Financial Officers of 23 States Ask SEC to Investigate, Delist Chinese Companies
Udumbara
Financial officers of 23 states on May 20 urged Securities and Exchange Commission (SEC) Chair Paul Atkins to delist Chinese companies and protect American investors.
Lawmakers on both the state and federal levels said the SEC already has the authority, under the Securities Exchange Act and the 2020 Holding Foreign Companies Accountable Act, to delist companies that fail to meet SEC standards.
For example, Americans investing in Alibaba or Tencent are actually investing in companies based in the Cayman Islands, and the Chinese regime has not recognized the legality of VIEs, giving it the ability to dissolve them and leave investors with no legal recourse.
This “opaqueness” is at odds with SEC reporting standards, the state financial officers say, and companies using this structure warrant an investigation into these companies’ “disclosure controls and procedures, internal controls over financial reporting, falsification of accounting records, or manipulative and deceptive practices.”
Relying on Chinese firm reports is risky, according to the state lawmakers.
They note that according to the nonprofit Public Company Accounting Oversight Board (PCAOB), seven out of eight audits of major accounting firms in China showed “unacceptable” levels of deficiencies and errors were rampant. This was an initial assessment by the PCAOB in 2023 after years of being denied entry by the Chinese regime, which has also punished firms for “engaging in due diligence.” The lawmakers cited as an example the shutting down of New York-based Mintz Group in Beijing and detaining its employees for conducting “foreign-related statistical investigations” without regime approval.
Additional risk comes from the CCP’s ability to control these Chinese companies and stock markets directly, the state financial officers said. The regime has the authority to block shareholder actions and direct state-owned enterprises to buy and sell stocks. It also requires Chinese companies to have CCP units and cooperate with the state.
The state financial officers are individually members of the State Financial Officers Foundation, whose CEO OJ Oleka said in a statement shared with The Epoch Times that the Chinese Communist Party, as an adversary, is unlikely to comply and be fully transparent with American regulators.
The CCP is “conducting a long war against American interests and dominance accordingly,” he said. “Firms committing fraud, especially those in bed with foreign bad actors, must be delisted. American investors have a right to expect nothing less.”
Michael Lucci, founder of State Armor, a group that works with states to address threats by the CCP, said in a statement shared with The Epoch Times that the officials have recognized the “financial infiltration” by the Chinese communist regime.
“The CCP uses financial shell games to lure U.S. investors into backing companies that are ultimately controlled by Beijing and benefit the CCP’s military and surveillance state,” he said, adding that states that have taken steps to divest from Chinese securities are doing the right thing. “This problem also requires a national solution.”
