SEC Probe Signals ‘Buyer Beware’ for China, ISIG Says

The Securities and Exchange Commission’s probe into auditors of China-based companies listed on U.S. share exchanges is a signal for investors to approach these stocks with caution, said International Strategy & Investment Group.

The SEC on Dec. 21 sanctioned a California audit firm for signing off on fraudulent financial statements made by a Chinese energy company. Auditors have come under scrutiny for signing the financial statements of China-based firms accessing U.S. markets through reverse mergers, in which a closely held company acquires a publicly traded company and can then sell shares without an initial public offering.