CCG Client Alert: Recent Events Affecting Chinese US Listed Stocks

CCG Client Alert
CCG客户简报

U.S. Justice Department Probe into Accounting Scandals and Increased Complexity of Regulations Surrounding VIE Structures Add Pressure on Chinese U.S.-listed Companies
美国司法部对会计丑闻进行调查以及中国近期针对VIE结构出台的法规为在美上市中国企业“雪上加霜”

In the past week the shares of many Chinese companies, including famous Internet companies such as Baidu (NASDAQ:BIDU), Sina (NASDAQ:SINA) and the latest U.S.-China IPO Tudou Holdings (NASDAQ:TUDO), have been pounded by a wave of selling due to concerns about the viability of the common legal structure used by China TMT companies, concerns about the enforceability of contracts in Chinese legal system, and continuing headlines on Chinese companies accounting deficiencies. While legal structures used in an overseas listing were always mentioned in the “Risk Factor” section of corporate filings, they were largely ignored until now. In this environment each company needs to assess its particular situation so as to be responsive to investor concerns to the greatest extent possible.
在过去一周内，许多中国企业，包括著名的互联网公司如百度（NASDAQ：BIDU），新浪（NASDAQ：SINA）和最近在美上市的土豆网（NASDAQ：TUDO）由于新一轮抛售导致股价大跌。这一轮抛售源于中国政府表态将重新审查VIE结构后，投资者对中国TMT(媒体及科技类)公司合同可执行性的担忧，同时持续出现的会计丑闻也引发投资者的担忧。虽然海外公司上市的法律结构会在企业向证监会提交文件中的“风险因素“部分提到，但直至今日在很大程度上被忽视。在这样的环境下，每家公司需要允分考虑自身的特殊情况，最大程度地回应投资者的忧虑。

The Justice Department joins the ranks of the FBI and the SEC in investigating accounting irregularities at Chinese companies listed on U.S. stock exchanges. The recent move by the SEC to take legal action against a Shanghai-based accounting firm may be a sign of increased cross-border interaction to weed out fraudulent companies.
美国司法部近日加入到联邦调查局和美国证监会的行列中，开始对在美国上市的中国企业在财务问题上的不规范行为进行调查。最近美国证监会对一所驻扎上海的会计师事务所采取法律行动，这一举动可能成为增加跨境介入，淘汰不法公司的标志。

·         Following more than a year of investigation into U.S.-listed Chinese companies, the SEC still struggles to gain access of necessary documentation because of strict Chinese laws that make auditors reluctant to turn over work papers, which hampers review of audits.
·         由于中国法律的相关规定助使审计师推迟交出审计文件，阻碍了调查的进行，美国证监会在经过对在美上市中国公司长达一年之久的调查后仍无法获取必要的文件。
 

·         The SEC is taking stronger measures as the Commission recently sought a federal court order to force the Shanghai arm of accounting firm Deloitte to turn over its work papers on Longtop Financial Technologies Ltd., a company that has been accused of fraud.
美国证监会加强监措，最近要求联邦法院勒令德勤会计师事务所上海分公司提交其东南融通金融技术有限公司的审计文件。东南融通已被控欺诈。
 

·         A successful enforcement may serve as a precedent and guide expectations of other accounting firms and investors involved with allegedly fraudulent companies.
这次成功的执法可以作为一个先例，为其他涉嫌欺诈公司的会计师事务所和投资者指明方向。
 

·         The main question in a criminal case remains whether the company deceived the auditor, or whether the auditor acted recklessly or knowingly in not detecting the alleged fraud.
这一刑事案件中的关键问题在于该公司是否故意欺骗审计师，或是审计师没有履行执业准则罔顾后果，故意没有检测到涉嫌的欺诈情况。

·         The SEC is considering other measures as well, namely increased cooperation with Chinese authorities, to reign in fraud. Officials from the SEC and the PCAOB are expected to meet with their Chinese counterparts in Washington next month to continue discussions about joint inspections of auditing firms in China.
美国证监会正在考虑采取其它措施，包括增加与中国当局合作共同防范欺诈。SEC和PCAOB的官员预计下个月在华盛顿与他们的中国同行继续讨论有关在中国境内对审计事务所进行联合检查的事宜。

