INDICATED1U.S. PLAINTIFF 2U.S. DEFENDANT H3 FEDERAL QUESTION D4 DIVERSITY SJSt?^E^S?^'(U.S. NOTAPARTY) (28 USC 1332, 1441)CITIZENSHIP OF PRINCIPAL PARTIES (FORDIVERSITY CASESONLY)

(Place an [X] in onebox for Plaintiff andone box for Defendant)PTF DEF PTF DEF PTF DEFCITIZEN OF THIS STATE []1 []1 CITIZEN OR SUBJECT OF A []3[]3 J ! ^ ^ ^ JS^^^1*06 N5 t]5FOREIGN COUNTRY OF BUSINESS IN ANOTHER STATE

CITIZEN OF ANOTHER STATE []2 []2 INCORPORATED or PRINCIPAL PLACE []4[]4 FOREIGN NATION []6 []6OF BUSINESS IN THIS STATE

PLAINTIFF(S) ADDRESS(ES) AND COUNTY(IES)[see attachment]

DEFENDANT(S) ADDRESS(ES) AND COUNTY(IES)[see attachment]

REPRESENTATION IS HEREBY MADE THAT, AT THIS TIME, IHAVE BEEN UNABLE, WITH REASONABLE DILIGENCE, TO ASCERTAIN THERESIDENCEADDRESSES OF THE FOLLOWING DEFENDANTS:Antonio Sena, Justin Tang, Yin Jianping, Richard Xue, Michael Santos, Ned Sherwood

Check one- THIS ACTION SHOULD BE ASSIGNED TO: D WHITE PLAINS IE MANHATTAN(DO NOT check either box if this a PRISONER PETITION/PRISONER CIVIL RIGHTS COMPLAINT.)DATE 02/15/13 SIGNATURE OF ATTORNEY OF RECORD ADMITTED TO PRACTICE IN THIS DISTRICT^^^^^ "" N YES (DATE ADMITTED Mo. Yr. 2005RECEIPT # i Attorney Bar Code # AK2332^^MWMof the Court. ^ f "Wflllagistrate Judge is to bedesignated bythe Clerk iMagistrate Judge_^ . is so Designated.Ruby J. Krajick, Clerk ofCourt by Deputy Clerk, DATEDUNITED STATES DISTRICT COURT(NEWYORKSOUTHERN)


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CIVIL COVER SHEETATTACHMENTSPECIAL SITUATIONS FUND, ET AL v. DELOITTE TOUCHE, ET ALPLAINTIFFS

SPECIAL SITUATIONS FUND III QP, LP.; SPECIAL SITUATIONS CAYMAN FUND, LP.; COLUMBIAPACIFIC OPPORTUNITY FUND, LP.; FIR TREE VALUE MASTER FUND, LP.; FIR TREE CAPITALOPPORTUNITY MASTER FUND, LP.; LAKE UNION CAPITAL FUND LP.; LAKE UNION CAPITAL TEFUND LP.; ASHFORD CAPITAL MANAGEMENT, INC.; ZS EDU, LP.; and MRMP-MANAGERS, LLC,PLAINTIFFSADDRESSSES AND COUNTIESSpecial Situations Fund III QP, L.P., 527 Madison Avenue, New York, New York, 10022, New YorkCountySpecial Situations Cayman Fund, LP., 527 Madison Avenue, New York, New York, 10022, NewYork CountyFir Tree Value Master Fund, LP., 505 Fifth Avenue, New York, New York, 10017, New YorkCountyFir Tree Capital Opportunity Master Fund, LP., 505 Fifth Avenue, New York, New York, 10017,New York CountyColumbia Pacific Opportunity Fund, LP., 1910 Fairview Ave East, Seattle, Washington 98102Lake Union Capital Fund LP., 601Union Street,Seattle,Washington 98101Lake Union Capital TE Fund LP., 601Union Street,Seattle,Washington 98101Ashford Capital Management Inc., One Walkers Mill Road, Wilmington, DE 19807ZS EDU L.P., 1133 Avenue ofthe Americas, New York, New York 10036. Alist of its purchases ofChinaCast common stock duringthe relevantperiod isattached hereto as Exhibit I.MRMP-Managers LLC, c/o South Dakota Trust Co., 201 South Philips Avenue, Suite 200, SiouxFalls, South Dakota 57104-6317

27812/202/15/2013 23503927.1


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DEFENDANTS ADDRESSES AND COUNTIESDeloitte Touche Tohmatsu CPA Ltd., 30/F Bund Center, 222 Yan An Road East, Shanghai, China.Deloitte &Touche LLP, 1633Broadway, New York, New York, New York County

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JUDQUNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

EflPECIAL SITUATIONS FUND III QP, L.P.; SPE|I/fl>SITUATIONS CAYMAN FUND, L.P.; COLUMBIAPACIFIC OPPORTUNITY FUND, L.P.; FIR TREEVALUE MASTER FUND, L.P.; FIR TREE CAPITALOPPORTUNITY MASTER FUND, L.P.; LAKE UNIONCAPITAL FUND L.P.; LAKE UNION CAPITAL TEFUND L.P.; ASHFORD CAPITAL MANAGEMENT,INC.; ZSEDUL.P.; and MRMP-MANAGERS, LLC,

Plaintiffs,-v-

DELOITTE TOUCHE TOHMATSU CPA, LTD.;DELOITTE & TOUCHE LLP; ANTONIO SENA; JUSTINTANG; YIN JIANPING; RICHARD XUE; MICHAELSANTOS, JOHN AND JANE DOES 1-10; and ABCCORPS. 1-10,

Defendants.

N 1094

u>

C *".

COMPLAINT AND JURY DEMANDPlaintiffs Special Situations Fund III QP, L.P.; Special Situations Cayman Fund, L.P.; Fir

Tree Value Master Fund, L.P.; Fir Tree Capital Opportunity Master Fund, L.P.; ColumbiaPacific Opportunity Fund, L.P.; Lake Union Capital Fund L.P.; Lake Union Capital TE FundL.P.; Ashford Capital Management, Inc.; ZS EDU L.P.; and MRMP-Managers, LLC Trust(collectively, the "Investors" or "Plaintiffs") are purchasers of securities issued by ChinaCastEducation Corporation, Inc. ("ChinaCast," or the "Company"). Plaintiffs, by their undersignedattorneys, by way ofComplaint and Jury Demand, for their federal securities law claims againstChinaCast's auditors, defendants Deloitte Touche Tohmatsu CPA, Ltd. ("DTTC") and Deloitte& Touche LLP ("Deloitte US" and together with DTTC, "Deloitte"), and ChinaCast's formerdirectors and officers Antonio Sena, JustinTang, Yin Jianping, Richard Xue andMichael Santos


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(the "Individual Defendants," and, collectively with Deloitte, John and Jane Does 1-10, and ABCCorps. 1-10, "Defendants"), allege the following upon personal knowledge as to themselves andtheir own acts, and upon information and beliefas to all other matters.

Plaintiffs' information and belief are based on, inter alia, investigation made by andthrough their attorneys, which investigation includes, among other things, a review and analysisof: ChinaCast's filings with the U.S. Securities and Exchange Commission ("SEC"); publicdocuments and media reports concerning ChinaCast and Deloitte; and certain documentsobtained or maintained by ChinaCast. Many of the facts supporting the allegations containedherein are known only to the Defendants or are exclusively within their custody and/or control.Plaintiffs believe that further substantial evidentiary support will exist for the allegations in thisComplaint after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. Plaintiffs are investment funds andentities thatpurchased the securities of ChinaCast,a Delaware company, the common stock ofwhich traded on the NASDAQ under the symbolCAST. Plaintiffs bring this action under the federal securities laws to recover for the tens ofmillions of dollars in investment losses they suffered onChinaCast securities purchased duringthe period ofMarch 31, 2008, through and including March 30, 2012, as a result ofnumerousfalse and misleading statements in the Company's annual reports and audited financialstatements for the years ending December 31, 2007, 2008, 2009, and 2010. These annual reportsand financial statements were filed with the SEC from March 2008 through February 2012 andcarried the imprimatur ofDeloitte - one ofthe "Big Four" global accounting firms - whose nameinvestors rely on as an independent auditor and gatekeeper ofaccurate financial reporting.

2. In this case, although ChinaCast is a Delaware company traded on a U.S. stockexchange with significant U.S. investors, the Company's operations, providing post-secondary

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education and e-learning services, are in China. As a result, Plaintiffs relied in particular on thefact that Deloitte - considered one of top global accounting firms - had a long term relationshipwith the Company and represented to the Company's shareholders, through DTTC, that itconducted its audits in accordance with the standards of the Public Company AccountingOversight Board (United States) (the "PCAOB").

