China Reverse Merger With Public Shell Concerns Continue

Reverse MergersRegulators continue to speak out regarding the continued interest by Chinese companies seeking to transact a reverse merger with public shell as means of becoming a publicly traded company in U.S. markets.

James Doty, chairman of the Public Company Accounting Oversight Board, said in an interview with Reuters, “They’re working with us to try to create a regime that enables joint inspections to go forward the way they are in Europe.”  “[China recognizes that the] global economy puts a lot of limits on national sovereignty.  We are long past the time when China could say that there’s a good reason for not having any international inspection of audits based on vague principles of national sovereignty. They’re not saying that now.”  The PCAOB also plans to soon publish a “practice alert” reminding auditors of the special challenges in emerging markets, including fraud risks, Doty said.

“We’re still at the stage of sharing information and building trust,” said J.W. Mike Starr, a deputy chief accountant at the SEC who was one of the U.S. regulators to travel to Beijing for a recent two-day meeting that I have described in earlier blog posts.  “Our goal is to have an agreement by 2012.  “[It] would be ideal [for each country’s regulators to tag along to onsite inspections],” Starr said. “I think both we and they need to observe these inspections first hand.”

“I think it is early to start talking about a definite agreement when you are each still digesting the details of the respective inspection programs. They are digesting ours, we are digesting theirs,” the SEC’s head of international affairs, Ethiopis Tafara, whose office is involved in the negotiations, told Reuters.

I believe that even with all this discussion, it will be a long time before any of this gets resolved.  And I continue to believe that going through a full-scale SEC review process, as happens in my Go Public Direct transactions, is the best way for a private company going public to obtain a ticker symbol; not just for Chinese companies but for U.S. companies as well.

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