For decades, U.S. securities regulation has treated foreign firms listed on U.S. exchanges differently from domestic issuers. Through the “foreign private issuer” (FPI) framework, the Securities and Exchange Commission (SEC) has offered foreign companies substantial accommodations such as exemptions from quarterly reporting, exemptions from the requirement to quickly disclose material events on Form 8-K, and exemptions from reporting changes in beneficial ownership on Form 4.
These accommodations were not originally conceived as a deregulatory giveaway. They were designed to attract high-quality foreign companies from jurisdictions with robust disclosure and enforcement regimes, so U.S. investors could still rely on the protections of the firms’ home-market rules. The implicit bargain was straightforward: lighter U.S. requirements in exchange for meaningful, enforceable “substitute” regulation elsewhere.
That bargain has eroded. Today, the largest portion of U.S.-listed FPIs are headquartered in China, and many are not cross-listed in China at all. Instead, they are frequently incorporated in offshore jurisdictions such as the Cayman Islands and listed only in the United States. This structural change matters because it combines (i) weaker ongoing disclosure obligations under the FPI regime with (ii) significant barriers to private enforcement and regulatory cooperation. The current status quo leaves U.S. public investors exposed in ways the original FPI framework did not anticipate.
The Shift
In a new paper, we document how dramatically the FPI population has changed over the last two decades. In 2003, the SEC’s own descriptive work found that the leading headquarters jurisdictions for FPIs included Canada, the United Kingdom, and Israel – countries where cross-listing and meaningful home-market regulation were common. By contrast, the current FPI landscape is dominated by China-headquartered issuers, with many such firms incorporated in the Cayman Islands and not listed on Chinese exchanges.
This is not a small corner of the market. More than 285 Chinese companies trade on U.S. exchanges – over a quarter of all FPIs – with a combined market capitalization of approximately $1.1 trillion. In 2024 alone, 35 Chinese firms listed in the U.S., raising $1.8 billion.
The market outcomes for U.S. investors in these companies have been grim. Among Chinese-based firms that completed IPOs between 2011 and 2023, the median stock return was –51% one year after IPO and –81% three years after IPO. More recent cohorts have performed even worse: For Chinese firms listing in 2024 and 2025, the median return since IPO was –80%.
While not every China-based firm is fraudulent or doomed, the overall point remains that the composition of the set of FPIs has shifted toward companies where U.S. investors have fewer timely disclosures, less visibility into insider behavior, and far less practical ability to seek redress when things go wrong, and where the country of domicile does not cooperate with U.S. law enforcement.
Why the Regulatory Gap Persists
Our paper highlights a growing body of research suggesting that the SEC’s FPI accommodations have created an “increasing disparity in information flow” between U.S. domestic issuers and FPIs, especially those from jurisdictions with weaker investor protections. When disclosure is less frequent and less standardized, managers can hoard bad news, producing extreme negative market reactions when information finally emerges.
But the bigger concern is enforcement. Even if U.S. law formally applies, enforcement depends on access to insiders and records and the ability to freeze assets. Our paper draws on scholarship arguing that China-based FPI structures can place almost everything required to enforce the law outside the reach of U.S. shareholders and government authorities – through the use of foreign broker/dealer omnibus accounts, non-extradition policies, lack of information sharing, and limited recognition of foreign judgments. Our paper describes the combination of China-based operations, Cayman incorporation, and U.S.-only listing as an enforcement barrier that can make insiders effectively law proof.
What Abuse Can Look Like
Our paper then moves from structural concerns to observable market behavior.
1) Social-media promotion and “ramp-and-dump” patterns
We describe how social media and messaging platforms are being used by Chinese entities to solicit investors, at times falsely presenting communications as advice associated with credible financial institutions, including fake videos featuring the Chief Equity Strategy at Goldman Sachs. These campaigns can coincide with manipulative trading intended to push prices of low-float stocks upward before insiders unload shares: a so-called “ramp-and-dump.”
The telltale sign of a ramp-and-dump is a steady rise followed by a severe one-day collapse. In the 2024–2025 IPO cohort, half of all Chinese-based IPOs experienced a one-day drop of 40% or more. This is not normal volatility. It is the kind of price action that can devastate retail investors and can be consistent with manipulation.
The institutional response has been notable but incomplete. The SEC created a cross-border task force to investigate manipulative trading in U.S.-listed Chinese companies, and the Department of Justice has brought indictments alleging ramp-and-dump conspiracies involving multiple U.S.-listed Chinese firms.
NASDAQ, for its part, has stated that roughly 70% of the manipulative trading cases it has referred to regulators in recent years involve Chinese companies – despite those firms constituting less than 10% of total listings. Nevertheless, the exchange has taken only de minimis steps to protect investors, such as raising the minimum public float and delisting companies faster. Indeed, the lack of meaningful action by NASDAQ has attracted sharp criticism from U.S. retail brokers like Charles Schwab.
