Jesse Fried

As the U.S. looks to crack down on Chinese companies with public listings on its exchanges, firms are being fed buyout proposals. Amid the pandemic, Sino-U.S. trade tensions have been picking up smoke, as President Trump has been blasting China for its lack of transparency on Covid-19. The other issue has been over the beverage maker Luckin Coffee Inc. (Nasdaq: LK) after the company allegedly fabricated $314 million in sales. The Chinese rival to Starbucks (Nasdaq: SBUX) has not only been halted from trading but now faces delisting from Nasdaq. Following the Luckin Coffee scandal, SEC chairman Jay Clayton warned against investing in Chinese stocks for lack of access to audit papers. In May, the U.S. passed a bill that could delist around 800 Chinese listed firms on American bourses, according to Bloomberg...At the time of the report in March 2019, 60 companies had gone private since 2013. Jesse Fried, a professor of law at the Harvard Law School, told CapitalWatch last week that if the delisting bill becomes a law, "stock prices for Chinese firms trading in the United States are likely to decline," which makes "buy-out proposals more appealing to Chinese controllers and increasing buyout deals." He also noted that firms trading on American bourses need to follow the laws, regardless if they are from China, Germany, or the U.S. "We can't let a subset of listed firms, those based in China, refuse to comply. That could end up undermining the integrity of our market, and investors' confidence in it," Fried said...Fried said that if the bill becomes a law and China "does not back down on PCAOB inspections," he believes that they will be "forced to delist." The biggest loser, if this happens, will be U.S. stock exchanges and investment banks. According to a Bloomberg report, the NYSE and Nasdaq would lose millions of dollars in fees that Chinese firms pay to be listed on their bourses.

While the U.S. Senate has unanimously passed a bill to delist Chinese companies trading on American bourses, the legalization must clear the House of Representatives before signed into law by President Donald Trump. If the bill does indeed become law, the real loser here is the U.S. stock exchanges and investment banks. According to a Bloomberg report today, the NYSE and Nasdaq would lose millions of dollars in fees that the Chinese firms pay to be listed on their bourses. On the other hand, the new law, proponents argue, would help protect American investors from widespread fraud and safeguard national security. The Luckin Coffee Inc. (Nasdaq: LK) scandal, in which the company allegedly fabricated $314 million in sales and hurt investors, will likely be seen as the straw that broke the regulators' back...Assuming the bill does pass, China must allow PCAOB inspections to avoid delistings. However, Jesse Fried, a professor of law at the Harvard Law School, told CapitalWatch he is skeptical that China will allow them to do so. "So if the law is passed, I expect to see a migration of Chinese firms from our [U.S.] exchanges," Fried told CapitalWatch on Tuesday. He added, "They will either be taken private, probably with the objective of relisting in Hong Kong or elsewhere after a year or two, or they will transition to trading on another exchange."

Is now the time to invest in Chinese e-commerce giant Alibaba (NYSE:BABA)? Shares in the company have had a rocky ride in 2020, but that’s true of most stocks. Despite the havoc cause by the novel coronavirus and escalating tensions with China, Alibaba stock has now virtually bounced back. Before the markets tanked earlier this year, BABA had increased in value by 142% in just the past four years. After riding out the pandemic, I think this A-rated stock is back on the growth path...The coronavirus pandemic is one thing, but there’s potentially a bigger threat to American investors in Chinese stocks — including Alibaba. When the trade war between the U.S. and China flared up again last fall, President Donald Trump’s administration floated the idea of delisting Chinese stocks. In May 2020, Trump once again raised the prospect of delisting Chinese companies. If they don’t adhere to the Sarbanes-Oxley (SOX) Act, they could lose their Nasdaq or New York Stock Exchange listing. That would not be good news for investors in Alibaba stock. However, it’s not time to hit the panic button yet. In order for the delisting to take place, legislation would need to pass a vote in the House of Representatives. And significant effort is being put into ensuring it doesn’t even get that far. Speaking to CNBC, Harvard law professor Jesse Fried noted: “Wall Street will be lobbying to try to block it, because it makes a lot of money off of listings of Chinese companies in the United States. They will probably be asserting pressure on people in the House to block the legislation from being put to a vote.” Professor Fried also makes the point that while Trump is a frequent China-basher, he likely has mixed feelings about actually following through with delisting: “…Trump is very interested in maintaining the primacy of our exchanges and he’s not going to want to see these companies flee to Hong Kong or London or mainland Chinese exchanges.”

