Protecting American Investors — Chinese Stocks on U.S. Stock Exchanges
Protecting American Investors
Keith Krach Under Secretary of State
Senior Advisor Ed KinseyDeception is not compatible with transparency. With China’s entry into the American stock markets, they have subversively challenged the roots of financial transparency, a strength of the American free-market system. The Securities and Exchange Commission (SEC) issued rulings in the 1990s which seemed appropriate for that time but did not anticipate the entry of a new form of a corporation, Chinese state-owned enterprises (SOE’s) in which the government, the regulators and the beneficiaries are all one entity. As a result, SOE’s can sell securities on the New York and NASDAQ stock exchanges without complying with the disclosure rules that American and other countries’ enterprises are required to follow. Adding full control of SOE structures to deception destroys transparency.
At the time of the original rulings, the SEC stated they found no evidence of the incompatibility of laws but noted that they need to monitor the result. This was at the infancy of the emergence of foreign regulated corporations onto the American exchanges. It’s time for the SEC to revisit its 1990’s rulings to address the current laws and circumstances.
The road to security regulation internationalization was based on the principle that all sellers played by the same rules. The continuing emergence of Chinese SOEs on the American based New York and NASDAQ exchanges is stacking the deck against American companies and intensifying the risks that investors are taking. The knowledge of China’s security standards and methods to offshore valuable American capital is wildly confusing. Even seasoned Wall Street investors and investment firms are not aware of the regulatory and motive differences.
This is a perfect storm for a catastrophic meltdown due to the collection of broad risk factors that now exist.The U.S. stock markets are the largest and most respected in the world because of the quality of the regulatory governance and transparency that surrounds them. It is our responsibility to uphold those strengths and our obligation to ensure that these markets remain strong for the future generations of Americans.
Uniquely challenging times call for strong action;
The SEC must reverse course and immediately issue new rules requiring any company that does not comply with Sarbanes-Oxley and US securities laws to be delisted from the U.S. stock exchanges within the shorter of 12 months or their next annual reporting time.
The DOL must issue a risk advisory to pension plan fiduciaries regarding the additional risks related to foreign stocks that are not compliant with U.S securities laws.
The DOJ should pursue action against PERS plan fiduciaries who have conflicts of interest with the government of China. Such actions will send a signal to warn others.
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