2) Insider trading risk and delayed transparency
Our paper also synthesizes evidence that U.S.-listed Chinese firms are associated with substantial and unusually timed insider selling. We discuss the findings of Jackson et al. (2024) that, of $80 billion in foreign-insider stock sales between 2016 and mid-2021, $47 billion (53%) were initiated by insiders at Chinese-based companies. Average trade size among these insiders was far larger than among U.S. insiders ($18 million versus $3 million), and the sales tended to precede steep price declines. Jackson et al. estimate that Chinese-based insiders avoided roughly $10 billion in losses by selling ahead of large drops – behavior they characterize as “highly opportunistic and abusive.”
This is precisely the context in which disclosure timing matters. When investors do not see insider transactions quickly, the informational advantage of insiders can persist longer, and investors can buy into inflated prices without realizing that informed sellers are exiting.
Congress recently acted on this gap. In December 2025, it passed the Holding Foreign Insiders Accountable Act, requiring directors and officers of FPIs to disclose trades within two business days – the same standard that applies to U.S. insiders. This reform should improve transparency, but it will not, by itself, eliminate ramp-and-dump schemes or solve the deeper cross-border enforcement problem.
Beyond Market Manipulation
Our paper also notes that concerns around China-based FPIs are not limited to classic securities fraud. We highlight that the Commerce Department has imposed export restrictions on more than a dozen entities for acting “contrary to the foreign policy interests of the United States,” and that members of Congress have identified 20 issuers as “high risk” to U.S. investors based on factors such as involvement with the Chinese military-industrial complex, party control, sanctions exposure, and forced-labor.
The data suggest that NASDAQ and the SEC apparently have no problem approving listings for Chinese companies that appear on the Commerce Department’s blacklist, that have been sanctioned by the US government, that the U.S. government has determined use Uighur forced labor, or that the U.S. government has determined have close connections to the People’s Liberation Army (PLA). We question the wisdom of allowing such companies to raise money from U.S. investors.
What Should Change
Our paper concludes by framing the policy questions that follow from the evidence. The SEC has a three-part mission: to protect U.S. investors; maintain fair, orderly, and efficient U.S. markets; and facilitate U.S. capital formation. It is hard to see how any part of that mission would justify the current FPI regime for Chinese companies. Our paper suggests several lines of inquiry that could guide potential reforms:
- Revisiting who should qualify as an FPI. The SEC is already reviewing the definition of FPI eligibility in light of the dramatic compositional shift in the FPI population over the last 20 years.
- Distinguishing “reliable substitute regulation” from regulatory arbitrage. The original rationale for FPI accommodations assumed meaningful home-market regulation and, often, cross-listing. The current reality calls for a harder line: What criteria (home-market disclosure quality, enforcement cooperation, cross-listing, audit access, or other factors) should determine whether U.S. investors can reasonably rely on non-U.S. protections?
- Integrating enforcement cooperation into eligibility. Our paper asks whether the ability to extradite individuals and cooperate with U.S. law enforcement should affect whether the SEC loosens disclosure rules for a foreign issuer. The logic is practical: If an entity is beyond the reach of U.S. law enforcement, disclosure accommodations become risk multipliers rather than sensible comity.
- Strengthening screening and gatekeeping. Given the evidence of manipulation patterns and opportunistic insider behavior, the paper asks how exchanges can screen out high-risk issuers before they list. This could imply tougher listing standards or enhanced due diligence in the listing process.
- Reassessing exchange responsibility. Our paper notes that Congress granted the NYSE and NASDAQ legal immunity in their role as self-regulatory organizations, making private suits difficult absent bad faith or misconduct. That raises a normative question: If exchanges profit from listings while enjoying substantial immunity, should they bear greater responsibility when obvious red flags are ignored and U.S. investors suffer predictable harms?
Conclusion
The FPI framework was built for a world where cross-listing, robust home-country regulation, and workable enforcement cooperation were common. That is no longer the world U.S. investors face. Today, many China-based issuers can access U.S. capital markets through structures that combine reduced disclosure with limited enforceability. The evidence shows these conditions associated with severe post-IPO underperformance, dramatic one-day price collapses consistent with manipulation, and unusually large, well-timed insider sales. Reform does not require abandoning openness to foreign issuers. It requires recalibrating the rules to match present-day market structure – so that “foreign” status is not a blanket exemption from the timely disclosure and enforceability norms that U.S. public markets rely on.
David F. Larcker is the James Irvine Miller Professor of Accounting, Emeritus; Amit Seru is the Steven and Roberta Denning Professor of Finance; and Brian Tayan is a case writer at Stanford Graduate School of Business. Daniel Taylor is the Arthur Andersen Professor at The Wharton School and director of the Wharton Forensic Analytics Lab. This post is based on their recent article, “A Breach In The Great Wall: Why Are Chinese Companies Listed In The U.S. Subject To Lower Disclosure Standards?” available here.