Securities and Exchange Commission began administrative proceedings on 3rd December’2012, against the China affiliates of KPMG Deloitted PwC EY and another large U.S. accounting firm BDO, for refusing to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against U.S. investors.
- BDO China Dahua Co. Ltd
- Deloitte Touche Tohmatsu Certified Public Accountants Ltd
- Ernst & Young Hua Ming LLP
- KPMG Huazhen (Special General Partnership)
- PricewaterhouseCoopers Zhong Tian CPAs Limited
The SEC order can be found here.
In Massive Probe Of Chinese Reverse Mergers, Securities and Exchange Commission is investigating allegations that U.S. firms and individuals have joined with partners in China to steal billions of dollars from American investors through stock market frauds. David Zhou and his son were penalised in the reverse merger frauds.
The private company shareholders receive a substantial majority of the shares of the public company (normally 85% to 90% or more) and the control of the board of directors. The transaction can be accomplished in as little as two weeks, resulting in the private company becoming a public company. The transaction does not go through a review process with state and federal regulators because the public company has already completed the process. The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing the public shell company issues a substantial majority of its shares and the board control to the shareholders of the private company. The private company shareholders pay for the shell and contribute their private company shares to the shell company and the private company is now public.