Senator John Kennedy (R-La.) and a bipartisan group of Senate Banking Committee members called on March 20 for the Securities and Exchange Commission’s Cross-Border Task Force to Combat Fraud to investigate how Chinese companies use variable interest entities, or VIEs, to obscure their corporate structures and potentially expose American investors to risk.
The senators said these opaque arrangements could undermine investor protection and market integrity in the United States. Their letter was addressed to SEC Chairman Paul Atkins and signed by Senators Tim Scott (R-S.C.), Elizabeth Warren (D-Mass.), and fifteen other committee members.
“We welcome the SEC’s new Cross-Border Task Force to Combat Fraud. As part of that work, the SEC should examine how [VIE] structures are being used, as they may advance Chinese government objectives in ways that undermine investor protection and fair, orderly, and efficient markets,” the senators wrote. They explained that “A VIE is a legal structure where a company is controlled through contractual agreements or arrangements other than a direct equity stake with voting rights associated with equity ownership. American investors in these structures will – sometimes unknowingly – purchase shares in an offshore shell company contractually tied to a PRC-based operating entity.” The lawmakers further cautioned, “Ultimately, the VIE structure leaves investors without insight into the operating entity’s true ownership structure, with weak contractual claims, no right as shareholders to meaningfully participate in the operating entity’s corporate decision-making, and with little or no meaningful legal protection, including recourse in the event of bankruptcy, and exposure to changes in Chinese law or interpretations of law that harm investors’ rights or value of their investments.”
Kennedy has experience serving on Senate committees for appropriations, banking, budget, and judiciary according to his official website. He also holds top Republican positions on subcommittees for energy and water development as well as economic policy according to his official website. In addition to his legislative work, Kennedy contributes as an adjunct professor and substitute teacher according to his official website.
Kennedy earned degrees including magna cum laude honors from Vanderbilt University in political science, philosophy, and economics; a law degree from the University of Virginia; and a Bachelor of Civil Law with first class honors from Oxford University according to his official website. He has authored books and articles on Constitutional law topics such as the Louisiana Products Liability Act according to his official website, served as executive editor of the Virginia Law Review, and was president of his senior class at Vanderbilt University according to his official website.
“It is critical for the United States to address the threats posed by China and its use of opaque corporate structures, including the risks to U.S. investors and the U.S. financial system,” Kennedy and his colleagues concluded.
