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SEC Probes Chinese ‘Reverse Mergers’ and Their U.S. Auditors

The Securities and Exchange Commission, as part of a broader probe of China-based companies listed on U.S. stock exchanges and their auditors, sanctioned a California audit firm for signing off on fraudulent financial statements made by a Chinese energy company.

Moore Stephens Wurth Frazer & Torbet LLP of Orange County is one of several firms that have fallen under the SEC’s scrutiny for signing the financial statements of China-based firms accessing U.S. capital markets through so-called reverse mergers. In a reverse merger, a closely held company acquires a publicly traded company and can then sell shares without an initial public offering.