Chinese authorities have also tightened regulation regarding foreign investment into Chinese companies and assets that are deemed particularly important in terms of national security, measures that have widespread implications on Chinese companies looking to attract foreign investment.
中国当局也加强了对涉及国家安全方面的中国企业外商投资的限制，这些政策的出台对中国企业寻求境外投资将造成深远影响。

·         In March 2011, the Notice on Establishing a Security Review System for Acquisition of Domestic Enterprises by Foreign Investors (“Circular 6”), issued by the General Office of the State Council, took effect and established an extensive national security review process for foreign investors seeking to acquire a local enterprise or an asset.
2011年3月，国务院办公厅发布的《关于建立外国投资者并购境内企业安全审查制度的通知》（6号通知）开始实施，对外国投资者并购境内企业或资产的安全审查制度的有关事项进行了详细的规定。
 

·         The implementation of Circular 6 allows the Chinese government to define what transactions may affect national security interests, prevent transactions from taking place that are deemed to be detrimental to national security interests, and change the terms of a transaction or even cancel it to mitigate any potential national security threats.
6号通知的实施允许中国政府决定什么样的交易会影响国家安全利益，防止有损国家安全利益的交易发生。中国政府可以改变交易的条款甚至取消交易，以减轻任何对国家安全的潜在威胁。
 

·         Recently, China’s Ministry of Commerce (MOFCOM) announced new security review measures that further scrutinize requirements on foreign investors looking to acquire enterprises or assets in China.
最近，中国商务部（MOFCOM）也发布了新的安全检查措施，就外国投资者收购中国企业或资产的要求进行了进一步的审议和规定。
 

·         Circular 6 and the security review apply mainly to foreign acquisitions of domestic interests in the military sector or related to national defense, in addition to foreign investors who acquire control over domestic enterprises in industries that regulators deem to have a significant connection to China’s national security, such as agricultural products, energy, resources, infrastructure, transportation services, technology, and heavy equipment manufacturing. Regulators also have discretion to amend terms of a proposed transaction, citing national security concerns.
6号通知和安全审查主要针对外国投资者并购军事相关企业或者关系国防安全的企业，以及外国投资者对一些关系国家安全的中国企业获取实际控制权，包括重要农产品，重要能源和资源，重要基础设施，重要运输服务，关键技术和重大装备制造。监管机构也可以国家安全为由，酌情修订拟议中的交易条款。
 

·         These new regulations raise questions about the validity of common transaction structures used by Chinese companies looking to list overseas, especially as MOFCOM now states that a company may not circumvent the security review through the use of various control arrangements, that encompass those used in a variable interest entity (VIE) structure.
这些新规定对中国公司寻求海外上市使用的普遍交易结构提出了质疑，尤其是中国商务部指出，公司不能通过使用多种控制措施，包括那些用于协议控制模式（VIE）结构的措施，来绕过安全检查。
 

·         As a result, the use of a VIE structure to enable foreign investment in certain restricted industries may be invalidated by regulators following the new regulations, thereby questioning the validity of transactions involving the VIE.
因此，利用VIE结构使外国投资可以进入一些受限制的行业可能会按照新规定而造成无效，
从而让人质疑涉及VIE交易的有效性。
 

·         The new regulations may increase scrutiny by foreign investors as to whether or not a particular asset or business is considered of national security concern.
新法规可能会导致外国投资者加强审议，以判断某一特定资产或者企业是否应被视为与中国国家安全有关。
 

·         According to Chinese media sources, already listed Chinese companies that utilize a VIE structure may be exempt from the added scrutiny. However, as a consequence of these tightened regulations, new overseas listings using VIE structures may become increasingly difficult.
据中国媒体报导，已经利用VIE结构上市的企业可以免受新规定的限制。然而，可能发生的政策收紧将意味着利用VIE结构进行新的海外上市可能会变得越来越难。

 Please see your CCG account manager or myself if you wish to have a more detailed discussion.
如果您想进行更详细的讨论，请与您的CCG客户经理或与我直接联系。

Crocker Coulson
Crocker.coulson@ccgir.com
646 213 1915