By Echo Wang (Reuters) – The Securities and Exchange Commission (SEC) has begun issuing new disclosure requirements for Chinese companies seeking listing in New York as part of an effort to raise investor awareness of the risks involved, according to a document reviewed by Reuters and people familiar with the matter. Some Chinese companies have already begun to receive detailed instructions from the SEC, which regulates the US capital market, about further disclosure of their use of offshore vehicles known as variable interest entities (VIEs) for IPOs; implications for investors and the risk that Chinese authorities will interfere with the company’s operations. Last month, SEC Chairman Gary Gensler called for a “break” from US initial public offerings (IPOs) of Chinese companies and sought more transparency on these issues. Chinese listings in the US stopped after the SEC action. In the first seven months of 2020, those listings hit a record $12.8 billion, as Chinese companies capitalize on the burgeoning US stock market. “Describe how this type of corporate structure can affect investors and the value of their investments, including how and why contractual arrangements may be less effective than direct ownership, and that the company may incur substantial costs to enforce terms of the agreements,” said an SEC letter seen by Reuters. The SEC also asked Chinese companies for a disclosure that “investors can never directly hold equity stakes in the Chinese operating company,” according to the letter. Many Chinese VIEs are embedded in tax havens such as the Cayman Islands. Gensler said there are many questions about how money flows through these entities. “Avoid using terms like ‘we’ or ‘our’ when describing the activities or functions of a VIE,” the letter states. An SEC spokesman did not immediately respond to a request for comment. The SEC has also provided disclosure requirements regarding the risk of Chinese regulators intervening in the company’s data security policies, the sources said. Last month, just days after Didi Global’s IPO, Chinese regulators banned the per-app transport giant from registering new users. This move was followed by crackdowns against technology and education companies. The SEC has also asked some companies for more details in cases where they do not comply with the US Foreign Company Accountability Act on accounting disclosures for regulators. So far, China has barred companies from sharing their auditors’ work with the US Public Company Accounting Oversight Board. Last month, the SEC removed the chairman, who was unsuccessful in his attempt to secure independent auditing of US-listed Chinese companies. The SEC’s move represents the latest blow by US regulators against corporate China, which for years has frustrated Wall Street with its reluctance to abide by US auditing standards and improve the governance of companies closely held by the founders. The SEC is also under pressure to finalize rules on delisting Chinese companies that do not meet US audit requirements. See too + Until 2019, there were more people in prisons than on the Brazilian stock exchange + Geisy complains about social media censorship: “Instagram is chasing me” [+ Aloe gel in the drink: see the benefits] [+ Nicole Bahls had already been warned about her ex-husband’s infidelity] [+ Lemon-squeezing trick becomes a craze on social media] [+ Chef playmate creates aphrodisiac recipe for Orgasm Day] [+ Mercedes-Benz Sprinter wins motorhome version] [+ Anorexia, an eating disorder that can lead to death] [+ US agency warns: never wash raw chicken meat] [+ Yasmin Brunet breaks the silence] [+ Shark is captured in MA with the remains of youngsters missing in the stomach] !function(f,b,e,v,n,t,s) {if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)}; if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0?; n.queue=[];t=b.createElement(e);t.async=!0; t.src=v;s=b.getElementsByTagName(e)[0]; s.parentNode.insertBefore(t,s)}(window, document,’script’, ‘https://connect.facebook.net/en_US/fbevents.js’); fbq(‘init’, ‘2641197072803735’); fbq(‘track’, ‘PageView’);
