US launches fraud probe of Chinese reverse mergers

The US Securities and Exchange Commission (SEC) has launched a fraud investigation into Chinese companies that have listed in America via reverse mergers rather than full initial public offerings, the South China Morning Post reported. Since January 2007, over 150 Chinese firms have gone public by purchasing dormant, listed companies and injected their assets into the corporate structures, taking advantage of lower disclosure requirements. A number of these companies have subsequently been hit by accounting scandals. “While the vast majority of these companies may be legitimate businesses, a growing number of them have accounting deficiencies or are outright vessels of fraud,” said SEC commissioner Luis Aguilar. He also noted concerns that US audit firms were signing off on these companies’ financial statements on the basis of work outsourced to China over which they had limited oversight.