SEC Pauses IPO of Shell Companies Used by Chinese Firms
U.S. Securities and Exchange Commission chairman Gary Gensler spoke about the risks of investing in Chinese stocks, detailing worries about the use of shell companies and directing his staff to take a pause on IPOs of such firms.
U.S. SEC chairman Gary Gensler highlighted the Chinese use of shell companies incorporated in other countries – often called the variable interest entity (VIE) structure – in order to skirt Chinese rules restricting foreign ownership.
«Those shell companies then raise the money on U.S. exchanges,» he said in a video posted earlier this week on Twitter, asking staff to require full and fair disclosure. «So when you think you're investing in a Chinese company, you're more than likely actually investing in a shell company in the Caymans or another part of the world.»
Gensler also asked SEC staff to «pause» IPOs of shell companies that Chinese firms use to list in the country.
Auditor Risk
In addition to risk disclosures by issuers, Gensler also highlighted risks from auditors in Chinese companies which haven’t agreed to inspection since the government prohibited such action for the last 17 years.
«If the auditors of Chinese operating companies don't open up their books and records in the next three years, the companies – Cayman or Chinese – won't be able to be listed here in the U.S.,» Gensler said.
