On the stage of the global capital market, the US capital market attracts numerous enterprises to list and raise funds due to its maturity and influence. However, in recent years, some enterprises that listed in the US have frequently crossed the regulatory red line due to their insufficient understanding of the rules of the US stock market and weak compliance awareness. Eventually, they were punished by the US Securities and Exchange Commission (SEC) and paid a heavy price. Enterprises planning to list in the US must strengthen their compliance awareness and gain an in-depth understanding of the rules of the US stock market to avoid listing risks.

Common Violation Behaviors

1. Information Disclosure Violations

Information disclosure is the core of the supervision in the US stock market, but many enterprises that listed in the US have serious problems in this regard. Some enterprises failed to disclose important information such as financial status, operating results, and risk factors in a timely and accurate manner. Some enterprises also committed false statements and were punished accordingly by the SEC and the US Department of Justice.

2. Financial Report Fraud

Financial report fraud is one of the violation behaviors severely cracked down on by the SEC. In order to attract investors and boost the stock price, some enterprises resorted to fraud in their financial statements. They not only face huge fines and the risk of delisting, but also relevant responsible persons will face serious legal consequences. In 2001, Enron Corporation in the United States inflated its profits by 600 million US dollars, and its stocks were delisted. The CEO was imprisoned for 24 years and fined 45 million US dollars. Arthur Andersen, the auditing firm responsible for its audit, went bankrupt due to obstruction of justice. Investment banks such as Citigroup, JPMorgan Chase, and Bank of America, which were responsible for its listing and issuance, also paid a huge compensation of 4.3 billion US dollars to the victims. According to the statistics of the US Securities and Exchange Commission, from 2010 to 2023, the average annual number of delistings was more than 400. Financial fraud is one of the main reasons for enterprises' delisting. This behavior not only damages the interests of investors but also seriously undermines the fairness and transparency of the market.

3. Failure to Comply with US Accounting Standards

The United States requires enterprises that list in the US to comply with the Generally Accepted Accounting Principles (GAAP). However, some Chinese enterprises, due to their unfamiliarity with these principles, have differences in the preparation of financial statements, resulting in a decrease in financial transparency and affecting investors' judgment. Such differences may attract the attention and investigation of the SEC, thereby increasing the compliance risks of enterprises.

4. Imperfect Corporate Governance

The imperfect corporate governance structure and internal control system are also common violation problems. Some enterprises failed to establish effective governance institutions such as an independent director system and an audit committee, resulting in the lack of internal supervision and making it easy for problems such as financial fraud to occur.

Compliance Suggestions for Listing in the US

1. Strengthen Legal Compliance Awareness

Enterprises planning to list in the US must fully understand, be familiar with, and master the laws, regulations, and regulatory requirements of the US capital market, and establish the concept of the rule of law that "respects the law and respects the rules". Enterprises should organize systematic training for management and key position personnel to ensure that they are familiar with important laws and regulations such as the Securities Act of 1933 and the Securities Exchange Act of 1934, as well as the regulations of the SEC and the self-regulatory rules of the stock exchanges.

2. Improve the Information Disclosure Mechanism

Enterprises should formulate information disclosure systems and operation procedures in strict accordance with the regulatory requirements of the United States to ensure the truthfulness, accuracy, completeness, timeliness, and fairness of information disclosure. At the same time, strengthen cooperation with professional intermediary institutions, and hire experienced lawyers and accountants to review the information disclosure content to avoid legal disputes caused by inaccurate or incomplete information.

3. Strengthen Internal Control and Audit

Enterprises need to establish a sound internal control system, clarify the responsibilities of the general meeting of shareholders, the board of directors, the board of supervisors, and the audit committee, and build an effective incentive and restraint mechanism. In addition, enterprises should regularly accept external audits to ensure the accuracy and transparency of financial statements and meet the requirements of the SEC and the stock exchanges.

4. Actively Respond to Supervision and Litigation

Once facing an investigation by the SEC or a lawsuit from investors, enterprises should actively respond instead of passively avoiding it. Select legal and financial advisors who understand both US laws and the needs of Chinese enterprises, and jointly formulate response strategies to strive for victory in the lawsuit or reduce the amount of compensation.

Listing in the US is a path full of opportunities and challenges. Compliance is not only the foundation for enterprises to gain a foothold in the US capital market but also the key to their sustainable development. The AGBA&SME Listing Service Institution has always been committed to helping enterprises gain an in-depth understanding of the rules of the US stock market, strengthen their compliance awareness, and avoid listing risks. Enterprises planning to list in the US should attach great importance to compliance risks, strengthen their compliance awareness, and establish a sound compliance management system so as to achieve stable and long-term development in the US capital market and realize sustainable development.