3. PCAOB standards required Deloitte to plan and perform its audits of ChinaCast toobtain reasonable assurance about whether the Company's financial statements were free ofmaterial misstatements, including, inter alia, by examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. Deloitte US was integrally involved inthe ChinaCast audits, controlling and passing on issues of compliance with U.S. accountingstandards and Generally Accepted Accounting Principles ("GAAP"). Plaintiffs relied on the factthat Deloitte was "kicking the tires" to verify that the reported assets, liabilities, statements ofoperations and income, and all of the other financial information of the Company on which theInvestors relied to make their purchasing decisions, presented fairly and in all material respectsthe financial position of the Company.

4. ChinaCast's business did not make it a complicated company to audit. In 2007, theCompany's business and operations were limited, and its primary assets were cash and termdeposits, i.e., deposits placed with financial institutions with remaining maturities of greater thanthree months but less than one year when purchased. In 2008, the Company started to pursue astrategic move into the "bricks and mortar" university business, resulting in the Company(supposedly) purchasing one university a year for each of 2008, 2009 and 2010. For each of theyears in the audited 2007 through 2010 period, the Company had only one or two majortransactions per year, the truth ofwhich would have been easily verifiable had Deloitte done the

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bare minimum of what was required in conducting an audit in accordance with PCAOBstandards.

5. Instead, in violation of its duties as an independent financial watchdog, Deloitte putits name and brand behind the certification of financial statements that were almost entirely false.Examplesof Deloitte's egregious failure to conduct any real audit include:

For the year ended December 31, 2007, the Company's audited financialstatements reported total assets of $130,235 million. Of the Company's totalassets, $81,749 million, or more than 62%, were term deposits. However,Deloittefailed to disclose that more than 76% of the term deposits had beenpledged to secure the obligations of thirdparties,which appear to be outsideof the Company's scope of business. For the year ended December 31, 2008,the Company's audited financial statements reported total current assets of$93,325 million, of which more than 58%, or $54,265 million, were in termdeposits. However, Deloitte failed to disclose that more than 94% of theterm deposits had been pledged to secure the obligations of third parties.For the year ended December 31, 2009, the Company's audited financialstatements reported total current assets of $135,249 million, of which morethan 55%, or $74,559 million, were in term deposits. However, Deloittefailed to disclose that approximately 48% of the term deposits had beenpledged to secure the obligations of third parties. For the year endedDecember 31, 2010, theCompany's audited financial statements reported totalcurrent assets of $162,959 million, of which more than 65%, or $106,667million, were in term deposits. However, Deloitte failed to disclose thatapproximately 85% of the term deposits had been pledged to secure theobligations of third parties. Had Deloitte tested and confirmed that the termdeposits were unencumbered with the financial institutions that held them, itwould have learned of the pledges and could not have certified the total and/orcurrent assets as reported for the years 2007, 2008, 2009 or 2010.

For each of the years ended December 31, 2007, 2008, 2009 and 2010, theCompany's audited financial statements reported that the Company owned98.5%of ChinaCast Technology (BVI) Limited ("CCT BVI"), which in turnowned 100% of ChinaCast Technology (HK) Limited ("CCT HK"). As aresult of the Company's purported majority (indirect) ownership interest inCCT HK, Deloitte certified the Company's financial statements on aconsolidated basis, including CCTHK. However, the representation was falseandand the consolidation in violation of GAAP, as the Company neverhad amajority ownership interest in CCT HK. Had Deloitte confirmed theownership by reviewing the records readily obtainable from the HongKongCompanies Registry, it would have known that since 2003, the Company has

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only owned only 49.25% of CCT HK, with 50% owned personally by RonChan, the Company's former CEO. According to the audited financial statements for the year ended December 31,2009, in December 2009, the Company consummated and received proceedsfrom a secondary offering of its stock in the U.S. in the amount of $44million. Despite the significance of the transaction to the Company, Deloittefailed to test the receipt and maintenance of the proceeds by the Company. Infact, at least $35 million of the proceeds were almost immediately wired outto entities outside of the Company. The loss of these proceeds was notreflected in the 2007 annual report or audited financial statements. HadDeloitte reviewed the account s ta tements from the banks , it would have seenthe majority of the offering proceeds had been immediately (and improperly)siphoned out of the Company.

According to the audited financial statements for the year ended December 31,2010, on January 5, 2010, the Company issued 692,520 shares of stock at$7.22 per share for a total purchase price of $5 million to a British VirginIslands company owned 100% by the Company's former CEO, Ron Chan.However, despite the fact that this transaction was a significant, related-partytransaction at an above-market price, Deloitte failed to confirm that any ofthe Company's bank accounts ever actually received payment for the stock.In fact, the supposed transaction was a complete sham. The Company issuedthe shares, but never received payment.

According to the audited financial statements for the year ended December 31,2010, on June 2, 2010, the Company entered into a stock purchase agreementwith Wu Shi Xin, the purported sole stockholder of Wintown EnterprisesLimited, pursuant to which Mr. Wu purchased 3,735,734 shares of theCompany's common stock at $7.85 per share for a total purchase price of$29.3 million. However, again, despite the fact that this transaction wassignificant and at an above-market price, Deloitte failed to confirm that anyof the Company's bank accounts ever actually received payment for thestock. In fact, this too was a sham transaction. The Company again issuedshares without receiving payment.

In each of 2008, 2009 and 2010, the Company's annual reports and auditedfinancial statements reported the acquisition by the Company of a university.DTTC reported that in April 2008, one of the Company's subsidiariescompleted the acquisition of an 80% interest in Hai Lai, which in turn holds,inter alia, the entire interest in FTBC, a private college affiliated withChongqing Normal University. As reported in the audited financials, " theconsideration for the acquisition was RMB480,000, of which RMB475,850was paid during 2008..." In October 2009, another of the Company'ssubsidiar ies acquired East Achieve, which indirectly holds the interes t in aprivate college affil iated with Guangxi Normal University. As reported in theaudited financials, "the total consideration for the acquisition is up toRMB365,000, of which RMB295,000 was paid during 2009..." (RMB in

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thousands). In August 2010, another of the Company's subsidiaries acquiredWintown, which indirectly holds the entire interest in HIUBC, a privatecollege affiliated with Hubei Industrial University. As reported in the auditedfinancials, "[t]he total consideration for the acquisition is up to RMB450,000,of which RMB360,000 was paid during 2010..." (RMB in thousands).According to the Company's current report on Form 8-K filed December 21,2012, in the course of the Company's ongoing internal investigation, Deloittepreviously informed Company management that according to its work papers,the Company made payments in August and September 2010 from one of theCompany's bank accounts as part of the consideration for its acquisition ofWintown. However, Deloitte failed to obtain from the bankand review theactual statements for that account, which reflect no such payments duringthat time period. In fact, the Company apparently did not use its cash (or havethe cash) to pay the consideration for any of these university acquisitions. Oninformation and belief, the Company entered into financing agreements withoutside lenders to pay for the universities, which then were used as collateralto secure the loans. When the Company stopped making payments on theloans, the universities were effectively foreclosed, and their ownershiptransferred outside of the Company.6. Deloitte knew, or was reckless in not knowing, that the Company's financial

statements were materially false and misleading. Deloitte failed to conduct any meaningfulaudit; failing to independently confirm asset ownership, failing to confirm with the Company'sbanks the statements ofaccounts and cash flows, failing to independently confirm with the banksthe existence of unencumbered term deposits that made up substantial percentages of theCompany's assets year-over-year, and failing to confirm with the banks the statements reflectingthe Company's actual receipt of stock sale proceeds. Yet for four years DTTC signed letters tothe Company's shareholders, assuring them that the audited financial statements ofthe Companypresented fairly, in all material respects, the financial position of the company at each year's end.Deloitte's imprimatur on its supposedly vetted ChinaCast financial statements gave the Companyits ticket into the U.S. capital markets.

7. In making their decisions to invest in ChinaCast securities, Plaintiffs read, reviewedand relied on ChinaCast's public filings with the SEC, including but not limited to its annual

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reports on Form 10-KSB and 10-K, which included its audited year-end financial statements.Plaintiffs trusted the Deloitte stamp of approval. Defendants knew that Plaintiffs purchasedChinaCast securities in direct, eyeball reliance on, among other things, the Company's 10-Ks andaudited financial statements. They also knew that ChinaCast's stock was traded on the openmarket in reliance on ChinaCast's public SEC filings that contained material misrepresentationsand omissions. The effect ofthese material misrepresentations and omissions, inter alia, was to:(i) give Plaintiffs a materially false account of the Company's assets and liabilities; (ii) givePlaintiffs false information about the ownership of the Company's most significant assets; (iii)mislead Plaintiffs into believing that ChinaCast's CEO was investing his own money intoChinaCast as new capital; (iv) mislead Plaintiffs into believing that another investor was infusingnearly $30 million of capital into the Company, at an above-market share price; and (iv) falselylead Plaintiffs to believe that ChinaCast was prudently managing its cash and other assets andthat there were reasonable internal controls in place at the Company. Had it not been forDeloitte's imprimatur on the materially false and misleading statements and omissions containedin ChinaCast's financial reports, Plaintiffs would not have purchased their ChinaCast shares, andcertainly not at the prices they paid.

