Shares of Chinese e-commerce giant Alibaba (NYSE: BABA) fell 10% on July 29 after the U.S. Securities and Exchange Commission (SEC) added the company to a list of companies likely to do subject to deregistration.
The U.S.-listed Chinese company is among more than 150 companies named by the SEC that could be forced off U.S. stock exchanges if U.S. regulators are unable to inspect financial audits for three consecutive years.
The companies were identified in accordance with the requirements of the Holding Foreign Companies Accountable Act (HFCAA), enacted in late 2020, which gives Chinese companies until early 2024 to comply with US audit requirements. The law was passed in response to Beijing’s long-standing refusal to allow U.S. regulators access to audit documents from its accounting firms, citing state secrecy. The US Congress is currently considering a bill that would accelerate the HFCAA deadline to 2023.
Alibaba has until August 19 to provide evidence challenging its addition to the SEC’s list compiled under the HFCAA, the SEC said.
Shares of the company fell about 10% to $90.40 at 2:46 p.m. ET on Friday.
The Chinese e-commerce giant debuted on the New York Stock Exchange in 2014 with the largest initial public offering at the time. The company also has a secondary listing in Hong Kong.
On Tuesday, Alibaba said it would seek a primary listing in Hong Kong, joining other Chinese firms that have sought shelter from increased regulatory pressure in the United States.
The company’s shares also fell on Thursday after the Wall Street Journal reported that Alibaba founder Jack Ma planned to cede control of Chinese fintech giant Ant Group, the company responsible for the wildly popular app. mobile payment company Alipay in China. Alibaba has a roughly 33% stake in Ant Group.
Other companies added to the SEC’s list on Friday include Mogu Inc., Boqii Holding Limited, Cheetah Mobile Inc. and Highway Holdings Limited.
US regulators have been negotiating with their Chinese counterparts over HFCAA compliance, but the SEC chairman recently expressed uncertainty about the prospect of reaching an agreement with Beijing.
In a July 19 interview with Bloomberg, SEC Chairman Gary Gensler said Chinese authorities will ultimately decide whether or not to allow U.S. regulators to review their full audit reports.
“I really don’t know right now,” Gensler said, referring to the possibility of reaching an agreement. “Those will be choices made by the authorities there.”
The HFCAA was enacted in 2020 in hopes of protecting US investors from fraudulent activities by Chinese companies that are not subject to US audit requirements.
The legislation follows a high-profile accounting scandal involving Chinese start-up Luckin Coffee. In late 2020, the company agreed to pay the SEC a $180 million fine to settle fraud charges for “intentionally and materially” overstating its 2019 revenue and understating a net loss. Earlier that year, the beverage brand said an internal investigation found its chief operating officer falsified 2019 sales of around $310 million, prompting Nasdaq to remove the company from the list. listing.
Epoch Times contacted Alibaba for comment.
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Cathy He is a New York-based journalist who focuses on China-related topics. She previously worked as a government lawyer in Australia. She joined The Epoch Times in February 2018.