SEC Warns of Potential Trading Prohibitions on Securities Issued by a "PCAOB-Identified Jurisdiction"

The SEC Division of Corporation Finance and Division of Trading and Markets reminded issuers of the potential imposition of trading prohibitions on the securities of issuers that have been identified as using auditors from a PCAOB-identified problematic jurisdiction.

In its Staff Statement, the Division reminded market participants that the PCAOB may identify any foreign jurisdiction where it is unable to properly perform inspections due to actions taken by a foreign authority. The Division reiterated that under the newly amended Holding Foreign Companies Accountable Act ("HFCAA"), the trading prohibition may apply to companies identified in consecutive years as "Commission-Identified Issuers" and that provisions of the HFCAA may be triggered if a foreign authority impedes the PCAOB's inspections. The Division noted that, while there are currently no PCAOB-identified jurisdictions, the PCAOB could make such a determination.

Any company that is identified as being based in a problematic jurisdiction must comply with additional disclosure requirements. These include disclosures regarding (i) the percentage of shares owned by foreign government entities, (ii) whether the foreign government entities control the issuer and (iii) the identities of all Chinese Communist Party officials who serve on the issuer's board. Additionally, the Division advised China-based issuers to consider their disclosure obligations, including those under the HFCAA. The Division stated that it will continue to monitor disclosures of China-based issuers and will provide additional guidance as needed.