8. ChinaCast's annual reports and financial statements on which Plaintiffs reliedcontained numerous material misrepresentations and omissions that completely underminedPlaintiffs' ability to make informed investment decisions about ChinaCast's securities. Thesedocuments presented a picture ofChinaCast's assets and operations that was totally false. HadDeloitte done even the most basic of audits, let alone complied with its own stated auditprocedures, Deloitte would have known in 2007 that the majority of the Company's supposedassets did not exist. At any point in time, had Deloitte actually acted as the independent auditor


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it held itself out to be, it would have known that ChinaCast was a house of cards. Instead,Deloitte delivered the Company to the U.S. capital markets year, after year, after year, after year,with the Deloitte "approved" seal on its financial statements. Plaintiffs relied on the accuracy ofthose audited financial statements, and suffered tens of millions of dollars of losses as a result.

JUR ISD ICT ION AND VENUE9. The claims asserted herein arise under and pursuant to Sections 10(b), 18 and 20(a) of

the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. 78j(b), 78r and 78t(a),andRule 10b-5 promulgated thereunder, 17C.F.R. 240.10b-5.

10. This Court has jurisdiction over the subject matter of this action pursuant to Section27ofthe Exchange Act, 15 U.S.C. 78aa, and28U.S.C. 1331.

11. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28U.S.C. 1391. Many of the acts giving rise to the violations complained ofherein, including thedissemination of false and misleading information, occurred and had their primary effects in thisDistrict.

12. In connection with the acts, transactions and conduct alleged herein, Defendants,directly or indirectly, used the means and instrumentalities of interstate commerce, including, butnot limited to, theUnited States mails, interstate telephone communications andthe facilities of anational securities exchange and market.

PART IES

A . PLA INT IFFS

13. Plaintiff Special Situations Fund III QP, L.P. is an investment fund with an addressc/o 527 Madison Avenue, New York, New York, 10022. A list of its purchases of ChinaCastcommon stock during the relevant period is attached hereto as Exhibit A.

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14. Plaintiff Special Situations Cayman Fund, L.P. is an investment fund with an addressc/o 527 Madison Avenue, New York, New York, 10022. A list of its purchases of ChinaCastcommonstock during the relevant period is attachedhereto as Exhibit B.

15. Plaintiff Fir Tree Value Master Fund, L.P is an investment fund with an address c/o505 Fifth Avenue, New York, New York, 10017. A list of its purchases ofChinaCast commonstock during the relevant period is attachedhereto as Exhibit C.

16. PlaintiffFir TreeCapital Opportunity MasterFund, L.Pis an investment fund withanaddress c/o 505 Fifth Avenue, New York, New York, 10017. A list of its purchases ofChinaCast common stock during the relevant period is attached hereto as Exhibit D.

17. Plaintiff Columbia Pacific Opportunity Fund, L.P. is an investment fund with anaddress c/o 1910 Fairview Ave East, Seattle, Washington 98102. A list of its purchases ofChinaCast common stock during the relevant period is attached hereto asExhibit E.

18. Plaintiff Lake Union Capital Fund L.P. is an investment fundwith an address c/o 601Union Street, Seattle, Washington 98101. A list of its purchases of ChinaCast common stockduring the relevant period is attached hereto as Exhibit F.

19. Plaintiff Lake Union Capital TE Fund L.P. is an investment fund with an address c/o601 Union Street, Seattle, Washington 98101. A list of its purchases of ChinaCast commonstock during the relevant period is attached hereto as Exhibit G.

20. Plaintiff Ashford Capital Management Inc. is an investment adviser with an addressof One Walkers Mill Road, Wilmington, DE 19807. A list of its purchases of ChinaCastcommon stock during the relevant period is attached hereto as Exhibit H.


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21. Plaintiff ZS EDU L.P. is an investment fund with an address c/o 1133 Avenue of theAmericas, New York, New York 10036. A list of its purchases of ChinaCast common stockduring the relevant period is attached hereto as Exhibit I.

22. Plaintiff MRMP-Managers LLC is an investment trust with an address c/o SouthDakota Trust Co., 201 South Philips Avenue, Suite 200, Sioux Falls, South Dakota 57104-6317.A list of its purchases ofChinaCast common stock during the relevant period is attached heretoas Exhibi t J.

B. DEFENDANTS1. Deloitte Touche Tohmatsu CPA L td .

23. Defendant Deloitte Touche Tohmatsu CPA Ltd. ("DTTC") is an auditing firmlocated in the People's Republic of China ("PRC" or "China") with headquarters at 30/F BundCenter, 222 YanAnRoadEast, Shanghai, China. DTTC is registered with the Public CompanyAccounting Oversight Board ("PCAOB"). DTTC certified and signed ChinaCast's false andmisleading audited financial statements contained in the Company's 10-K filings for the yearsended December 31, 2007, 2008, 2009 and 2010.

2. Deloitte & Touche LLP24. Defendant Deloitte & Touche LLP ("Deloitte US") is a Delaware limited liability

partnership located at 1633 Broadway, New York, New York. Deloitte US controlled the auditofChinaCast by DTTC, by virtue of the fact that one ofDeloitte US's partners was designated asthe key audit team member to provide technical expertise and have ultimate responsibility for USGAAP issues.

3. Antonio Sena25.Antonio Sena ("Sena") served as ChinaCast's Chief Financial Officer from 2004 to

2012, at which time he resigned. As CFO, Sena signed the Company's false and misleading

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annual reports on Form 10-K, including the 10-KSB for the year ended December 31, 2007, filedMarch 31, 2008; the 10-K for the year ended December 31, 2008, filed March 16, 2009; the 10-K for the year ended December 31, 2009, filed March 29, 2010; the 10-K for the year endedDecember 31, 2010, filed March 16, 2011; the 10-K/A for the year ended December 31, 2010,filed September 2, 2011; and the 10-K/A for the year ended December 31, 2010, filed February24, 2012.

4. Justin Tang26. Justin Tang ("Tang") Tang was the largest shareholder of ChinaCast's predecessor,

Great Wall Acquisition Corporation, and loaned hundreds of thousands of dollars to ChinaCastin 2006 to allow it to complete its amendment of its certificate of incorporation and reversemerger into the NASDAQ exchange. Tang served as a director of ChinaCast from February 9,2007, to 2011, at which time he was defeated for re-election to the Board of Directors. As adirector of ChinaCast, Tang signedthe Company's false and misleading annual reports on Form10-K, including the 10-KSB for the year ended December 31, 2007, filed March 31, 2008; the10-K for the year ended December 31, 2008, filed March 16, 2009; the 10-K for the year endedDecember 31, 2009, filed March 29, 2010; the 10-K/A for the year ended December 31, 2010,filed September 2, 2011; the 10-K/A for the year ended December 31, 2010, filed September 2,2011; andthe 10-K/A for the year endedDecember31, 2010, filed February 24, 2012.

5. Y in Jianping27. Yin Jianping ("Yin") served as a director of ChinaCast from February 9, 2007, until

August 2009, at which time he resigned. As a director, Yin signed the Company's false andmisleading annual reports onForm 10-K, including the 10-KSB for the year ended December 31,2007, filed March 31, 2008; andthe 10-K for the year endedDecember 31,2008, filed March 16,2009 .

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6. Richard Xue28. Richard Xue ("Xue") served as a director of ChinaCast from February 9, 2007, to

December 11, 2009, when he resigned. As a director, Xue signed the Company's false andmisleading annual reports on Form 10-K including the 10-KSB for the year ended December 31,2007, filed March 31, 2008; and the 10-K for the year ended December 31, 2008, filed March 16,2009.

7. Michael Santos29. Michael Santos ("Santos") served as a director ofChinaCast from August 2009 to

March 19, 2012, when he resigned. Santos also served as ChinaCast's executive director andPresident International from 2001 to 2012. As a director, Santos signed the Company's false andmisleading annual reports on Form 10-K, including the 10-K for the year ended December 31,2009, filed March 29, 2010; the 10-K for the year ended December 31, 2010, filed March 16,2011; the 10-K/A for the year ended December 31, 2010, filed September 2, 2011; the 10-K/Afor the year ended December 31, 2010, filed September 2, 2011; and the 10-K/A for the yearended December 31, 2010, filed February 24, 2012.

8. John and Jane Does 1-10 and ABC Corps. 1-1030. John and Jane Does 1-10 and ABC Corps. 1-10 are unknown individuals and/or

corporate entities that may have engaged in wrongdoing as against Plaintiffs with respect to thismatterwhose identities are yet to be determined.

FACTUAL ALLEGAT IONS

A. CHINACAST31. ChinaCast was formed as Great Wall Acquisition Corporation ("Great Wall") on

August 20, 2003. Great Wall was aSpecial Purpose Acquisition Company (also referred to as a

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"SPAC") that was created for the purpose of entering into amerger or other combination with abusiness operating in the PRC and believed to have significant growth potential.

