By: Evan Merritt
Abstract: On April 2, 2020, Chinese-based Luckin Coffee shocked the investing world when it admitted that the company’s Chief Operating Officer had faked $310 million worth of sales. As the company’s stock price subsequently tanked and U.S. investors lost billions of dollars, U.S. lawmakers were furious; just six weeks later, the Senate passed the Holding Foreign Companies Accountable Act, a targeted piece of legislation aimed directly at Chinese companies. The Act, once signed into law, will start a three-year timer for the Chinese government to begin allowing Public Company Accounting Oversight Board inspections of Chinese accounting firms—or else risk delisting of Chinese companies from U.S. stock exchanges. Assuming that the Chinese government continues to bar U.S. regulators from inspecting Chinese accounting firms, the Holding Foreign Companies Accountable Act could have a catastrophic effect on Chinese companies that rely on U.S. exchanges to raise capital. This case note will examine the Holding Foreign Companies Accountable Act, the Act’s potential ramifications for Chinese companies, and the Act’s effect on U.S.-China relations moving forward.
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