SEC investigates many Chinese companies listed on US bourses

"One of China's least-noticed exports to the US has been hundreds of Chinese companies that slipped onto US stock exchanges through back-door mergers with dormant shell companies," the Wall Street Journal has reported.

According to the publication, many of these entities have minimal revenues, questionable accounting and inscrutable corporate governance.

Quoting people with knowledge about the probe, the daily said the SEC has begun a crackdown on practices of the "reverse takeover" market for Chinese listings.
The market regulator has initiated investigation into how networks of US accountants, lawyers and bankers have helped bring many Chinese firms on to the US stock markets, it added.

SEC has also started focusing on individual Chinese companies for accounting violations and lax auditing practices.

"... the House financial-services committee is also revving into gear and may hold hearings on Chinese-company accounting in 2011... The committee's fear is that some companies are rife with self-dealing and potential fraud and weak international standards have let it go largely undetected," the report noted.

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