32. In 2006, Great Wall and Tang found their target acquisition in an e-learning companycalled ChinaCast Communication Holdings Limited ("CCH"). CCH was then listed on the StockExchange of Singapore ("SGX"), incorporated in Bermuda in 2003. Deloitte had been its auditors ince then.

33. In 2000, CCH identified demand for its education services in China. Because ofChina's limited college and university resources compared to its fast-growing population ofuniversity students, the PRC's Ministry of Education ("MOE") granted licenses to approximately30 universities to conduct undergraduate and post-graduate courses by distance learning. CCHfacilitated such distance learning courses.

34. By the end of2002, CCH signed agreements with 15 universities in the PRC andoffered satellite interactive distance learning options to over 50,000 students nationwide.

35. In July 2003, CCH raised additional funding to upgrade its satellite technology to theHughes Network Systems DirecWay satellite broadband network, and thereafter expanded itsdistance learning business by signing additional K-12, IT and management training customers.

36. CCH's e-learning network and its position in the Chinese education market made itan attractivetarget for Great Wall and Tang.

37. On December 22, 2006, Great Wall completed the acquisition of 51.22% of theoutstanding shares of CCH. After the acquisition of CCH, Great Wall changed its name toChinaCast Education Corporation. By the end of 2007, ChinaCast acquired 100% ofCCH andterminated the SGX listing - effecting a reverse merger onto the NASDAQ exchange.

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38. CCH's business was conducted via a series of subsidiaries. CCH's principalsubsidiary, ChinaCast Technology (BVI) Limited ("CCT BVI"), provided funding for its satellitebroadband Internet services through ChinaCast Company Ltd. ("CCL") - Beijing Branch("CCLBJ") and ChinaCast Li Xiang Co. Ltd. ("CCLX") via various contract agreements. Byvirtue ofthe acquisition, ChinaCast took control ofthe subsidiaries.

39. ChinaCast began acquiring bricks and mortar colleges and universities, to expand itsbusiness. In 2008, the Company acquired its first university, Foreign Trade Business College ofChongqing Normal University ("FTBC").

40. Thereafter, the Company organized itself into two distinct business segments, the E-learning and training service group (the "ELG"), encompassing the Company's distance learningbusiness before the acquisition, and the Traditional University Group (the "TUG"), offeringbachelor and diploma programs to students inChina.

41. On October 5, 2009, the Company completed the acquisition ofEast Achieve Limited("East Achieve"), the holding company which beneficially owns 100% of Lijiang College ofGuangxi Normal University ("Lijiang" or "LJC"). LJC is an independent, for profit, privateuniversity affiliated with Guangxi Normal University.

42. ChinaCast added a third bricks and mortar property on August 23, 2010, when itcompleted the acquisition of Wintown Enterprises Limited ("Wintown"), the holding companywhich beneficially owns 100% of Hubei Industrial University Business College ("HIUBC").

B. DELOITTE'S ROLE AS CHINACAST'S AUDITOR43. Deloitte holds itself out as a global accounting firm that provides integrated cross-

border audits coordinated among member and network firms. Defendant DTTC served as theCompany's independent public auditor of record between 2007 and 2010, lending the perceivedprestige and credibility of the global Deloitte brand to ChinaCast's financial statements. Deloitte

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was complicit in the Company's fraud by certifying the Company's false financial statementswhile knowingly or recklessly ignoring evidence of suspicious transactions, remaining willfullyblind in the face of evidence of fraud, and failing to perform even the most basic review oftransactions thatitwas purportedly "auditing."

44. Deloitte represented that it had performed its audits in accordance with the standardsof the PCAOB and that, in its opinion, "the consolidated financial statements present fairly, in allmaterial respects, the financial position of the Company ... and the results of its operations andits cash flows . . . in conformity with accounting principles generally accepted in the UnitedStates ofAmerica." As detailed below, these statements were materially false and misleadingbecause Deloitte knew or recklessly ignored red flags indicatingthat ChinaCast's financialstatements for fiscal years 2007 through 2010 were materially misstated and were not presentedin conformity with GAAP.

C. DEFENDANTS' FALSE ANDMISLEADING STATEMENTS1. ChinaCast's Annual Report for the Year EndedDecember 31, 2007

45. In 2007, ChinaCast provided educational services primarily over broadband satelliteand did not own any brick and mortar universities. The primary assets of the Company were itsbank account balances, which largely consisted of term deposits.

46. Deloitte issued unqualified audit opinions that ChinaCast's consolidated financialstatements for 2007 were prepared in accordance with "accounting principles generally acceptedin the United States ofAmerica" and that Deloitte had conducted its audit in accordance with thestandards of the PCAOB. 2007 10-K at F-2. Plaintiffs specifically read, reviewed, and relied onthese statements in purchasing ChinaCast securities.

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47. ChinaCast's annual report on Form 10-K for the year ended December 31, 2007, filedwith the SEC on March 31, 2008 on Form 10-KSB (the "2007 10-K") was materially false andmisleading.

(a) ChinaCast's Falsely Reported Ownership ofCCT HK48. The Company's audited financial statements included in the 2007 10-K represented

that ChinaCast Technology (HK) Limited ("CCT HK"), a Hong Kong subsidiary of theCompany, was 98.50% owned by the Company. With Deloitte's approval, CCT HK's resultswere consolidated with the Company's financial results. Plaintiffs specifically read, reviewed,and relied on these representations inpurchasing securities ofChinaCast.

49. By certifying that the Company's financial statements complied with GAAP, Deloittewas confirming that the Company's subsidiaries, including CCT HK, were properly consolidatedin accordance with GAAP. Under GAAP, consolidation is proper when a parent corporationexercises operational control over and owns amajority of the voting interests of a subsidiary.Thus, to support its opinion that the consolidation of CCT HK was proper, at a minimumDeloitte was required to confirm that the Company owned amajority of the voting interests ofCCT HK.

50. In fact, the Company never owned amajority ofthe voting interests ofCCT HK, andconsolidation ofCCT HK was not permissible. Indeed, records readily obtainable by Deloittefrom the Hong Kong Companies Registry confirm that Ron Chan, the Company's former CEO,haspersonally owned 50% ofCCT HK at all times since 2003.

51. Deloitte permitted the consolidation of CCT HK, all the while knowing, or recklesslynot knowing, that the Company did not own amajority ofCCT HK's voting interests.

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in

(b) ChinaCast's Falsely Reported Term Deposits52. The largest assets on ChinaCast's balance sheet were "term deposits." As disclosed

the 10-K, "Term deposits consist of deposits placed with financial institutions with remainingmaturities of greater than three months but less than one year when purchased." 2007 Form 10-KatF-13 .

53. For the fiscal year ended December 31, 2007, term deposits comprised over eightypercent ofChinaCast's total bank balances, as shown in the following table:

RMB (inthousands)

U.S. Dollars (inthousands)

Term Deposits 596,768 81,749Cash and Cash Equivalents 138,610 18,988Total Bank Balances 735,378 100,737

Term Deposits as a Percentage ofTotal Bank Balances

81% 81%

2007 Form 10-K at F-3.54. Significantly, the 2007 10-K represented that all of the Company's assets, including

term deposits, were not pledged to guarantee the payment obligations of any third parties.Specifically, the 2007 10-K represented that the Company 'has not entered any financialguarantees or other commitments to guarantee the payment obligations ofany third parties."2007 Form 10-K at 25. Plaintiffs specifically read, reviewed, and relied on these representationsin purchasing securities of ChinaCast.

55. These representations regarding term deposits and the absence of financial guaranteeswere blatantly false.

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56. As of December 31, 2007, at least 76% of the Company's term deposits werepledged to guarantee the debts of third parties {i.e., at least RMB 455,310,000 were pledged outofthe RMB 596,768,000 total). None ofthese pledges were disclosed.

57. The pledged term deposits could not be transferred, spent, or used as collateral tosecure the Company's borrowings. Thus, cash balances that Deloitte certified as the singlelargest "asset" on the Company's balance sheet were illusory.

58. The existence of the pledge agreements would have been immediately apparent toDeloitte had it performed the most basic audit procedures, such as reviewing the actualinstruments governing the term deposits. Deloitte signed off on the Company's term depositbalances either knowing that the pledge agreements were not disclosed or recklessly failing toperform any actual audit of the term deposits.

2. ChinaCast's AnnualReport for theYear Ended December 31, 200859. In 2008, the company's primary business continued to be the provision of

educational services primarily over broadband satellite. As in 2007, the primary assets of theCompany were its bank account balances, which largely consisted of term deposits.

60. Deloitte issued unqualified audit opinions that ChinaCast's consolidated financialstatements for 2008 were prepared in accordance with "accounting principles generally acceptedin the United States ofAmerica" and that Deloitte had conducted its audit in accordance with thestandards of the PCAOB. 2008 10-K at F-2. Deloitte also issued an unqualified opinion as tothe Company's internal controls over financial reporting. Plaintiffs specifically read, reviewed,and relied on these statements in purchasing ChinaCast securities.

