In-Depth: Sen. John Kennedy (R-LA) introduced this bill to require foreign companies to submit to audits and certify that they aren’t controlled by a foreign government in order to access capital through U.S. stock exchanges, and offered the following statement on its passage by the Senate:
“The SEC works hard to protect American investors from being swindled by American companies. It’s asinine that we’re giving Chinese companies the opportunity to exploit hardworking Americans ― people who put their retirement and college savings in our exchanges ― because we don’t insist on examining their books. There are plenty of markets all over the world open to cheaters, but America can’t afford to be one of them. China is on a glidepath to dominance and is cheating at every turn. I hope my colleagues in the House will immediately send this bill to the president’s desk so we can protect Americans and their savings.”
Lead cosponsor Sen. Chris Van Hollen (D-MD) added:
“As we continue to experience the economic fallout and volatility caused by the COVID-19 pandemic, the need to protect main street investors is all the more important. For too long, Chinese companies have disregarded U.S. reporting standards, misleading our investors. Publicly listed companies should all be held to the same standards, and this bill makes commonsense changes to level the playing field and give investors the transparency they need to make informed decisions.”
The Trump administration has expressed support for this legislation, making it likely to be signed into law if the House sends it to President Donald Trump’s desk. White House Economic Advisor Larry Kudlow told Fox Business:
“We have to [push for] investor protection, and we have to for national security. A lot of these companies, by the way, have already had scandals and cost investors a lot of money because of their failure to be transparent in their reporting. The Chinese government forbids that kind of transparency.”
This legislation has the support of four cosponsors, including three Republicans and one Democrat. It passed the Senate Banking Committee by unanimous consent before it passed the full Senate by unanimous consent.
Of Note: While this bill would apply to companies from all foreign nations seeking to trade on U.S. stock exchanges, it is primarily intended to force Chinese companies to submit to audits by American regulators. Because of those companies’ refusal to submit to legitimate audits, there is heightened risk that they’re misrepresenting information to investors.
Securities & Exchange Commission (SEC) data shows that 11% of all securities class action lawsuits in 2011 were brought against Chinese-owned companies accused of financial misrepresentation. According to the SEC, there are 224 companies listed on U.S. exchanges with a combined market capitalization of over $1.8 trillion that are located in countries where there are barriers to accounting inspections.
If this bill becomes law, it would force major Chinese companies like Alibaba to comply with U.S. financial oversight rules or face “delisting” (e.g. getting kicked off the exchange).
Summary by Eric Revell(Photo Credit: iStock.com / Grindi)