Alibaba (NYSE:BABA) stock has held up relatively well in a chaotic 2020. Alibaba stock’s 5.3% year-to-date gain is nothing to get excited about. However, there are at least three potential bullish catalysts that could make for a big second half of the year for BABA investors. The first potential catalyst to love about the stock is its technical picture. This week, Alibaba closed above $220 for the first time since February. It also closed above its April and May peaks. Since the initial novel coronavirus sell-off in March, BABA shares have been making a series of higher highs and higher lows, a textbook market uptrend....A lot of U.S. investors are freaking out about a potential delisting of BABA stock. I say it’s unlikely to actually happen. First of all, losing Alibaba and other Chinese stocks would cost Wall Street stock exchanges, brokers and investment banks millions of dollars. They would lose trading fees, underwriting fees and other income. “Wall Street will be lobbying to try to block it, because it makes a lot of money off of listings of Chinese companies in the United States,” Harvard Law School professor Jesse Fried said. Fried said the House may not even bring the bill up for a vote. Voting against it would make representatives look weak on China. But voting for it would anger their deep-pocketed Wall Street donors. I think people may be underestimating how much of an impact the investment community has on U.S. politics. When it becomes clear to investors that BABA stock isn’t going anywhere, it could trigger a relief rally.

Online finance marketplace Jiayin Group’s stock price [NASDAQ:JFIN] surged more than 10 times during trading yesterday as a number of Nasdaq-listed Chinese companies saw their stock price somersault as the tech-heavy New York bourse advanced to close at a record high. Wins Finance Holdings [NASDAQ:WINS], a financial services company, was up more than two and a half times and gained more than seven-fold during the day. China Finance Online [NASDAQ:JRJC] closed up 51.5 percent after seeing its price double in the day. Shenzhen-based real estate firm Fangdd Network Group [NASDAQ:DUO] surged 13 times on June 9. It rose 30 percent yesterday before plummeting 66 percent to close at USD15.82. These major price fluctuations could be down to the fact that some of these companies do not have a large number of stocks in circulation...Last month, the US Senate passed a bill requiring businesses listed in the country to prove that they are not “owned or controlled by a foreign government” and to adhere to stricter audit requirements, a move that could squeeze out a number of Chinese firms. There are around 248 Chinese companies worth USD 1.6 trillion listed in the US, according to incomplete statistics. But the Senate’s move appears to have done little to dampen investor sentiment. Its bill could not only “backfire” on American investors, but could also hurt Wall Street, in which case investment institutions are likely to lobby against the legislation, Jesse Fried, professor at the Harvard Law School, told CNBC on June 9.

Shares of US-listed Chinese mainland companies set off on a roller coaster on Wednesday, with multiple stocks seeing turnovers surging dozens of times and the trade-halting circuit breaker being triggered more than 100 times. The volatility might have been triggered by the news that Wall Street is reportedly hindering the US government from taking action against mainland companies listed there, experts said. On Wednesday, some Chinese companies listed in the US saw their share prices flying high and then tumbling abruptly. The share price of mainland fintech company Jiayin Fintech at one point skyrocketed a stunning 900 percent but fell suddenly approaching closing. The company closed at $5.80 per share, up 96.61 percent. Wins Finance, another mainland finance company listed in the US, saw its share price surge 169.01 percent by closing...Harvard Law School Professor Jesse Fried recently said in an interview that the Holding Foreign Companies Accountable Act - designed by the US government to improve financial reporting by China-based firms trading on US stock exchanges that might force mainland companies to delist from US markets - is unlikely to pass due to opposition from Wall Street. According to Fried, Wall Street will be lobbying to block the legislation as it makes a lot of money from Chinese listings in the US.

On May 20, the Senate passed the Holding Foreign Companies Accountable Act (HFCAA), a bill that would potentially delist Chinese stocks that fail to comply with Public Company Accounting Oversight Board’s (PCAOB) audits for three years in a row. On the surface, the bill is intended to protect U.S. investors from potential fraudulent accounting by Chinese companies. Bank of America analyst Michael Carrier said Wednesday that delisting foreign stocks like Alibaba Group Holding Ltd - ADR (NYSE: BABA) and JD.Com Inc (NASDAQ: JD) could have a negative impact on Wall Street...He estimates the exchanges could lose between 2% and 3% of listing revenue, between 1% and 2% of US equity transaction revenue and roughly 1% of total revenue. Carrier’s comments come a day after Harvard Law School professor Jesse Fried told CNBC that the bill is unlikely to pass due to opposition from Wall Street.  “Wall Street will be lobbying to try to block it, because it makes a lot of money off of listings of Chinese companies in the United States,” Fried said.

