NASDAQ recently filed a request with the SEC to change the regulations for listing on a major stock exchange for reverse-mergers - citing concerns over fraud, stock manipulation, and the quality of audits.
"The filing said that the Financial Industry Regulatory Authority has concerns over the quality of audits of reverse merged companies and mentioned the SEC's own investigation into reverse merged companies and firms servicing the industry." Full Article Here.
Recent financial headlines have focused on issues surrounding reverse-merger listings, with a number of Chinese reverse-merger companies being cited for accounting irregularities, suspicious audits, fraud, and actual de-listings related to these concerns.
The PCAOB was concerned enough last year to announce their Staff Audit Alert No. 6 that advised in part:
"The Public Company Accounting Oversight Board today published a Staff Audit Practice Alert prompted by observations in PCAOB inspections that some U.S.-based firms issuing audit reports based on work performed by others outside the United States are not properly applying PCAOB standards."
It is an environment of "investor-beware" until more scrutiny can be placed on these companies and their real financial reporting capabilities. If the PCAOB gets their way, and these companies have to be audited by U.S. auditors and financial reporting standards, we can expect to see more light shed on what is really going on behind these listings.
From my point of view, these events are yet another example of how the cost of compliance, and implementing strong internal controls, can be dramatically lower than efforts to short-circuit the process and bank on the "greater fool" investing theory.