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TheStreet Open House

Deepening Regrets as SEC Ruling on China Sinks In

BEIJING ( TheStreet) -- American holders of Chinese company stocks could be next to feel the kind of "deep regret" expressed Friday by China's securities regulator over a U.S. judge's slap against the world's Big Four auditors.

That's because the Securities and Exchange Commission could implement the judge's order in a way that freezes stock trades for U.S.-listed Chinese companies as early as April, according to a Peking University professor of accounting who's been tracking China-U.S. auditing debates for years.

The SEC administrative law judge in Washington, Cameron Elliot, ordered a six-month ban on audits for securities filings handled by the Chinese divisions of auditing giants KPMG, Ernst & Young, PricewaterhouseCoopers and Deloitte & Touche.

Elliot's ruling Wednesday faulted the firms for refusing to comply with a 2012 SEC request to turn over key financial documents sought in connection with fraud investigations. The regulator's probe targeted 10, Chinese companies listed on U.S. exchanges. The ensuing dispute has been a touchstone for wider debates over Chinese company accounting procedures.

The Big Four firms said they plan to appeal the ruling, thus delaying a final SEC decision. They could buy even more time, if necessary, by appealing to a federal court.

A spokesman for the SEC's counterpart in Beijing, Deng Ge of the China Securities Regulatory Commission, said Friday his agency "expresses deep regret" over the ruling.

Deng also told reporters at a CSRC briefing that "the judgment could have bad consequences for which the American regulatory commission should agree to take full responsibility." He did not elaborate.

But holders of U.S.-listed stock in Chinese companies such as oil major PetroChina (PTR), search engine Baidu (BIDU), telecom China Mobile (CHL), travel service Ctrip (CTRP) and Internet video provider Youku  (YOKU) -- each of which has hired a Chinese unit of a Big Four company to audit this year's books -- are also at risk.

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