US Law for effective supervision of Chinese shell companies on the anvil
A new US law is on the anvil for effective supervision of shell companies commonly used by the Chinese companies listed on the New York Stock Exchange.
Two Senators – Rick Scott, a Republican, and Chris Van Hollen, a Democrat jointly launched the bill. It seeks crack down on the variable interest entities (VIE) that Chinese capital stock companies often use to list in the US.
According to the statement of objectives, the bill requires the brokers to caution investors of the risks in investing in shell companies.
While the Scott -Hollen Bill has a long way to go before it become the law of the land, “it represents the latest move by Washington politicians to pressure Chinese companies to increase disclosure of information to US investors”.
The U.S. Securities and Exchange Commission, (SEC), the market watch dog has not yet responded to the bill but its chairman Gary Gensler has been on record cautioning American investors about the Chinese VIEs.
“Americans, who think they are investing in Chinese companies by buying stocks on the New York Stock Exchange or the NASDAQ, may not realize that they are actually investing in shell companies that generally open in the Cayman Islands; such companies only maintain service agreement relationships with Chinese companies”, he had warned once in the recent past###.
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