WASHINGTON (Reuters) – Secretary of State Mike Pompeo warned American investors about fraudulent accounting practices at China-based companies on Thursday, saying that Nasdaq’s recent decision to tighten listing rules for such players should be “a model” for all other exchanges the whole world his world.
FILE PHOTO: U.S. Secretary of State Mike Pompeo attends a lunch hosted by Chinese Secretary of State Wang Yi and his colleagues on the five UN Security Council permanent five veto members in New York, United States, on September 26, 2019. REUTERS / Yana Paskova / File Photo
His remarks on the subject, first reported by Reuters before making a statement, illustrate the Trump administration’s desire to make it difficult for some Chinese companies to trade outside of China.
President Donald Trump issued a memorandum on Thursday calling for recommendations to be made within 60 days to protect U.S. investors from what he said that China had not approved audits of Chinese companies listed in the U.S.
“We need to take determined and orderly measures to end Chinese practice, disregard American transparency requirements, without negatively affecting American investors and financial markets,” Trump wrote.
The statements mark the recent focus in US-China relations at a time of escalating trade tensions between the world’s two largest economies, the coronavirus pandemic, and Hong Kong.
“American investors should not be exposed to hidden and inappropriate risks associated with companies that do not follow the same rules as US companies,” said Pompeo in his statement. “Nasdaq’s action should serve as a model for other exchanges in the United States and around the world.”
“I welcome Nasdaq’s commitment to accounting firms to ensure that all listed companies comply with international reporting and inspection standards,” added Pompeo.
Nasdaq Inc (NDAQ.O) took measures last month and tightened the listing rules to curb the IPO of Chinese companies, which are closely held by insiders, and with opaque accounting.
Adena Friedman, Nasdaq’s chief executive, said Thursday that it was up to the U.S. Securities and Exchange Commission to address overseas accounting issues.
The listing standards were tightened by the stock exchange according to the Chinese coffee house chain Luckin Coffee Inc (LK.O), which had an IPO in the U.S. in early 2019, announced that an internal investigation showed the chief operating officer and other employees have signed sales agreements.
Trump said last week that his government would begin the process of abolishing US special treatment for Hong Kong to punish China. Beijing’s efforts to introduce new national security laws meant that the territory no longer justified US economic privileges.
He also said that he had commissioned a president’s working group to investigate the different practices of Chinese companies listed on the US financial markets to protect American investors.
“The real problem is the lack of transparency and disclosure to American investors,” Keith Krach, Under Secretary of State for Economic Growth, Energy and Environment at the State Department, told Reuters on Wednesday.
“No country should be allowed to lie to American investors to gain an unfair advantage, especially if it is active in American markets,” said Krach.
Many Chinese companies listed in the U.S. are likely to be listed on the Hong Kong Stock Exchange this year, also due to the political pressure from the U.S., the stock exchange manager said on Thursday.
The SEC has been involved in a decades-long struggle with the Chinese government to review the audits of Chinese companies listed in the United States.
In April, SEC chief Jay Clayton warned investors not to put money into Chinese companies because of disclosure problems.
A senior US official said he hoped the SEC would review a memorandum of understanding signed with China in 2013 that would allow Chinese companies to withhold information if their local laws prohibit them from disclosing it.
“This waiver should probably be reviewed at this stage to determine whether it is still appropriate and whether it will not be lifted,” he said, adding that the decision was left to the SEC.
Reporting by Humeyra Pamuk; additional reporting by Echo Wang and John McCrank; Edited by Chris Sanders, Edward Tobin, Nick Zieminski and Tom Brown