The SEC and Chinese Issuers: Transparency And Accountability

This is the first segment of a five part series examining issues arising in SEC Enforcement Actions relating to issuers from the PRC whose shares are traded in the U.S.


Chinese issuers, their executives and their auditors have been the subject of a series SEC investigations and actions. Those companies and/or their executives have also been involved in a series of securities class actions and at least one criminal case.

Beginning in 2010, and continuing through 2011, a series of securities class action damage suits were brought against Chinese issuers, many of whom went public through a reverse merger. In 2010 for example, 15 class actions were file involving Chinese issuers according to a report by NERA Economic Consulting. That same report notes that over 30 securities class actions were filed against Chinese issues in 2011 although in 2012 the number of filings appears to be dwindling. Sinay v. CNOOC Limited, 12 CV 1513 (S.D.N.Y. filed Feb. 29, 2012), a securities class action against a Chinese issuer and its officers alleging false statements regarding its financial results, is an example of these cases.

To date at least one criminal case has been brought, U.S. v. Singhal, Case No. 1:11-cr-00142 (D.D.C.). The indictment charges conspiracy and wire fraud against corporate officials for defrauding the SEC and U.S. investors.

The SEC has also brought a series of cases involving companies based in the Peoples Republic of China or PRC and/or their officials and China based individuals. Those cases focus on six key areas:

1. Failure to file periodic reports with the SEC such as annual and quarterly reports as required the Securities Exchange Act of 1934 (“Exchange Act”) and other related actions

2. Questions regarding the audited financial statements included in annual reports filed with the SEC

3. The refusal of the outside audit firm to produce its work papers from its audit of a PRC based issuer on request of the SEC

4. Corporate governance issues

5. Foreign Corrupt Practices Act cases (“FCPA”).

6. Insider trading

This series will examine the actions brought by the SEC.

Next: Failure ot file reports; auditors

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