Saturday, October 23, 2021

US SEC warns investors of risks from some Chinese business entities

WASHINGTON – The US Securities and Exchange Commission (SEC) on Monday issued its latest warning to those wishing to invest in Chinese companies listed in the United States.

In an alert to investors, the SEC details the potential risks involved in investing money in US-listed companies that have contracts with but no control over a Chinese entity known as a convertible interest entity (VIE). goes. This is the agency’s most recent move that Chinese companies are flouting regulations to access US markets.

In July, the agency said it would not allow Chinese companies to raise money in the United States unless they fully clarified their legal framework and disclosed the risk of Beijing interfering in their business. Earlier this year, the agency began enacting a new law aimed at China that would remove foreign companies from US stock exchanges if they do not comply with US auditing standards.

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According to the SEC, these US-listed companies often own a subsidiary in China that was created to enter into contractual arrangements with China-based VIE. Contracts may include power of attorney, equity pledge agreements and exclusive services or business collaboration agreements.

The SEC said the VIE structure is commonly used in China because of Beijing’s restrictions on non-Chinese ownership of companies in key industries. By selling shares to US investors, companies are raising capital from US investors without distributing ownership of those firms.

The SEC warned investors that if Beijing determines that they violate Chinese law, they are exposed to risks, may be subject to Chinese jurisdiction in enforcing any contracts, and that the entity’s owners and May be affected by conflicts of interest between US shareholders.

by Chris Prentiss

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This News Originally From – The Epoch Times

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