The SEC adds Baidu, Futu and three others to the list of companies liable under the Audit Act
The SEC adds Baidu, Futu and three others to the list of companies liable under the Audit Act

The SEC adds Baidu, Futu and three others to the list of companies liable under the Audit Act

The Securities and Exchange Commission (SEC) has added five New York-listed stocks to its latest list of companies liable under U.S. auditing law, including four Chinese Internet companies.

Futu Holdings Limited, iQiyi and Baidu is among the most recent names identified under Law on holding foreign companies accountable (HFCAA), according to a March 30 statement by the SEC. Also on the list are Nocera, an agricultural services company based in Atlanta, and CASI Pharmaceuticals, which develops cancer drugs in Rockville, Maryland.

The HFCAA, adopted during the twilight of the Donald Trump administration, requires U.S.-listed foreign companies to comply with the rules of audit inspection under the Public Companies Accounting Oversight Board (PCAOB), or face expulsion from the stock exchange after three consecutive years of non-compliance.

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The SEC’s “role at this stage of the process is solely to identify issuers who have used PCAOB-identified public audit firms to audit their accounts,” according to the statement.

Under the “rebuttable presumption” clause in U.S. law, companies identified by the SEC can contest their addition. Weibo Corporationwhich was added to the SEC list on March 23, has until April 13 to file its appeal, while the deadline for the remaining five is one week later on April 20.

The SEC’s list corresponds to a clerical record. Yet it raises concerns in a stock market that is already nervous about deteriorating US-China relations, ranging from a trade war that shows no sign of giving in to disputes over technology, data, Russia’s invasion of Ukraine and even the origins of Covid. -19 disease.

When the SEC on March 8 identified HutchMed and four other U.S. listed companies as liable under the HFCAA, led to an annihilation in Hong Kong’s stock market for the stocks in question. For now, China’s securities regulator is playing it cool.

“According to the SEC, it is just a normal procedure for the US regulator to enforce the HFCAA. Whether the companies added to the list would be delisted will depend on the outcome of the negotiations between China and the US on their cooperation in auditing.” spokesman for the CSRC.

There are about 200 Chinese companies – including the owner of this newspaper Alibaba Group Holding – with American Depositary Receipts (ADRs) listed on either the New York Stock Exchange (NYSE) or the Nasdaq. The HFCAA authorizes the PCAOB to determine whether inspections or investigations conducted by registered audit firms are considered “complete” due to the views of an authority in a foreign jurisdiction.

Headquarters for Futu Holdings in Shenzhen on December 9, 2020. Photo: Iris Ouyang alt = Headquarters for Futu Holdings in Shenzhen on December 9, 2020. Photo: Iris Ouyang>

China does not allow audit and accounting data to be taken offshore, but has authorized by the China Securities Regulatory Commission (CSRC) to find a mechanism to comply with overseas accounting rules. A new approach is being considered, where China’s Ministry of Finance examines the audit data on state secrets and personal information before disclosing it, that Post reported last week.

SEC President Gary Gensler and CSRC President Yi Huiman have held three online meetings since August last year to discuss the prospect of cooperating on audit provisions, and the Chinese Securities and Exchange Commission has met with the PCAOB, the CSRC spokesman said, adding that communication is ongoing.

Weibo runs a microblogging site in China similar to Twitter. Its shares fell as much as 2.5 percent to an intraday low of HK $ 187 in Hong Kong after falling 2.6 percent to US $ 24.68 in New York.

Baidus logo at headquarters in Beijing on August 4, 2019. Photo: Shutterstock alt = Baidus logo at headquarters in Beijing on August 4, 2019. Photo: Shutterstock>

iQiyi is a video streaming service. Its stock fell as much as 4.8 percent during the night before catching up with most of its losses to end the day at $ 5.04, 0.4 percent higher.

Shares of Baidu, China’s dominant internet search engine, fell as much as 4.8 percent to HK $ 139.20 in Hong Kong after being added to the SEC list. It was not immediately available for comment.

Futu, an Internet broker, fell 2.9 percent overnight to $ 37.40 in New York.

“The company’s U.S. depository shares will not be delisted immediately as a result of the identification,” Futu said in a statement. “Futus operations will continue to be stable and robust as always, and we will continue to strictly comply with all applicable laws and regulations.”

This article originally appeared in South China Morning Post (SCMP), the most authoritative voice that has reported on China and Asia for more than a century. For more SCMP stories, please explore SCMP app or visit the SCMPs Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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