On September 5, 2025, the U.S. Securities and Exchange Commission ("SEC") announced the formation of a Cross-Border Task Force (the "Task Force") aimed at identifying and combating cross-border fraud that threatens U.S. investors. In particular, the task force will investigate securities law violations involving foreign issuers and market gatekeepers—auditors and underwriters—who facilitate foreign companies' access to U.S. capital markets. The SEC's announcement focuses particularly on China, noting the degree of government control among market actors and other factors.
The SEC has a long history of forming task forces to pursue broad administration imperatives. This most recent Task Force appears to represent a continuation of the Administration's America First Investment Policy by targeting foreign actors, muddling Chinese access to U.S. capital markets, and prioritizing enforcement against cross-border fraud.
Headwinds Intensify for Chinese Listings?
The Task Force's formation comes at a time when U.S. markets have seen increased listings from Chinese companies, notwithstanding geopolitical tensions. Reports indicate that nearly 300 Chinese companies are listed on NYSE American, NYSE, and NASDAQ with a market capitalization of over $1 trillion U.S. dollars, representing 30% growth since 2024. This is not the first wave of Chinese listings. Starting in the early 2000s, U.S. markets saw a wave of reverse mergers involving Chinese companies, which subsequently subsided in the wake of high-profile fraud cases, suspensions, increased regulation, and spats over accounting and disclosure rules. Unlike that earlier wave, many of the more recent listings have involved special purpose acquisition vehicles ("SPACs"), which have (apart from any Chinese connection) seen their own wave of enforcement actions in recent years.
The Task Force's formation also comes on the heels of pressure from Congressional lawmakers to increase scrutiny of Chinese companies due to strategic competition, alleged human rights abuses, and a relative lack of transparency in financial disclosures.1 These concerns include the alleged inadequacy of inspections of Chinese audit firms, the Chinese Communist Party's ("CCP") crackdowns on firms conducting due diligence of Chinese companies, and the lack of transparency associated with variable interest entity structures, which officials have described as "a high-risk shell company structure."2
What Will the Task Force Look For?
Clients should expect the Task Force to pursue traditional areas of focus under the SEC's purview, including those highlighted by the administration. These include insider trading, supplemented by the use of advanced analytics to identify overseas traders; accounting fraud, particularly by foreign-domiciled issuers; and broker dealers with Chinese ties. However, the SEC's announcement highlighted several areas in particular:
Foreign Companies and Individuals
As indicated above, the Task Force will look for a range of potential violations by foreign issuers. While the announcement particularly highlights China, any foreign Company with American Depository Receipts or another class of securities available in the U.S. may be targeted. This includes Cayman-domiciled entities with primarily foreign operations, as reflected in several recent enforcement actions.3
Market Manipulation
According to the SEC's announcement, the SEC will give close attention to market manipulation schemes, such as "pump-and-dump" and "ramp-and-dump" activities, which it claims have increasingly involved issuers and actors operating outside the United States. The SEC has identified these schemes as posing acute risks to U.S. investors, especially when perpetrators attempt to exploit international borders to evade regulatory oversight. Again, the SEC specifically highlighted companies from China as presenting challenges for investor protection.
NASDAQ recently highlighted similar issues by announcing plans to tighten trading standards in response to a surge in suspected "pump-and-dump" schemes involving Chinese companies listed in the U.S.4 Recent reports indicate that U.S. investors have lost billions of dollars in the past several months by investing in a handful of small, NASDAQ-listed Chinese stocks that were heavily promoted on social media platforms such as WhatsApp and other online forums, before losing value in selloffs. These foreign companies reportedly obtained access to U.S. markets through networks of smaller underwriters, auditors, and law firms, rather than through the larger, more established "bulge bracket" players.
Market Gatekeepers
Another potential area of enforcement (and one that is in keeping with historical trends) targets auditors. After the passage of the Holding Foreign Companies Accountable Act ("HFCAA") in 2020, the Public Company Accounting Oversight Board ("PCAOB"), under Congressional authority, conducted audit inspections in China in 2023. These inspections followed a landmark agreement reached in December 2022, which, for the first time, granted the PCAOB full access to inspect and investigate Chinese audit firms. The inspections revealed various deficiencies in audit practices and highlighted persistent challenges in oversight and compliance. The SEC does not enforce the HFCAA but has played a role in assisting the PCAOB in disciplining Chinese auditors.
Fraud and market manipulation have consistently been enforcement priorities for the SEC, and the establishment of the Task Force is expected to further intensify scrutiny in these areas, with renewed attention on Chinese companies. This increased focus is also driven by broader national security concerns, as reflected in the Trump administration's agenda, which has prioritized enhanced oversight of Chinese entities operating in U.S. markets. As a result, it appears that regulatory scrutiny of Chinese companies now extends beyond traditional investor protection issues to encompass risks related to national security and market integrity.
Implications for Market Participants
Taken together, these developments underscore the SEC's commitment to robust enforcement in the international arena and signal increased scrutiny of foreign-based issuers, their gatekeepers, and other market participants. Recent regulatory actions have demonstrated concern over fraud-related risks, with China frequently cited as an example of a perceived lack of transparency, insufficient oversight, involvement of the government, and high-risk corporate structures.
Market participants, both U.S.-based and abroad, should consider several key areas of focus:
- Review Disclosures: Review disclosures to ensure they are up to date with current standards and market trends in light of increased scrutiny of international transactions.
- Investigate Violations: Ensure that any potential violations of accounting, disclosure, and trading rules are promptly investigated and remediated.
- Engage with Auditors: Ensure your audit programs are comprehensive and appropriately account for differences in practices across jurisdictions.
- Monitor U.S. Regulatory Developments: Recent reports indicate additional market restrictions may be forthcoming.
- Recognize Information Sharing Limitations: Limitations on information sharing may pose considerable challenges for investigations and audits, particularly due to conflicts between differing data privacy laws across jurisdictions.
We will continue to monitor updates in this area.
Footnotes
1. https://www.young.senate.gov/newsroom/press-releases/young-asks-sec-chair-to-protect-u-s-economic-national-security-from-chinese-market-manipulation/; https://selectcommitteeontheccp.house.gov/media/press-releases/chairman-moolenaar-chairman-scott-urge-sec-delist-ccp-linked-companies-us.
2. https://sfof.com/wp-content/uploads/2025/05/Delisting-Letter.pdf
3. https://www.justice.gov/opa/pr/co-ceo-chinese-publicly-traded-technology-company-and-financial-advisor-indicted-over-100m ; https://www.sec.gov/newsroom/press-releases/2024-15.
4. https://www.cnbc.com/2025/09/04/nasdaq-wants-chinese-companies-to-pay-25-million-per-us-ipo.html
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