SEC Finalizes Disclosure Rules For Foreign Issuers

This month, the U.S. Securities and Exchange Commission (“SEC”) finalized disclosure rules that, according to Law360, “establish a framework to track and potentially delist foreign issuers that have evaded U.S. auditors or are subject to the ‘influence’ of foreign governments.”  The rules were established pursuant to the Holding Foreign Companies Accountable Act (“HFCAA”), which is “an effort to clamp down on Chinese companies operating outside the [Public Company Accounting Oversight Board’s (“PCAOB”)] purview.”

Specifically, the rule pertains to registrants that the SEC “identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the [PCAOB] is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction.”  These registrants—referred to as “Commission-Identified Issuers”—will be required to submit documentation to the SEC establishing that they are not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction.  They will also have to provide disclosures regarding the “audit arrangements of, and governmental influence on, such registrants.”  

As Law360 explains, the HFCAA and the SEC’s supporting rules follow on the heels of the “Luckin Coffee scandal, which led to a $180 million settlement on claims that the China-based coffee chain had defrauded investors by misstating revenues, expenses and net operating losses.”