Chairman John Moolenaar of the House Select Committee on the Chinese Communist Party and Senator Rick Scott have called on U.S. Securities and Exchange Commission (SEC) Chairman Paul Atkins to take stronger action against Chinese companies listed on American stock exchanges. In a letter sent this week, they urged the SEC to enforce existing laws more aggressively, identify any legislative needs for further investor protection, and remove Chinese firms that pose national security or investor risks.
The lawmakers’ request builds on previous communications with Atkins in May and July. Their main concern is the continued presence of Chinese companies that allegedly fail to meet U.S. market requirements, potentially misleading investors and threatening both economic and national security.
In their letter, Moolenaar and Scott referenced the SEC’s recent creation of a cross-border task force focused on addressing fraud impacting U.S. investors. They wrote: "This is an important initiative, and we strongly support this first step in protecting America’s financial exchanges from foreign malign influence."
They expressed particular concern about practices such as “pump-and-dump” schemes involving small-cap stocks and the use of Variable Interest Entity (VIE) structures by some Chinese firms. According to their letter: "The VIE structure allows Chinese companies to list on U.S. exchanges without providing investors with genuine equity ownership or enforceable shareholder rights." The lawmakers argued these arrangements mislead investors regarding what they actually own.
Moolenaar and Scott also highlighted the 2020 Holding Foreign Companies Accountable Act (HFCAA), which requires delisting foreign companies if American regulators cannot fully inspect them due to restrictions imposed by foreign authorities. They criticized previous administrations for not enforcing these provisions effectively: "Despite these warnings, the Biden administration and SEC Chair Gensler consistently failed to delist foreign companies as required by the 2020 Holding Foreign Companies Accountable Act (HFCAA)."
The letter asks Chairman Atkins for details about any additional authority needed from Congress to hold fraudulent companies accountable, specific statutes or regulatory powers that may need strengthening or replacement, and whether stronger HFCAA authorities are necessary.
"We must ensure that no foreign company - especially those tied to our adversaries, like the CCP - can exploit our markets and tarnish the reputation of our financial system," Moolenaar wrote.
The lawmakers concluded by expressing willingness to work with Atkins toward closing regulatory gaps, enhancing enforcement measures, and ensuring all publicly traded firms in U.S. markets meet appropriate standards for investor safety.