An attempt by the Senate to prevent China from using American investments in Chinese firms against the United States might prove to be self-defeating in the long run. Already an epicenter of anti-Chinese communist sentiment, the Senate on May 20 overwhelmingly approved the "Holding Foreign Companies Accountable Act (S. 945)," a bill that might lead to Chinese firms being barred from listing on U.S. stock exchanges. The bill will require foreign companies doing business in the U.S. to certify they’re not controlled by their governments. They will also have to submit to audits by U.S. regulators for three consecutive years...The intent of S.945 is laudable but the real world application might not redound to the benefit of the U.S., contended Jesse Fried, a professor of law at the Harvard Law School. “So, I think in terms of protecting American investors, this bill if it becomes law, could backfire” and might also hurt Wall Street, warned Fried. He told CNBC he's “not sure that this bill ... will actually make American investors better off" because there’s a good chance Chinese firms will stop trading on Wall Street after three years if the bill becomes law...Fried also noted not much can be done to protect the interests of American investors in Chinese firms. He believes there’s “good reason” to think S. 945 won’t be signed into law because of staunch Wall Street opposition. “Unfortunately, I think that money that American investors have already paid for stocks in Chinese companies -- especially money that’s gone back to mainland China -- is basically money that these people may never see again. But there’s not really that much you can do to protect them at this point."

Under a new bill, passed by the U.S. Senate last month, Chinese firms risk being delisted from U.S. stock exchanges if they don't adhere to U.S. audit standards. But, if the law is passed, it's unclear if U.S. investors will be left "better off," says Jesse Fried, a professor of law at the Harvard Law School.

An article by Jesse Fried: Last month, the US Senate unanimously passed a bill aimed at improving the reliability of financial statements by China-based companies trading in the US. The legislation focuses on a real problem with these businesses, whose total market capitalisation is about $1tn. Over the past decade, alleged fraud at China-based, US-traded companies — including most recently Luckin Coffee — has cost American investors billions of dollars. Unfortunately, the bill’s remedy may end up making them worse off. To reduce fraud, the Sarbanes-Oxley Act of 2002 requires audits of every US-traded company to be inspected by the Public Company Accounting Oversight Board. But those based in China refuse to comply. They, and the Chinese government, say PCAOB inspection of China-based audit records would violate state-secrecy laws. Why block PCAOB access? Inspections might well reveal bribes to high-ranking officials, embarrassing the Chinese Communist party. The US bill requires the Securities and Exchange Commission to prohibit trading in the stock of any company that goes three consecutive years without PCAOB inspection. Its apparent goal is to force China to agree to inspections. If the strategy succeeds, it should be harder for insiders of China-based companies to defraud American investors. The bill has bipartisan support in the House of Representatives.

Financial crises follow a sequence. One of the steps is outrage. Then comes regulation — think Dodd-Frank, Sarbanes-Oxley and the like. During the pandemic that is both a heath and a financial crisis, a lot of outrage is aimed at stock buybacks. Over the past three years, S+P 500 companies spent $2 trillion on buybacks. Pundits are quick to point out that U.S. airlines spent nearly all of their free cash flow on buybacks over the past decade. Many now argue that if these companies kept more cash on hand, they wouldn’t need bailouts now. This criticism joins longer-running arguments over whether buybacks encourage short-termism and limit investment in research and development. But there are good reasons to support buybacks. They allow capital to be deployed efficiently and stop managers from spending excess cash on vanity projects. And contrary to conventional wisdom, buybacks don’t benefit shareholders alone. Jesse Fried of Harvard Law School has testified to Congress that, for every $100 in repurchases, companies issue $80 of equity, meaning public investors net just $20. Employees are probably the biggest beneficiaries: Companies, particularly tech firms, use stock buybacks to repurchase stock options...To be sure, there are issues with buybacks. Mr. Fried has ably documented how executives can time them to their personal benefit, something akin to insider trading. Companies do buy back shares when they’re too expensive or otherwise spend money that should be saved. And in other cases, stock buybacks have encouraged a short-term focus.

