SEC Cracking Down on Cross-border Fraud, Zeroing in on Chinese Businesses and Intermediaries
SEC Cracks Down on Cross-Border Fraud, Focusing on Chinese Companies
In a move aimed at protecting US investors, the Securities and Exchange Commission (SEC) has announced the formation of a new task force to combat cross-border news. The focus of this task force will be on Chinese issuers, following concerns about accounting and disclosure fraud by Chinese companies listed in the US.
The concerns were raised by state regulators on May 20, 2025, and have been echoed by Congress, who expressed worries about US-listed Chinese companies benefiting from American investor capital while advancing strategic objectives of the Chinese government.
The new administration's "America First" approach prioritizes investor protection and national security, which may result in heightened scrutiny of international companies, especially those in China, through 2028.
The task force will investigate other types of securities law violations by companies from foreign jurisdictions, such as China, in addition to its initial focus on market manipulation schemes such as "pump-and-dumps." Pump-and-dump schemes refer to efforts to artificially inflate the price of a security through misleading news or trading practices.
Recently, there has been an uptick in suspected pump-and-dump schemes by US-listed foreign companies, a trend that the SEC has long focused enforcement resources on combating.
In response to these concerns, SEC Chairman Atkins has directed the SEC to consider and recommend actions to protect US investors, including new disclosure guidance and rule changes.
Auditors, underwriters, broker-dealers, law firms, and other gatekeepers have been urged to reinforce their due diligence procedures to mitigate risks of news. Foreign public issuers and companies facilitating access to US securities markets should ensure that their filings with the SEC are materially accurate and maintain robust internal accounting and disclosure controls.
NASDAQ recently implemented a new rule requiring Chinese companies looking to list on the exchange to have a minimum value of $25 million. Stakeholders should proactively enhance their compliance programs, including policies and procedures, in response to regulatory scrutiny of foreign entities seeking access to the US markets, particularly Chinese companies.
The task force's initial focus on international market manipulation and news may signal the beginning of heightened scrutiny of foreign-based US issuers more broadly. Foreign issuers should closely monitor the SEC enforcement landscape in the months ahead. The task force will specifically target gatekeepers, particularly auditors and underwriters, that facilitate foreign access to the US capital markets.
In conclusion, the SEC's new focus on foreign-based issuers reflects both the reality of an increase in suspected cases of manipulation involving foreign companies, as well as a broader shift of federal enforcement priorities from domestic actors to overseas ones who harm US investors.
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