(Bloomberg) — U.S. regulators ended a three-year standoff Friday that could have jeopardized the listings of hundreds of China-based companies trading in the U.S.
The Chinese affiliates of the four largest accounting firms each agreed to pay $500,000 to resolve Securities and Exchange Commission claims that they blocked investigations of accounting fraud by refusing to hand over documents, the SEC said in a statement. The agency dropped six-month auditing bans as part of the deal.
The accord resolves what became a broader diplomatic row over whether Chinese laws prohibited companies from complying with U.S. regulations. The conflict came to a head as the SEC ramped up probes of accounting fraud at dozens of companies based in China and listed in the U.S. The audit firms, which had refused to cooperate with investigators, have now provided the SEC with the information it sought.
As we repeatedly have stated throughout this litigation, obtaining an audit firms workpapers is critical to enforcement staffs ability adequately to protect investors from the dangers of accounting fraud, said SEC Enforcement Director Andrew Ceresney. This settlement recognizes the SECs substantial recent progress in obtaining those documents from registered firms in China.
The firms — Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Ltd. — could have the six-month bans reinstated against them if they stop cooperating with the SEC, the agency said.
The four audit firms said in a joint statement that the deal doesnt affect their ability to serve their clients.
The SEC filed an action against the auditors in 2012 after struggling for years to obtain information for dozens of accounting-fraud probes. The auditors argued that Chinese law prohibited them from sharing data that might contain state secrets. Over the past 18 months, the SEC has received documents from PwC, Deloitte and Ernst & Young, the agency said.
The ultimate objective of these actions was to be able to form a gateway to compel the firms to produce these materials and on that front mission accomplished, said Jason Flemmons, a former SEC accountant who is now a senior managing director at FTI Consulting Inc. What they have effectively done is put in some safeguards going forward to ensure that this wont happen again.
The settlement comes as more Chinese firms sell shares on U.S. exchanges. Alibaba Group Holding Ltd. raised a record $25 billion in its September initial public offering. Thirty-seven China-based companies sold shares on U.S. exchanges in 2014, up from 17 in 2013, according to data provided by Bloomberg.
Ceresney, speaking in a call with reporters, said that Chinas securities regulator has helped the SEC get documents for several audits at issue over the past 18 months.
This provides an opportunity for this framework to take hold and work, Ceresney said. We believe todays settlement is a positive step in attempting to preserve the forward momentum in obtaining those documents.
