Pompeo to urge stock exchanges globally to tighten rules for Chinese companies

Luckin Coffee

04/06/2020 18:17

By Humeyra Pamuk
    WASHINGTON, June 4 (Reuters) - U.S. Secretary of State Mike
Pompeo is set warn American investors on Thursday against
'fraudulent' accounting practices of China-based companies, and
suggest the Nasdaq's recent decision to tighten listing rules
for such players should be a model for all other exchanges
around the world.
    His remarks on the issue, expected to be delivered at a
press briefing later on Thursday and reviewed by Reuters,
illustrate the Trump administration's desire to make it harder
for some Chinese companies to trade on exchanges outside of
China.
    It also represents the latest flashpoint in the relationship
between Washington and Beijing at a time of escalating tensions
between the world's two largest economies over trade, the
handling of the coronavirus pandemic as well as a spat over Hong
Kong.
    President Donald Trump on Friday said his administration
would begin the process of eliminating special U.S. treatment
for Hong Kong to punish China, saying Beijing's move to impose
new national security legislation meant the territory no longer
warranted U.S. economic privileges.  urn:newsml:reuters.com:*:nL4N2DB0H6
    Nasdaq Inc  NDAQ.O  took action last month and tightened
listing rules, in a bid to curb initial public offerings of
Chinese companies closely held by insiders and with opaque
accounting.  urn:newsml:reuters.com:*:nL1N2D100Y
    The tightening of the listing standards also came after
Chinese coffeehouse chain Luckin Coffee Inc  LK.O , which had a
U.S. IPO in early 2019, announced that an internal investigation
had shown its chief operating officer and other employees
fabricated sales deals.  urn:newsml:reuters.com:*:nL4N2CU3FK
    "The real issue is the lack of transparency and the lack of
disclosure to the American investors," Keith Krach,
Undersecretary for economic growth, energy and the environment
at the U.S. State Department told Reuters on Wednesday.
    "No country should be allowed to lie to the American
investors to create an unfair advantage especially when
operating in American markets," Krach said, adding that there
was a push within the administration to make U.S. investor
community more aware about China's opaque accounting practices.
    The U.S. Securities and Exchange Commission has been locked
in a decade-long struggle with the Chinese government to inspect
audits of U.S.-listed Chinese companies. The regulator’s
accounting oversight arm, the Public Company Accounting
Oversight Board (PCAOB), is still unable to access those
critical records, it has said.
    In April, the head of SEC Jay Clayton warned investors
against putting money into Chinese companies due to ongoing
problems with those companies’ disclosures.
    A senior U.S. official said he hoped the SEC would review a
2013 memorandum of understanding signed with China to allow
Chinese companies to not share information if their local laws
forbid them from doing so.
    "That waiver should probably be reviewed at this point in
time as to whether it is still appropriate and if not be
rescinded," he said, adding that the decision was up to the SEC.
   

 (Reporting by Humeyra Pamuk; Editing by Chris Sanders and
Edward Tobin)
 ((humeyra.pamuk@thomsonreuters.com; +1 202 3105694; Reuters
Messaging: Twitter: @humeyra_pamuk))