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61. ChinaCast's annual report on Form 10-K for the year ended December 31, 2008, filedwith the SEC on March 16, 2009 on Form 10-K (the "2008 10-K") was materially false andmisleading.

(a) ChinaCast's Falsely Reported Ownership ofCCT HK62. As in its 2007 10-K, the Company's audited financial statements included in its 2008

10-K represented that CCT HK was 98.50% owned by the Company. With Deloitte's approval,CCT HK's results were again consolidated with the Company's financial results. Plaintiffsspecifically read, reviewed, and relied on these representations in purchasing securities ofChinaCast.

63. The Company's financial statements as presented in its 2008 10-K were not presentedin accordance with GAAP, because they improperly consolidated CCT HK as a subsidiary ofChinaCast when the company in fact did not own amajority ofthe voting interests ofCCT HK.Records readily obtainable from the Hong Kong Companies Registry confirm that Ron Chan, theCompany's former CEO, has personally owned 50% of CCT HK at all times since 2003.

(b) ChinaCast's Falsely Reported Term Deposits64. For the fiscal year ended December 31, 2008, term deposits comprised over 60% of

ChinaCast's total bankbalances, as shownin the following table:RMB (inthousands)

U.S. Dollars (inthousands)

Term Deposits 369,000 32,372Cash and Cash Equivalents 220,131 54,265Total Bank Balances 589,131 86,637

Term Deposits as a Percentage ofTotal Bank Balances

63% 63%

2008 Form 10-KatF-3.

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65. Significantly, the 2008 10-K represented that all of the Company's assets, includingterm deposits, were not pledged to guarantee the payment obligations of any third parties.Specifically, the 2008 10-K represented that the Company "has not entered any financialguarantees or other commitments to guarantee the payment obligations of any third parties."2008 Form 10-K at 27. Plaintiffs specifically read, reviewed, and relied on these representationsin purchasing securities ofChinaCast.

66. As of December 31, 2008, at least 95% of the Company's term deposits werepledged to guarantee the debts of third parties {i.e., at least RMB 349 million were pledged outof the RMB 369 million total). None of these pledges were disclosed.

67. The pledged term deposits could not be transferred, spent, or used as collateral tosecure the Company's borrowings. Indeed, certain of the pledged term deposits ultimately wereforeclosed by banks to whom the term deposits were pledged, after defaults occurred on theunderlying debt obligations. Thus, the cash balances that Deloitte certified were false.

(c) ChinaCast's Falsely Reported Acquisition ofHai Lai68. On or about April 11, 2008, the Company announced that its wholly owned

subsidiary Yu Pei Information Technology (Shanghai) Limited ("YPIT") acquired an 80%interest in Hai Lai Education Technology Limited, which, in turn, owned the Foreign Trade andBusiness College ("FTBC") ofChongqing Normal University.

69. Deloitte's audited financial statements reported that "[f]he consideration for theacquisition was RMB480,000, of which RMB475,850 was paid during 2008." (RMB inthousands). 2008 10-K at F-24.

70. This purported RMB 475,850,000 payment also was reflected in the Company's cashflow statements contained in its 2008 10-K that were certified by Deloitte. In fact, by far the

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largest single line item on the cash flow statement was the purported payment of RMB465,507,000 for "Purchase of subsidiaries, net of cash acquired." 2008 10-K at F-7.

71. Plaintiffs specifically read, reviewed, and relied on these representations inpurchasing securities ofChinaCast.

72. These representations were false. The Company's bank statements and accounts donot contain any evidence of any payment made in 2008 related to the acquisition of FTBC. Inother words, Deloitte certified the largest payment on the Company's cashflow statements for2008, while knowingly or recklessly ignoring the fact that there was no evidence of any suchpayment.

73. In light of all of the misstatements in the 2008 10-K, material weaknesses existed inthe Company's internal controls over financial reporting. Nonetheless, in the 2008 10-K Deloitterecklessly issued an unqualified opinion on the Company's internal controls over financialreporting.CHINACAST'S ANNUALREPORTFORTHE YEAR ENDED DECEMBER31, 2009

74. In 2009, ChinaCast provided educational services over broadband satellite andthrough two brick and mortar universities, FTBC and East Achieve. The primary assets of theCompany were its two universities and its bank account balances, which largely consisted ofterm deposits.

75. Deloitte issued unqualified audit opinions that ChinaCast's consolidated financialstatements for 2009 were prepared in accordance with "accounting principles generally acceptedin the United States ofAmerica" and that Deloitte had conducted its audit in accordance with thestandards of the PCAOB. 2009 10-K at F-2. Deloitte also issued an unqualified opinion as tothe Company's internal controls over financial reporting. Plaintiffs specifically read, reviewed,and relied on these statements in purchasing ChinaCast securities.

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76. ChinaCast's annual report on Form 10-K for the year ended December 31, 2009, filedwith the SEC on March 29, 2010, (the "2009 10-K") was materially false and misleading.

(a) ChinaCast's Falsely Reported Ownership ofCCT HK77. As in its 2007 and 2008 10-Ks, the Company's audited financial statements included

in its 2009 10-K represented that CCT HK was 98.50% owned by the Company. With Deloitte'sapproval, CCT HK's results were again consolidated with the Company's financial results.Plaintiffs specifically read, reviewed, and relied on these representations in purchasing securitiesof ChinaCast. Plaintiffs specifically read, reviewed, and relied on these representations inpurchasing securities of ChinaCast.

78. The Company's financial statements as presented in its 2009 10-K were not presentedin accordance with GAAP, because they improperly consolidated CCT HK as a subsidiary ofChinaCast when the company in fact did not own amajority of the voting interests ofCCT HK.Records readily obtainable by Deloitte from the Hong Kong Companies Registry confirm thatRon Chan, the Company's former CEO, has personally owned 50% ofCCT HK at all timessince 2003.

(b) False Reporting of2009 East Achieve Acquisition79. On or about October 5, 2009, the Company completed the acquisition of East

Achieve Limited ("East Achieve"), the holding company which beneficially owned 100% ofLijiang College. In its 2009 annual report, the Company disclosed that the total considerationwas up to RMB 365 million, ofwhich RMB 295 million was paid during 2009. 2009 Form 10-Kat 2, F-29.

80. This purported RMB 295 million payment (which is approximately US$44 million)was also reflected in the Company's cash flow statements contained in its 2009 10-K that were

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certified by Deloitte. In fact, by far the largest single line item on the cash flow statement wasthe purported payment of RMB 222 million for "Purchase of subsidiaries, net of cash acquired."2009 10-K a t F -8 .

81. Plaintiffs specifically read, reviewed, and relied on these representations inpurchasing securities of ChinaCast.

82. These representations were false. The Company's bank statements and accountscontain no evidence ofany payment in 2009 related to the acquisition ofEast Achieve. In otherwords, Deloitte certified that the Company paid $44million in connection with one ofthe mostsignificant transactions of2009, while knowingly or recklessly ignoring the fact that there wasno evidence ofany such payment.

(c) Undisclosed Loans Related to the East Achieve Acquisition83. Deloitte also recklessly failed to detect massive undisclosed loans that the Company

used to fund its East Achieve acquisition in 2009. Indeed, given the illusory nature of theCompany's cash, massive loans were necessary to give the Company a false appearance ofsolvency.

84. The existence of these loans would have been obvious to Deloitte had it bothered toaudit the bank accounts of the Company subsidiaries that owned the East Achieve college, inwhich numerous transactions related to these undisclosed loans occurred. Indeed, these bankaccounts reflect hundreds of daily deposits and payments unrelated to the billing and collectioncycleof the college's business.

85. Deloitte was either willfully blind to the loan transactions occurring in the EastAchieve accounts or recklessly failed to perform an audit of these accounts, such as byexamining account histories or even sampling select transactions. Had Deloitte performed even

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minimal audit procedures, it would have discovered a substantial number of transactions withunrelated third parties.

86. In sum, as a result of Deloitte's reckless failure to audit the Company's East Achievebank accounts, massive liabilities were not disclosed and the Company's balance sheets for 2009and 2010 contained material misstatements.

(d) False Reporting ofDecember 2009 Share Offering87. Deloitte's colossal audit failures enabled former CEO Ron Chan's brazen looting of

the proceeds from the December 2009 sale ofCompany stock to Roth Capital Partners, LLC.88. As Deloitte knew, approximately $35 million in proceeds of the December 2009

offering were wired to CCT HK's bank account in Hong Kong. Deloitte recklessly ignored themassive risks presented by the transfer of tens of millions of dollars in cash - the largest asset inthe Company - to an entity that was 50% owned by the Mr. Chan. Deloitte recklessly failed toscrutinize the basis for this transfer or conduct any audit of the transfer whatsoever, andrecklessly failed to take any steps to ensure the safety ofthe cash.

