How Many More Luckin Coffees? SEC To Discuss Listed Chinese Firms' Lax Accounting Standards, Fraud
Nasdaq delisted China’s Luckin Coffee over allegations of accounting fraud
Many of the letters to the SEC focused on a Chinese education called GSX Techedu
In May, the U.S. Senate passed a bill that could ultimately delist scores of Chinese stocks
A group of American investors have alleged that some Chinese-based companies listed on U.S. stock exchanges are fraudulent entities without accounting transparency that could harm U.S. investors. The Securities and Exchange Commission planned a roundtable conference on the issue on Thursday.
The conference comes only weeks after Nasdaq decided to delist China’s Luckin Coffee over allegations of accounting fraud related to fabricated sales figures.
In comment letters to the SEC in the past two months, dozens of investors and traders have cited instances of Chinese firms committing various acts of fraud.
For example, Carson Block, founder and chief investment officer of Muddy Waters Capital, an investment research firm based in California, wrote to the SEC: “Chinese-based [stock] issuers have committed and continue to commit fraud on a stunning scale in the [U.S.] capital markets… Protecting individual investors from the devastating financial impact of these frauds requires a profoundly different policy and regulatory approach.”
Block cited the aforementioned Luckin Coffee as an example. While Luckin Chairman Charles Lu was removed from his position, he remains the company’s largest investor wielding heavy influence. Block noted that no auditors of Luckin have resigned since the scandal broke.
Many of the letters to the SEC focused on a Chinese education and language school company called GSX Techedu, which trades on the New York Stock Exchange under the symbol GSX.
GSX shares traded at $81 per share as of midday Thursday and the company has a market cap of $19.3 billion.
“The SEC's continued inaction on known China-based frauds is disheartening,” wrote investor David Monroe. “GSX has been clearly and unequivocally shown to be a fraud, and yet, the SEC has chosen to sit by idly. Please act on GSX and the other half dozen demonstrably fraudulent U.S.-listed companies from China before more investors… pile into these stocks and lose [most or all] of their money during the inevitable collapse.”
Thomas Forrest, a senior consultant of learning and development, also singled out GSX as a fraudulent company “that does not have staff commensurate to its filings to the SEC or compared to its valuation.”
Another investor named Janson You wrote that GSX might be a “Pearl Harbor” moment for U.S. stock markets.
https://www.ibtimes.com/how-many-more-luckin-coffees-sec-discuss-listed-chinese-firms-lax-accounting-3008574