Paul Atkins, President Trump’s nominee as the new chairman of the Securities and Exchange Commission, faced a key question just as he was to be grilled during his confirmation this past week.
Would the long-time securities lawyer and regulator investigate Chinese companies for what one senator believes are wanton and blatant violations of US disclosure laws that have gone unchecked for years?
Atkins said he would, which helped him squeeze by in the confirmation process with just 52 votes.
That exchange, between GOP Sen. Rick Scott from Florida and Atkins, hasn’t been reported, though The Post has learned that the usually mild-mannered Scott didn’t mince words with Atkins.
Scott said his confirmation vote was contingent on Atkins ramping up scrutiny on Chinese companies — “delisting” and removing those suspected of violating US laws from US exchanges — as soon as he got into office.
The crackdown would be significant, probably one of the biggest the SEC has undertaken in its history. Nearly 300 Chinese companies, representing more than $1 trillion in market value, trade on US markets, namely the New York Stock Exchange and the Nasdaq Composite.
Many or maybe all of them, depending on whom you speak with, could be delisted.
The controversy over Chinese companies with public shares trading here has been brewing for years. Critics believe giving China access to our markets and public capital has fueled its quest for military and economic dominance. In 2020 during Trump’s first term, he signed into law provisions that give regulators the ability to delist China Inc. for violations of disclosure rules.
Among the concerns of lawmakers are that Chinese companies fail to properly account for Chinese Communist Party influence and ownership of their enterprises, and that they use slave labor of dissidents as part of their normal business operations. American investors in China Inc. will have little recourse if they are defrauded by a rouge nation.
Biden’s roadblock
According to congressional sources, efforts to crack down on these alleged abuses were stymied by the Biden administration, namely its SEC chief, Gary Gensler, now a business professor at MIT. (Gensler didn’t respond to a request for comment.) The debate was largely confined to think tanks and the halls of Congress.
No longer. With Trump back in the White House, his trade war is heating up, with a particular emphasis on all things China. The delisting effort can now pick up steam.
Atkins, who must report not just to the president but a GOP-controlled Congress for oversight, will be under pressure by Scott & Co. to finally crack down.
These moves will put both major US exchanges in a tight spot, of course. The NYSE and the Nasdaq usually delist companies piecemeal when they fail to meet financial listing requirements or are indicted for fraud. Here they would be chopping out of their balance sheets major tech firms and retailers, such as Chinese online retailer Alibaba, that pay a lot of money to trade in the US and attract capital from our markets.
It would be one of the most chaotic corporate actions the exchanges have ever undertaken, and you can’t say the exchanges shouldn’t have seen it coming. The NYSE listed Alibaba even as the once outspoken Jack Ma, its founder, came under the thumb of the Chinese Communist Party. He seemingly disappeared from public view following some minor criticism he made about China’s bank regulations.
The listing ignored some interesting language in Alibaba’s “prospectus” (the official document for the IPO), which discloses “risks related to doing business in the People’s Republic of China,” where the “economy differs from the economies of most developed countries in many respects including the extent of government involvement . . .”
Here’s what may have caused blindness to all of the above: The NYSE charges as much as $500,000 plus various additional fees for companies like Alibaba (with a market cap of $250 billion). A US listing on the famed “Big Board” goes a long way in getting US investors to buy the stock, even as critics allege those shares finance the economic might of one of the most repressive regimes on Earth.
A spokeswoman for the NYSE provided this explanation: “NYSE is obligated to be nondiscriminatory in the application of its SEC-approved listings standards.”
A press official for Alibaba didn’t return a request for comment. An SEC spokeswoman declined to comment.
The other big US exchange, the Nasdaq, also lusted for lucrative Chinese company listings, so much so that it carved out a loophole in its controversial and now defunct board-diversity rules. These rules prodded US companies to appoint a certain number of women, minorities and LGBTQ+ people to boards.
It didn’t apply to China Inc. That’s right, no mandate from the Nasdaq to force Chinese-listed companies to appoint oppressed ethnic and religious minorities.
Nasdaq had no comment.
End ‘golden shares’
Again, all this might be changing thanks to Scott’s efforts. He believes US investors should know how their money is being used when they buy a Chinese stock, or an index fund that contains Chinese public companies. In addition to his pressuring of Atkins (who declined to comment), Scott’s been pushing legislation that would seek to end China Inc.’s use of so-called “golden shares.”
That’s a special type of stock held by the CCP that he believes gives it control over these companies outside of US disclosure rules, a charge Alibaba has faced in the past.
“Scott is obsessed with this issue,” said one person close to the senator.
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