89. Right under Deloitte's nose, immediately after the share proceeds were transferred toCCT HK, in December 2009 Mr. Chan diverted $35 million in cash from CCT HK to thirdpartiesoutsideof the Company.

90. Deloitte recklessly failed to perform any audit of the transfer of $35 million out ofCCT HK (which occurred in one transfer of $30 million and another transfer of $5 million),despite the fact that these transfers were made from aCCT HK bank account that had the largestcash balance in the Company in 2009. Deloitte recklessly failed to audit the largest cashtransfers of the year, which stripped the Company of its cash.

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91. As a direct result ofDeloitte's audit failures, the company's balance sheet and cashflow statements contained material misstatements.

92. In light of all of the misstatements in the 2009 10-K, material weaknesses existed inthe Company's internal controls over financial reporting. Nonetheless, in the 2009 10-K Deloitterecklessly issued an unqualified opinion on the Company's internal controls over financialreporting.CHINACAST'S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2010

93. In 2010, ChinaCast provided educational services over broadband satellite andthrough three brick and mortar universities, FTBC, East Achieve, and Wintown. The primaryassets ofthe Company were its three universities and its bank account balances, which largelyconsisted of term deposits.

94. Deloitte issued unqualified audit opinions that ChinaCast's consolidated financialstatements for 2010 were prepared in accordance with "accounting principles generally acceptedin the United States ofAmerica" and that Deloitte had conducted its audit in accordance with thestandards of the PCAOB. 2010 10-K atF-2. Plaintiffs specifically read, reviewed, and relied onthese statements in purchasing ChinaCast securities.

95. ChinaCast's annual report on Form 10-K for the year ended December 31, 2010, filedwith the SEC on March 16, 2011 (as amended on September 2, 2011, February 8, 2012, andFebruary 24, 2012; the "2010 10-K") was materially false and misleading.

(a) ChinaCast's Falsely Reported Ownership ofCCT HK96. As in its 2007, 2008, and 2009 10-Ks, the Company's audited financial statements

included in its 2010 10-K represented that CCT HK was 98.50% owned by the Company. WithDeloitte's approval, CCT HK's results were again consolidated with the Company's financial

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results. Plaintiffs specifically read, reviewed, and relied on these representations in purchasingsecurities of ChinaCast.

97. The Company's financial statements as presented in its 2010 10-K were not presentedin accordance with GAAP, because they improperly consolidated CCT HK as a subsidiary ofChinaCast when the company in fact did not own amajority of the voting interests of CCT HK.Records readily obtainable by Deloitte from the Hong Kong Companies Registry confirm thatRon Chan, the Company's former CEO, has personally owned 50% of CCT HK at all timessince 2003.

(b) ChinaCast's Falsely Reported June 2010 Private Share Offering98. According to the 2010 10-K, on or about June 2, 2010, the Company sold

approximately 3.7 million shares to an individual named Wu Shi Xin "for atotal purchase priceofUS $29.3 million." 2010 10-K atF-42.

99. This purported $29.3 million payment was reflected in the Company's cash flowstatements contained in its 2010 financial statements as certified by Deloitte. The cash flowstatements reflect that approximately $35 million was received by the Company in proceedsfrom share offerings, which included the $29.3 million purportedly raised in the June 2010offering from Wu Shi Xin (and $5 million raised from Thriving Blue Limited in a separateoffering in January 2010).


101. These representations regarding the receipt of $29.3 million from the June 2010offering were false. The Company's bank statements and accounts do not contain any evidenceofthe receipt of any such offering proceeds.

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102. Deloitte failed to conduct even the most perfunctory audit to confirm the receiptof the $29.3 million in offering proceeds. Rather, Deloitte certified the receipt of $29 million inshare offering proceeds, while knowingly or recklessly ignoring the fact that there was noevidence ofany such payment.

(c) ChinaCast's Falsely Reported August 2010 Wintown Acquisition103. On or about August 23, 2010, the Company completed the acquisition of

Wintown Enterprises Limited ("Wintown"), aholding company that beneficially owned 100% ofHubei Industrial University Business College. In its 2010 annual report, the Company disclosedthat "[t]he total consideration is up to RMB450 million, of which RMB360 million was paidduring 2010." 2010 Form 10-K atF-31.

104. This purported RMB 360 million payment (which is approximately US$54million) was also reflected in the Company's cash flow statements contained in its 2010 10-Kthat were certified by Deloitte. In fact, by far the largest single line item on the cash flowstatement was the purported payment of RMB 340 million for "Purchase of subsidiaries, net ofcashacquired." 2010 10-Kat F-8.


106. These representations were false. The Company's bank statements and accountsdo not contain any evidence of any payment made in 2010 related to the acquisition of Wintown.In other words, Deloitte certified the largest payment on the Company's cashflow statementsfor 2010, while knowingly or recklessly ignoring the fact that there was no evidence of anysuch payment.

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(d) Undisclosed Loans Related to the Wintown Acquisition107. Deloitte recklessly failed to detect massive undisclosed loans that the Company

used to fund its Wintown acquisition in 2010. Given the looting of the Company's cash,massive loans were necessary to give the Company a false appearance ofsolvency.

108. The existence of these loans would have been obvious to Deloitte had it auditedthe bank accounts of the Company subsidiaries that owned the Wintown college, in whichnumerous transactions related to these undisclosed loans occurred. Indeed, these bank accountsreflect hundreds of daily deposits and payments unrelated to the billing and collection cycle ofthe college's business.

109. Deloitte was either willfully blind to the loan transactions occurring in theWintown accounts or recklessly failed to perform an audit of these accounts, such as byexamining account histories or even sampling select transactions. Had Deloitte performed evenminimal audit procedures, it would have discovered a substantial number of transactions withunrelated third parties.

110. In sum, as a result ofDeloitte's reckless failure to audit the Company's Wintownbank accounts, massive liabilities were not disclosed and the Company's balance sheets for 2010contained material misstatements.

(e) Falsely Reported Cash Balances111. As part of its audit of the Company's financial statements, Deloitte was required

to confirm the Company's balances of cash and cash equivalents as represented by management.Deloitte was required to exercise professional skepticism regarding management'srepresentations, particularly given the risk of fraud in the Chinese market.

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112. As Deloitte knew, in order to prevent fraud, the best practice in China is forauditors to physically visit banks and directly observe the printing of bank statements by bankpersonnel. Deloitte recklessly failed to follow this procedure on numerous occasions, oftenrelying on mailed confirmations that it knew were subject to the risk of interception.

113. As a direct result of Deloitte's reckless audit failures, the Company's cashbalances were misstated. Current management has investigated the Company's December 31,2010 cash balances using on-site cash confirmation procedures that Deloitte was required (butfailed) to follow. Based on management's investigation to date, the Company's cash and cashequivalents as ofDecember 31, 2010 were at least $9 million less than reported in the 2010 10-Kcertified by Deloitte.

D. DELOITTE KNOWINGLYOR RECKLESSLY FAILED TO COMPLYWITH ACCOUNTING STANDARDS

114. Despite knowingly or recklessly ignoring red flags and failing to perform even themost basic audit procedures, Deloitte issued opinions regarding ChinaCast's financial statementsrepresenting that it had conducted its audits in accordance with PCAOB standards. In fact,Deloitte recklessly failed to conduct even the most basic audit procedures and blatantly violatednumerous accounting standards.

115. For each of the fiscal years ending December 31, 2007, through December 31,2010, Deloitte issued unqualified audit opinions that ChinaCast's consolidated financialstatements were prepared in accordance with "accounting principles generally accepted in theUnited States ofAmerica" ("GAAP"). Deloitte's opinions also stated that it had conducted itsaudits in accordance with the standards of the PCAOB. For fiscal years 2008 and 2009, Deloittealso issued unqualified opinions on the Company's internal controls over financial reporting.

