SEC Probe May Spur More Chinese Delistings, Dorsey Says
More U.S.-listed Chinese companies are under the threat of going private or being delisted after U.S. regulators accused accounting firms’ affiliates of blocking probes into potential fraud, Dorsey & Whitney LLP said.
Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Ltd. have refused to cooperate with accounting investigations into nine companies whose securities are publicly traded in the U.S., the Securities and Exchange Commission said in an administrative order yesterday. BDO China Dahua Co. was also named by the SEC in the action.
“This SEC proceeding may also encourage even more Chinese companies to go private or go dark to avoid the further threat raised by these issues,” Ted Farris, a New York-based partner at Dorsey & Whitney, which has represented more than 10 U.S.- listed Chinese companies in their proposed going-private or delisting deals since 2010, said in an e-mail today. “Under SEC rules, if the SEC proceeding is successful, it can temporarily or permanently bar the Chinese accounting firms from filing audit opinions on U.S. publicly traded Chinese companies.”
The Bloomberg Chinese Reverse Mergers Index (CHINARTO), which tracks a basket of companies that gained U.S. listings after buying firms that already trade, has lost 60 percent over the past two years. Companies from China MediaExpress Holdings Inc. to Longtop Financial Technologies Ltd. disclosed financial irregularities or auditor resignations as short-selling firms such as Muddy Waters LLC helped fuel scrutiny.
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