Two Sherman Provisions Pass House -- Will Provide Transparency When Chinese Companies Sell Stock to U.S. Investors

Press Release

Today the House passed two provisions offered by Congressman Brad Sherman (D-Sherman Oaks), Chair of the House Financial Services Subcommittee on Investor Protection and Capital Markets, which will significantly increase oversight and accountability of Chinese companies raising capital from American investors. These provisions were included in H.R. 4521, the America COMPETES Act, and were developed in close consultation with Congresswoman Maxine Waters (D-CA), Chair of the House Financial Services Committee.

The first of these provisions directly reflects the text of H.R. 6285, the Accelerating Holding Foreign Companies Accountable Act, an amendment to the Kennedy-Sherman Act (Holding Foreign Companies Accountable Act) that was passed by Congress and signed into law in 2020, that would put additional pressure on China by requiring foreign auditors to allow inspections by the Public Company Accounting Oversight Board's (PCAOB) or risk publicly traded companies being de-listed from U.S. exchanges if inspections do not happen after two consecutive years rather than three. This legislation represents a House companion to S.2184, a bill introduced by Senators John Kennedy (R-LA) and Marco Rubio (R-FL) which was passed by the Senate on June 22, 2021. Sherman also held a hearing in his subcommittee on this bill on October 26, 2021.

For over a decade, Chinese authorities have effectively blocked the PCAOB from conducting effective oversight of audit firms based in China and Hong Kong. However, these audit firms currently serve as the primary auditor for 191 companies publicly traded in the U.S. with a combined global market capitalization of $1.9 trillion.

The second provision offered by Congressman Sherman is an amendment to America COMPETES which will significantly increase the Securities and Exchange Commission's (SEC) visibility into capital raising activity by Chinese companies in the opaque unregistered securities market. This amendment does so by requiring companies issuing certain unregistered securities to provide basic information about themselves to the SEC when issuing those securities. Despite making up over 60 percent of capital raising activity in the U.S. in a given year, the SEC has very little information regarding the companies which issue these unregistered securities.[1] This amendment has received the support of Public Citizen, the AFL-CIO, Americans for Financial Reform, and Consumer Federation of America.

"The inclusion of these important pieces of legislation in the America COMPETES Act represents an important step forward in our ability to understand and manage the aggressive capital raising activity we have seen from China-based companies in U.S. markets," said Congressman Sherman. "Together, these provisions will ensure that, in our public markets, Chinese companies are playing by the same rules of the road as everyone else, and in our private markets regulators have a clear understanding of what is going on."

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