The US Department of Justice is investigating accounting irregularities at Chinese companies listed on US stock exchanges, said an official with the US Securities and Exchange Commission (SEC), suggesting criminal charges may be brought in addition to civil proceedings.
“There are parts of the justice department that are actively engaged in this area,” Robert Khuzami, director of enforcement at the SEC, said in an interview conducted on Tuesday and published on Thursday.
A number of federal prosecutors around the US were taking part in the investigation, he told Reuters, but declined to name them.
Involvement of US attorneys general in various locations adds investigative firepower to the SEC and the FBI, which are also probing the accounting methods of certain US-listed Chinese companies.
“I think that you will see greater [Department of Justice] involvement as time goes on,” Khuzami said when asked if criminal charges would be filed in the investigation.
A former federal prosecutor, he declined to elaborate on which Chinese companies or auditors were being scrutinized by the department.
An SEC review of accounting problems at foreign-based stock issuers sharpened its focus earlier this year when dozens of China-based companies began disclosing auditor resignations or book-keeping irregularities.
For example, Deloitte Touche Tohmatsu CPA Ltd in May resigned as auditor of Chinese software company Longtop Financial Technologies Ltd (東南融通), saying it had found falsified financial records and bank balance confirmations.
Accounting experts and lawyers said the department’s involvement showed how determined US authorities are to tackle the problems, but added the lack of an extradition treaty with China would make it tough to secure criminal convictions.
“I can’t see that China is going to turn anyone over for prosecution, so what this may end up doing is highlighting the difficulty of enforcing the US securities laws with respect to US-listed Chinese companies,” said Paul Gillis, visiting professor of accounting at Peking University’s Guanghua School of Management.
A Hong Kong-based lawyer, who has advised a number of Chinese companies involved in US investigations, added that US criminal prosecutors tend to have difficulty obtaining evidence from their Chinese counterparts.
“The Department of Justice will face as many hurdles as all the other US authorities. I don’t think they are in any better position than the SEC when it comes to gathering evidence and taking action,” he said.
The lawyer declined to be named as he is not authorized to speak to media.
Shares of some Chinese companies listed in the US fell on Thursday after Khuzami’s statements became public.
Among them, Focus Media (分眾傳媒) dived 18 percent, Sohu.com Inc (搜狐) closed 4.7 percent lower, Baidu Inc (百度) fell 9.2 percent, China Sky One Medical Inc (中國天一醫藥) declined 3.8 percent and Sina Corp (新浪) ended down 9.7 percent.
The SEC has struggled to gain access to documents it needs in the investigation because strict Chinese laws have made auditors reluctant to turn them over.
The FBI has an embedded agent in an SEC working group on Chinese companies that enter the stock market through so-called reverse mergers with US shell companies.
Officials from the SEC and the Public Company Accounting Oversight Board are scheduled to meet with their Chinese counterparts in Washington this month for a second round of talks on joint inspections of auditing firms in China.
“Not having proper accounting and reliable audit review for publicly traded companies with operations in China is just not acceptable. We have to find a path to resolution of this issue,” Khuzami said. “It is ... a big issue for us.”
Last month, the SEC sought a federal court order to force the Shanghai arm of Deloitte to turn over its work papers regarding Longtop Financial.
The results of the Deloitte subpoena enforcement action will be closely watched by other auditing companies, Khuzami said.
The federal government is also pursuing other options to ensure better accounting practices at US-listed companies based in China, he said.
“Obviously, the results here will inform the conduct of others that are similarly situated. In that sense, it’s going to be instructive,” Khuzami said. “At the same time, we’re not a one-trick pony: There are other efforts to reach resolution of these issues. We continue to work closely with our regulatory counterparts in China and in other countries to find a path to resolution.”
The Department of Justice declined comment for this story, saying it does not confirm or deny investigations.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to