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116. PCAOB standards include generally accepted accounting standards ("GAAS"),which are authoritative standards that auditors must comply with when they conduct audits andreviews. Deloitte was required to perform its annual audits and quarterly reviews of financialinformation in accordance with GAAS, which include ten basic standards known as "Statementson Auditing Standards" that are codified and referred to as "AU." These include the followingstandards, all ofwhich were knowingly or recklessly violated by Deloitte:

"The auditor has a responsibility to plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterialmisstatement, whether caused by error or fraud." AU 110.2. "Sufficient competent evidential matter is to be obtained through inspection,observation, inquiries, and confirmations to afford a reasonable basis for anopinion regarding the financial statements under audit." AU 150.02. "Due professional care requires the auditor to exercise professional skepticism.Professional skepticism is an attitude that includes a questioning mind and acritical assessment of audit evidence." AU 230.07. "The auditor's assessment of the risks of material misstatement due to fraudshould be ongoing throughout the audit. Conditions may be identified duringfieldwork that change or support ajudgment regarding the assessment ofthe risks,such as .. . [discrepancies in the accounting records, including . . . [unsupportedor unauthorized balances or transactions." AU 316.68. "During the performance of confirmation procedures, the auditor should maintaincontrol over the confirmation requests and responses. Maintaining control meansestablishing direct communication between the intended recipient and the auditorto minimize the possibility that the results will be biased because of interceptionand alteration of the confirmation requests or responses." AU 330.28. "The independent auditor's direct personal knowledge, obtained through physicalexamination, observation, computation, and inspection, is more persuasive thaninformation obtained indirectly." AU 326.21(c). Representations frommanagement "are not a substitute for the application of those auditing proceduresnecessary to afford a reasonable basis for an opinion regarding the financial

statements under audit ." AU 333.02 "The books of original entry, the general and subsidiary ledgers, relatedaccounting manuals, and records such as work sheets and spreadsheets supportingcost allocations, computations, and reconciliations all constitute evidence in

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support of the financial statements." "[Wjithout adequate attention to theproprietary and accuracy of the underlying accounting data, an opinion onfinancial statements would not bewarranted." AU 326.16.117. PCAOB standards also include GAAP, which are principles recognized by the

accounting profession as the conventions, rules and procedures necessary to define acceptedaccounting practices at a particular time. Pursuant to SEC Regulation S-X (17 C.F.R. and210.4(a)(l)), financial statements filed with the SEC that are not prepared in compliance withGAAP are presumed tobemisleading and inaccurate.

118. Deloitte knowingly or recklessly certified the Company's financial results andstatements that were prepared in violation of GAAP and that misstated, inter alia, theCompany's revenues, net income, cash balances, and term deposits.

119. Deloitte violated the following fundamental GAAP principles, among others: The principle that financial reporting should be reliable in that it represents whatitpurports to represent (FASB Statement Concepts No. 2, 58-59); The principle that a company's financial statements must be reliable, transparent,truthful, and accurately reflect the financial performance of the company (FASB

Statement Concepts No. 2) The principle of completeness, which means that nothing is left out of theinformation that may be necessary to ensure that it validly represents underlyingevents and conditions (FASB Statement ofConcepts No. 2, 79); The principle that conservatism be used as aprudent reaction to uncertainty to tryto ensure that uncertainties and risks inherent inbusiness situations are adequatelyconsidered (FASB Statement ofConcepts No. 2, 95, 97); The principle that companies must accurately present the financial results of thecorporation's operations, and to disclose net income as a reflection of all items ofprofit and loss recognized during the period (APB Opinion No. 9) The principle that companies must accurately state the income received by thecorporation in a reported period, according to standards for the reporting ofcomprehensive income and its components in a full set of general-purposefinancial statements (FASB StatementNo. 130).

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The principle that revenue recognized by a corporation in its financial statementsmust accurately reflect the business operations ofthe company. (FASB Statementof Concepts No. 5).1. Deloitte Failed To ObtainReasonable Assurance That ChinaCast's

Financial StatementsWere Free From Material Misstatement120. PCAOB standards required Deloitte to assess the risk of fraud and to thoroughly

investigate any red flags that suggested the risk of fraud. Deloitte violated these standards byknowingly or recklessly ignoring red flags at ChinaCast and by failing to obtain even the mostperfunctory audit evidence to support the existence of critical balances or transactions reflectedin the Company's financial statements.

121. For example, Deloitte ignored the massive red flag presented by the fact that theproceeds of the Company's December 2009 share offering were wired to a Hong Kongsubsidiary that was not majority-owned by the Company. As part of its obligation to assess therisk of fraud (and to audit the Company's internal controls over financial reporting), Deloitte wasrequired to audit the transaction (which represented the largest transaction of the year) and toexpress professional skepticism regarding any suspicious aspects of the transaction. Yet Deloitterecklessly failed to conduct any audit at all, simply accepting management's representation thatthe offering proceeds were deposited in aHong Kong subsidiary, when in fact the proceeds wereimmediately looted.

122. To take another example, Deloitte ignored hundreds of transactions unrelated touniversity billing and collection that were recorded in bank accounts used by the Company'sWintown and East Achieve colleges. Had Deloitte reiewed these numerous unusual transactions,it would have discovered that the transactions related to massive undisclosed loans that theCompany was using to fund its acquisitions.

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2. Deloitte Failed To Obtain Sufficient Audit Evidence To Support ItsOpinions

123. PCAOB standards required Deloitte to obtain "[sufficient competent evidentialmatter . .. to afford a reasonable basis for an opinion regarding the financial statements underaudit." AU 150.02. Deloitte violated this standard by knowingly or recklessly failing to obtainany audit evidence to support critical representations in the Company's financial statements.Deloitte also failed to obtain sufficient audit evidence to support its 2008 and 2009 unqualifiedopinions regarding the Company's internal controls, which (contrary to Deloitte's baselessopinion) contained material weaknesses that enabled the massive looting of the Company'sassets and other fraudulent conduct.

124. For example, Deloitte recklessly certified that the Company made an RMB475,850,000 payment in connection with its April 2008 acquisition ofFTBC. Yet Deloitte couldnot (and did not) obtain sufficient audit evidence of any such payment, because no such paymentwas eve r made.

125. Further, Deloitte recklessly certified that the Company made an RMB 295 millionpayment in connection with its October 2009 acquistion of East Achieve. Yet Deloitte could not(and did not) obtain sufficient audit evidence of any such payment, because no such paymentwas eve r made.

126. Further, Deloitte recklessly certified that the Company made an RMB 360 millionpayment in connection with its August 2010 acquistion of Winton. Yet Deloitte could not (anddid not) obtain sufficient audit evidence ofany such payment, because no such payment was evermade.

127. To take another example, Deloitte recklessly failed to obtain sufficient auditevidence to support the representation that the Company "has not entered any financial

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guarantees or other commitments to guarantee the payment obligations of any third parties."Deloitte could not (and did not) obtain sufficient audit evidence to support this representation,because an examination ofthe term deposit instruments or bank statements would have revealedthat the majority of the Company's term deposits were pledged to third parties and were thusinaccessible to the Company.

3. Deloitte Failed To Confirm ChinaCast's Account Balances128. PCAOB standards required Deloitte to confirm the Company's bank account

balances and to maintain control over bank confirmation requests and responses by "establishingdirect communication between the intended recipient and the auditor to minimize the possibilitythat the results will be biased because of interception and alteration of the confirmation requestsor responses." AU 330.28. These procedures are particularly important in China, in which therisk of fraud is pervasive.

129. As Deloitte knew, in order to prevent fraud, the best practice in China is forauditors to physically visit banks and directly observe the printing of bank statements by bankpersonnel. Deloitte either failed to perform any confirmation procedures or recklessly failed tofollow the correct confirmation procedures. Indeed, Deloitte often relied on mailedconfirmations thatit knew were subject to the riskof interception.

130. For example, Deloitte recklessly failed to obtain any confirmation that theCompany possessed unrestricted term deposit balances. Had Deloitte obtained confirmations, itwould have discovered that most ofthe term deposits were pledged and were thus inaccessible tothe Company.

131. To take another example, Deloitte recklessly failed to obtain confirmation that theCompany retained the proceeds of the December 2009 share issuance. Had Deloitte obtained

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such confirmations, it would have discovered that $35 million in offering proceeds were lootedfrom CCH HK almost immediately after theywere received.

132. To take yet another example, Deloitte recklessly failed to obtain sufficient auditevidence to support its certification of the Company's receipt of $29.3 million in proceeds fromits June 2010 share offering. Deloitte failed to conduct even the most perfunctory audit toconfirm the receipt of the offering proceeds, and there is no evidence that the Company everreceived anyportion of these proceeds.

E. THE TRUTH EMERGES / LOSS CAUSATION133. In January 2012, the Company's shares traded at a price well over $6.00 per

share. As the truth emerged regarding the Company's financial condition and Defendants' fraud,the Company's stock price declined dramatically.

134. On March 26, 2012, the Company announced that "Ron Chan Tze Ngon wasremoved from his position as Chief Executive Officer of the Company by the Company's boardof directors."

135. On April 2, 2012, the Board of Directors sent an open letter to shareholders,stating that "we have uncovered questionable activities and transactions" by Ron Chan and hisaccomplices. Trading in ChinaCast's stock was halted on the same day, with the stock closing at$4.24.

136. Two weeks later, on April 17, 2012, the Company announced that effective April11, "Jim Ma was removed from his position as Chief Accounting Officer of the Company by theCompany'sboardof directors."

137. On April 19, 2012, having already announced that "questionable activities" hadbeen discovered, the Company detailed its findings up to that point. The Company announced aseries of issues it was still investigating, including:

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The unauthorized transfer of subsidiaries holding interests in two of the Company'scolleges, Lijiang College and Hubei International University Business College, tounauthorized persons outside of the Company group structure. Possible undisclosed related party transactions involving the use ofCompany assetsto establish and operate education-related companies outside of the Company's group

structure; Possible undisclosed loans to third parties secured by Company assets and without the

board's knowledge138. On May 14, 2012, the Company announced further investigations, including into

the "withdrawal of over Rmb760 million (approximately US$120 million) in cash from the bankaccounts of CCT Shanghai and YPSH from July 2011 through April 2012 without the priorknowledge of the Company's Board ofDirectors."

