Chinese Solar Firms Are Setting Up Shell Corporations to Access U.S. Capital Markets- Hurting Domestic Solar Industry and Leaving Investors Exposed
WASHINGTON, DC – U.S. Senator Bob Casey (D-PA) released a letter to Mary Schapiro, Chairwoman of the Securities and Exchange Commission (SEC), calling on the agency to investigate how some Chinese solar companies are accessing U.S. capital markets, a practice that is putting America’s solar industry at risk and exposing investors to potentially untold dangers.
“Over and over again China has refused to play by the rules. It’s time for the SEC to get to the bottom of this and force them to do so,” Senator Casey said. “The demand for solar energy across the country is going up, and that increased demand should benefit U.S. companies rather than Chinese companies who refuse to play by the rules.”
New reports indicate that Chinese companies are using offshore holding companies to circumvent American legal barriers and gain access to American capital markets. Further, once these investments have been made, investors have limited shareholder protections and non-existent recourse against fraud.
Recent activity in the solar energy industry illuminates the issues at hand. In recent years, a number of Chinese solar panel producers set up shell companies in the Cayman Islands to sell shares on the New York Stock Exchange and NASDAQ. American investors responded, investing heavily in these companies. These investments quickly proved unwise as China began to heavily subsidize its domestic solar industry and drive worldwide prices down, hurting the stock prices of the shell companies.
Investors have no recourse to confront these situations. First, U.S. investors cannot properly vet their investments. Under Chinese law, accounting data is confidential, which means investors cannot verify accounting data from Chinese firms. Without this verification, Chinese firms should not be allowed on U.S. stock exchanges under any circumstances. Furthermore, even in cases of fraud, U.S. investors are not able to regain their money, because China will never allow any U.S. legal decision to be enforced.
Senator Casey’s letter to the SEC calling on the agency to investigate these Chinese companies can be seen below:
Dear Ms. Schapiro:
I am writing today to ask the Securities and Exchange Commission (SEC) to investigate the means by which Chinese companies gain access to our capital markets and make recommendations as to how we may better protect American investors.
According to a recent report in the Pittsburgh Tribune-Review, Chinese companies are using offshore holding companies to circumvent American legal barriers and gain access to our domestic capital markets. Further, once these investments have been made, investors have limited shareholder protections and non-existent recourse against fraud.
Recent activity in the solar energy industry illuminates the issues at hand. In recent years, I understand that a number of Chinese solar panel producers set up shell companies in the Cayman Islands to sell shares on the New York Stock Exchange and NASDAQ. American investors responded, investing heavily in these companies. These investments quickly proved unwise as China began to heavily subsidize its domestic solar industry and drive worldwide prices down, hurting the stock prices of the shell companies.
Investors have no recourse to confront these situations. First, U.S. investors cannot properly vet their investments. Under Chinese law, accounting data is confidential, which means investors cannot verify accounting data from Chinese firms. Without this verification, Chinese firms should not be allowed on U.S. stock exchanges under any circumstances. Furthermore, even in cases of fraud, U.S. investors are not able to regain their money, because China will never allow any U.S. legal decision to be enforced.
These practices have a devastating impact beyond our financial markets. The U.S. solar panel industry has been severely impacted by China’s illegally subsidized solar industry. Recently, the International Trade Commission voted 6-0 to move ahead with a case to impose duties on Chinese solar panels to restore a level playing field for American manufacturers. While the trade angle is essential to protecting our domestic industry, we must also protect our investors. China cannot circumvent our laws to their tremendous advantage.
I would urge the SEC to investigate these practices. I look forward to working with you to protect our domestic industries.
Sincerely,
Robert P. Casey, Jr.
United States Senator
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