The US Securities and Exchange Commission has accused Chinese regulators of blocking its attempts to stamp out a wave of accounting fraud by mainland companies listed on US stock exchanges.
The SEC is moving aggressively to deal with mainland firms that secured listings on the New York Stock Exchange and Nasdaq via so-called reverse mergers, then became embroiled in financial scandals. Since March 1, 24 US-listed mainland firms have announced auditor resignations, accounting problems, or both.
But the China Securities Regulatory Commission is treating the American regulator's attempts to investigate as 'a possible violation of sovereignty and/or national interest', SEC chairman Mary Schapiro wrote in a report to Congress.
A CSRC spokesman declined to comment.
Schapiro's words are likely to unsettle investors who buy shares in mainland companies on offshore exchanges, including Hong Kong's, believing foreign regulators or law enforcers could bring mainland rule-breakers to book.
Foreign watchdogs, including Hong Kong's Securities and Futures Commission (SFC), need CSRC co-operation to conduct raids, seize documents or interview witnesses on the mainland.
'If you are buying shares of a Chinese company listed on an offshore exchange, that offshore exchange's regulator is sometimes unable to investigate potential fraud due to lack of regulatory co-operation,' said William McGovern, a partner at law firm Kobre & Kim in Hong Kong and a former SEC branch chief.
