The WSJ reported today that the SEC is investigating some accounting firms involved in audits of Chinese companies that subsequently engaged in reverse mergers to become listed on US exchanges. It’s good the SEC is investigating these practices, after all we need all the protection from fraud we can get. Apparently the NASDAQ also feels additional action is necessary since on April 18, 2011 it filed a proposed rule change with the SEC to add additional controls.
Many reverse merger companies are listed on OTC exchanges. As I’ve mentioned before these exchanges are fraught with risk for individual investors and the SCE investigation is just another reminder of the dimensions of these risks.