The Securities and Exchange Commission has announced the formation of a cross-border task force to combat securities fraud by foreign-based companies.
According to the SEC’s press release, the initiative is aimed at strengthening and enhancing its Division of Enforcement’s efforts to fight fraud by firms from outside the United States who attempt to access U.S. capital markets and end up harming American investors.
The Cross-Border Task Force will begin by investigating potential U.S. federal securities law violations related to foreign-based companies, including potential market manipulation, such as “pump-and-dump” and “ramp-and-dump” schemes. The task force also will focus its enforcement efforts on gatekeepers, particularly auditors and underwriters, which help these companies access the U.S. capital markets.
The SEC said another area of scrutiny will be potential securities law violations by companies from foreign jurisdictions where governmental control and other factors pose unique investor risks. The commission pointed to China as an example of one foreign jurisdiction from where foreign companies can commit such violations.
Earlier this year, the SEC said that many Chinese firms in particular benefited from having to make fewer regular disclosures to investors, and voted to call for public comment on possible new regulations that would narrow the definition of those foreign companies, known as foreign private issuers, that are required to publish only annual reports and occasional updates.
“We welcome companies from around the world seeking access to the U.S. capital markets,” said SEC Chairman Paul S. Atkins. “But we will not tolerate bad actors – whether companies, intermediaries, gatekeepers or exploitative traders – that attempt to use international borders to frustrate and avoid U.S. investor protections. This new task force will consolidate SEC investigative efforts and allow the SEC to use every available tool to combat transnational fraud.”
Atkins added, “I have also directed the staff in other SEC divisions and offices, including the Divisions of Corporation Finance, Examinations, Economic and Risk Analysis, and Trading and Markets as well as the Office of International Affairs, to consider and recommend other actions that would better protect U.S. investors, including new disclosure guidance and any necessary rule changes.”
“The Cross-Border Task Force will leverage the Division of Enforcement’s resources and expertise to combat international market manipulation and fraud. We are pleased to be part of this critical effort to enforce the federal securities laws and protect U.S. investors,” said Margaret A. Ryan, who was recently named as the SEC Division of Enforcement Director.
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