Why Are American Investors Funding Chinese Fraud?

(Real Clear Politics)

Wall Street’s ETF issuers and index providers have funneled billions of dollars of American investor money out of the U.S. and into Chinese companies pushing the “you can’t miss out on China growth” narrative.

The problem for investors is they have no insight into whether these companies are growing, profitable, or losing money because the Chinese Communist Party (CCP) regularly asserts a national security privilege to prevent routine audits from taking place. This intentionally keeps investors in the dark and subjects them to a risk of fraud that is very real.

Why has this happened? Wall Street is using a loophole that allows Chinese companies to avoid the SEC’s rigorous company-specific disclosure and audit regulations and still be included in an index sold to investors through an ETF. Normally, ETF issuers rely on index providers to conduct diligence on each company they put into the index, but diligence in China is impossible because the Communist Party won’t allow it. This roadblock should have immediately stopped the sale of these securities to America’s retail investors. Read more