SEC Demands Chinese Firms Bolster Risk Disclosures for Investors

(Bloomberg) -- Chinese companies trading in the U.S. must disclose more about the risks they can pose for investors, according to new guidance from the Securities and Exchange Commission.

The firms need to make more specific and prominent disclosures to comply with federal securities laws, the SEC’s unit in charge of reviewing corporate filings said Monday. The agency also said that special purpose acquisition companies, or SPACs, should disclose whether their sponsors or majority of executives are based in China, or whether a merger target is located there. 

“Recent events have highlighted the risks associated with investing in companies that are based in or that have the majority of their operations in the People’s Republic of China,” the SEC’s division of corporation finance said. “In light of these concerns, the division is issuing comments to China-based companies seeking more specific and prominent disclosure about the legal and operational risks associated with China-based companies.”

The SEC said that companies should be particularly careful to make clear disclosures around any shell companies they use to list in the U.S. SEC Chair Gary Gensler has warned previously that American investors might not be aware when they’re investing in a vehicle with ties to a company in China, rather than the company itself.

The heightened disclosure requirements, laid out in a sample comment letter by SEC staff, will also apply to Chinese companies that already trade in the U.S. Those firms should include them in documents like annual reports or prospectus supplements, the SEC said.

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