Tuesday, May 21, 2024

Kennedy, Van Hollen: Foreign companies should have to play by the same rules

by BIZ Magazine

WASHINGTON – Sens. John Kennedy (R-La.) and Chris Van Hollen (D-Md.) penned this op-ed in the Wall Street Journal about the need for Congress to hold the executives of foreign companies that are traded on U.S. stock exchanges to the same disclosure requirements that executives of U.S.-based firms follow.

Key excerpts of the article are below:

For too long, certain foreign companies have raised capital in the U.S. while flaunting the rules that make American markets work. Chinese companies now represent over $1 trillion in value on U.S. stock exchanges—yet they aren’t always subject to the same regulations as American companies raising money in their own market. This double-standard undermines U.S. companies, erodes confidence in our markets and poses risks to investors and everyday Americans.

Since the Great Depression, federal law has required executives at U.S. public companies to disclose trading in their companies’ stock to investors.

Yet current law gives foreign companies a special exemption from disclosure, allowing their insiders to trade their own company’s stock without promptly telling investors. As a result, insiders at large Chinese companies that have collectively raised billions from U.S. markets, like Alibaba, have traded their own companies’ shares in the dark.

This loophole benefits foreign firms at the expense of American investors. . . . On average, insiders at Chinese and Russian firms sold stock just before it declined by more than 20%, saddling other investors—including Americans—with losses. Over just a five-year period, the study shows, insiders in Chinese companies shifted more than $10 billion in losses from themselves to ordinary investors by selling at the right time.

American executives are subject to oversight by the SEC and, in criminal matters, the U.S. Justice Department. By contrast, executives at Chinese and Russian companies are too often “law-proof,” evading the reach of American civil and criminal authorities. So insiders at foreign firms that raise billions from U.S. investors can avoid both transparency and accountability.

It’s time for the double standard to end. We’ve introduced new legislation called the Holding Foreign Insiders Accountable Act that would require executives at foreign firms that raise money in the U.S. to disclose their trades to investors immediately, giving the market a chance to discipline opportunistic insider trading. . . . It’s a common sense, bipartisan solution based on a sensible idea: Those raising capital from American investors have to play by the same rules as everyone else in our markets.

Read Kennedy’s op-ed here.

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