June 27, 2020
The SEC has a responsibility to protect investors of securities traded on US exchanges. There are companies allowed to trade on these exchanges that are widely known and proven to be completely fraudulent. For example, the Chinese company GSX, traded on the NYSE, has been shown to inflate revenues by at least 90% (there are several independent, publicly available reports on the methods used by this company to defraud investors).
As part of the SEC's responsibility, companies like GSX need to be promptly investigated and halted from trading on US exchanges. This problem could have been averted: 1. Through requirements allowing US auditors to check the books of any company seeking to trade on a US exchange, 2. Holding that accounting firms are legally responsible for the actions of their Chinese-based subsidiaries (which are mainly, if not solely, set up to dodge legal implications of their rubber stamping), and 3. Providing resources for SEC auditors to immediately investigate fraud accusations and requiring companies that do not comply to be delisted, no matter where they are based.
For clarity, these rules should apply to all US-traded companies regardless of where they are based. But Chinese companies have been the largest abuser of the current loopholes to date.
While the above actions will mitigate the risk of future frauds, there needs to be action take to address companies actively defrauding US investors (like GSX). Companies with ongoing suspicion or credible accusations should be given a short period to open their books to US auditors or be delisted from all US markets. Only in Washington can it make sense that companies are allowed to trade without following our rules, only if they are based in a country which refuses to cooperate with US laws.