139. In June and July 2012 filings, the Company further acknowledged that itsuspected that two of its private colleges had been transferred, without authorization, to thirdparties.

140. On June 25, 2012, trading in ChinaCast re-opened. As a result ofthe disclosuresthat were made during the time that trading was halted, the Company's stock price declinedprecipitously, closing at 82 cents on June 25.

141. On July 30, 2012, the Company provided more detail on its "findings to date" inconnection with its previously announced internal investigation, including of the financialstatements. Included in its detailed findings were that "certain subsidiaries of the Companypledged atotal of approximately US$37 million in cash deposits on separate occasions to securebank borrowings by unrelated parties." The Company also disclosed that it was involved inlitigation in the PRC related to loan guarantees to "Wu Caiyu, an unidentified third party."

142. On December 21, 2012, the Company provided further details of its investigation,and instructed investors to no longer rely on the Company's audited financials for 2009 and

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2010. The Company stated that its internal investigation had uncovered the specifics of anumber of problems. These included the following:

"Non-bank borrowings. Although the Company's investigation is still ongoing,based on the continuing investigation, it appears likely that other borrowings as ofvarious dates from the fourth quarter of 2009 (and possibly earlier) to the thirdquarter of 2011 were understated in the Previously Issued Financial Statements.Specifically, management believes, based on recent discoveries, that from thefourth quarter of 2009 (and possibly earlier) until the second quarter of 2012, theCompany under Prior Management had taken out a series of short-term, high-interest rate loans from a number of family members, friends and relatedcompanies of Prior Management, as well as various unrelated companies, withoutthe knowledge or consent of the Company. While the Company to date has onlybeen able to obtain bank record and legal documentation evidence to corroboratesome of these undisclosed borrowings, management believes, based on recentdiscoveries, that the total amount of such borrowings from the fourth quarter of2009 to the fourth quarter of 2011 could be over Rmb900 million. Management hasnot been able to determine the number and amount of loans that remainoutstanding, but claims against the Company have been filed by individuals fornon-repayment of debts that were not disclosed in the Previously Issued FinancialStatements.""Interest in a purported majority-owned subsidiary. The Company has recentlylearned that records obtained from the Hong Kong Companies Registry reflect thatChinaCast Technology (HK) Limited ("CCT HK"), which according to thePreviously Issued Financial Statements (and other public filings since 2007) iswholly-owned by Company subsidiary ChinaCast Technology (BVI) Limited("CCT BVI"), is actually owned only as to 50% by CCT BVI, with Mr. Chanowning the remaining 50%. The Company continues to investigate how Mr. Chancame to hold this ownership stake without the Board's knowledge or consent. Asthe Company only owns approximately 98.4% of CCT BVI, the Companyeffectively holds only an approximately 49.2% indirect equity interest inCCT HK.As such, CCT HK should not have been consolidated as a majority-ownedsubsidiary in the Previously IssuedFinancial Statements.""December 2009 stock offering proceeds. The Company has now discovered thatPrior Management had transferred a substantial portion (at least US$35 million) ofthe US$44 million proceeds (net of underwriting discount) from the Company'sDecember 2009 public common stock offering to entities outside of the Company'sgroup structure without the knowledge or consent of the Board. These cashoutflows, made shortly after the offering's completion, have not been disclosed inany of the Previously Issued Financial Statements. ""2009 year-end term deposits. The Company has recently learned that at leastRmb250 million (US$36 million) of the Rmb507million (US$75 million) amountthat was classified as term deposits on the Company's balance sheet as of

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December 31, 2009, was actually pledged by Prior Management to guarantee thedebts of various third parties - many of whom appear to operate outside of theCompany's scope ofbusiness - as of that date. The pledges, which were enteredinto without the knowledge or approval of the Board, (i) appear to fall outside ofthe Company's scope of business and (ii) had effectively reduced the amount ofcash available to the Company. Adjusting for these pledges, cash available fromterm deposits as ofDecember 31, 2009, would have been reduced from Rmb507million (US$75 million) to an amount ofRmb257 million (US$38 million) or less.""January 2010 stock issuance proceeds. In connection with its ongoinginvestigation, management has been unable to confirm from statements for theCompany's known bank accounts that it had received the US$5 million that,according to the previously issued financial statements, Thriving Blue Limited hadpaid on January 4, 2010, to purchase 692,520 shares of the Company's commonstock. According to the Previously Issued Financial Statements, Thriving BlueLimited is a British Virgin Islands company that is 100% owned by Mr. Chan,which had purchased the 692,250 shares on behalf ofMr. Chan, Mr. Sena and theCompany's then president-International Michael Santos.""June 2010 stock issuance proceeds. In connection with its ongoing investigation,management has been unable to confirm from statements for the Company'sknown bank accounts that the Company had received any of the $29 million that,according to the Previously Issued Financial Statements, the Company hadreceived for the sale of 3,735,734 shares of common stockto nominees ofMr. WuShixin in June 2010. The Company is continuing to investigate the purpose for thisstock issuance to nominees of Mr. Wu.""August 2010 college acquisition. In connection with the Company's ongoinginvestigation, the Company has learned that the amount that the Company had paidfor its acquisition ofHubei International University Business College ("HIUBC")was overstated and themanner of the acquisition was inaccurately described in thePreviously IssuedFinancial Statements.""2010 year-end cash and cash equivalents and term deposits. The Company hasnow uncovered through its ongoing investigation that cash and cash equivalents asof December 31, 2010, which according to the Previously Issued FinancialStatements was Rmb244 million (US$37 million), was overstated by at leastRmb50million (US$8 million) as of that date.""The Company has recently discovered that at least Rmb600 million (US$91million) of the Rmb704 million (US$107 million) amount that was classified asterm deposits on the Company's balance sheet as of December 31, 2010, wasactually pledged to guarantee the debts of various third parties - many ofwhomappear to operate outside ofthe Company's scope ofbusiness - as ofthat date. Thepledges, which were entered into without the prior knowledge or approval of theBoard, (i) appear to fall outside of the Company's scope of business and (ii) hadeffectively reduced the amount of cash available to the Company. Adjusting for

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these pledges, cash available from term deposits as of December 31, 2010, wouldhave been reduced from Rmb704 million (US$107 million) to an amount ofRmbl04million (US$16 million) or less." "Taking into account the overstatements in term deposits and cash and cashequivalents described above, the aggregate cash, cash equivalents and termdeposits as of December 31, 2010, would have been reduced to Rmb298 million(US$45 million) from the Rmb948 million (US$144 million) reported in thePreviously Issued Financial Statements." "Term deposits. As noted above, a significant portion of the Company's termdeposits as of December 31, 2009, December 31, 2010, June 30, 2011, andSeptember 30, 2011, was pledged to guarantee the debts of various third parties(many of which appear to operate outside of the Company's scope of business) asof such dates. To date, the Company has discovered that Prior Management hadover the years entered into at least 40 such previously undisclosed account pledges,involving an aggregate Rmbl,513 million (US$243 million) of the Company's

term deposits, without the Company's knowledge or consent. The Company iscontinuing to investigate this pledging of term deposits for the benefit of thirdparties without the Board's knowledge or consent." "October 2009 college acquisition. Management is investigating whether theamount that the Company had paid for its acquisition ofLijiang College in October2009 was overstated and whether the manner of the acquisition was accuratelydescribed inthePreviously Issued Financial Statements." "CCLX revenues. Management is investigating whether any ofthe revenues for itsELG segment in 2009, 2010 and the first nine months of 2011 have been

overstated. To date, management has discovered that Rmb 96 million of theRmb208 million ofCCLX's revenues for 2010 reported in the Previously IssuedFinancial Statements was purportedly invoiced in December of that year, while asignificant portion of the revenues that CCLX had reported to tax authorities inChina for 2011 was purportedly invoiced in December of that year as well. Inconnection with the ongoing investigation, management has also had discussionswith former CCLX employees and obtained financial data from such staff thatmanagement now believes may raise questions above the veracity of CCLX'shistorical financial information, as presented in the Previously Issued FinancialStatements."

143. These disclosures caused further declines in the Company's stock price, whichclosed at 10 cents on December 21, 2012.

144. The dramatic declines in the Company's stock price that occurred as the truth wasrevealedwere the direct result of Defendants' fraud.

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EVIDENCE OF DEFENDANTS' SCIENTER145. Deloitte acted with scienter in that it knew from audit evidence in its possession

that ChinaCast's financial results weremisstated or recklessly failed to obtain any audit evidenceto confirm those financial results. Deloitte's scienter is evident from the fact that themisstatements at issue involved p

deloitte_chinacast education (2)

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