One of the most moving responses to coronavirus has come from home-quarantined Italians singing together from their balconies. They were belting out Il Canto della Verbena or Volare. The subtext was that interdependence is the only defence humans have against their own fragility. For postwar individualist philosophers like Ayn Rand — cheerleader for the primacy of private capital — the jig is well and truly up. Witness the extraordinary efforts by governments to stabilise their economies and forestall the collapse of business. The US signed off on a $2tn aid package in the early hours of Wednesday morning and the global bailout — central bank liquidity support included — will have a sticker price of more than $4.5tn. That is a big number, even by the standards of recommended takeovers...Whole sectors — notably airlines, hotels and cruise lines — will lack a raison d'être for months. For many companies, revenues will fall short of overheads. But state support, and the quid pro quos that go with it, are preferable to going bust. “This is analogous to a war we have to mobilise to deal with,” says Jesse Fried, an economist and Harvard law professor. “It is not part of the normal boom and bust cycle.”

On a drizzly San Francisco day in December, Eric Ries is stationed inside the Succession-worthy offices of Orrick, Herrington + Sutcliffe...The 41-year-old’s 2011 bestseller, The Lean Startup, introduced the masses to product/market fit, minimum viable product, and the pivot. It also vaulted Ries into nerd celebrity status, a coach and mentor to Silicon Valley’s elite...Ries is now focused on his most ambitious — and risky — venture yet: a new stock exchange called the LTSE, or Long-term Stock Exchange...The LTSE is a controversial new exchange that, Ries argues, will create a fundamental shift in the capital markets...It turns out that the very tools of short-termism that Ries rails against — activist investing and short selling (often deployed in combination) — serve a purpose. “Activist investors and short sellers each play an important role in our market ecosystem,” says Jesse Fried, a Harvard Law professor who focuses on corporate governance and security regulation. “The former exerts a disciplining effect on managers, and the latter improves price accuracy.” Take that away, critics argue, and you have a sloppy system where power resides disproportionately in the hands of founders and a select group of institutional investors who can afford to buy and hold, consolidating power so they can effectively ignore other shareholders as they pursue bad ideas.

In February 2017, the company behind the hit games Candy Crush and Call of Duty signaled optimism in its future and announced a $1 billion program to buy back its own shares — and investors responded by buying heavily. But few of them could know that as they were buying, insiders at the mobile gaming titan Activision Blizzard were selling, and taking home additional profits as the stock price jumped....While many executives have prearranged procedures to sell stock, these plans do not have to be publicly disclosed and can be changed, Jesse Fried, a Harvard Law School professor who testified about buybacks at congressional hearings in October, said in a phone interview. He also noted that some insiders are in a position to decide the timing of a buyback announcement, meaning it could be set ahead of a prearranged sale, putting them in a position to benefit from any price rise.

An article by Jesse Fried: In August, 181 chief executives, including Apple’s Tim Cook and JPMorgan’s Jamie Dimon, officially demoted their shareholders. They all signed a Business Roundtable statement in which they “commit to lead their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders”. If you believe what the members of the influential business group say, equity holders will no longer be paramount. In reality, the Business Roundtable is merely paying lip service to broader social concerns. I predict that the pledge will not actually affect how they run their companies.

An op-ed by Jesse M. Fried and Steven Davidoff Solomon: The House of Representatives recently voted 398-17 to reject the global Boycott, Divestment, and Sanctions effort against Israel. Against this lopsided vote, Congresswoman Ilhan Omar offered a resolution defending BDS as an exercise of free speech by Americans. We strongly support free speech, but BDS supporters often use free speech talk to try to dodge accountability for their misbehavior.   Case in point: The American Studies Association’s Israel boycott. In 2013, the ASA’s leadership, known as the National Council, endorsed a resolution to cut ties with Israeli universities. The proposal was put to member vote. Turnout was low; only 20 percent voted in support. But the National Council declared victory anyway and, ever since, claims the resolution was adopted.

Should the government apply any standards to the quality of the companies that get to sell their shares to the public in an IPO? I realize the SEC has minimum requirements but when I consider some of the companies going public these days, I wonder whether those standards are high enough. ...A corporate governance expert at Harvard Law School, Jesse Fried, told CNN that having a couple within its C-suite could be the least of its problems. "[It] could be a plus or a minus. If it's a minus, it pales in comparison to the other risks. From investors' perspective, WeWork is associated with many business and governance risks."

As scrutiny over unfair Chinese business practices intensifies amid drawn out U.S.-China trade discussions, investors are debating another contentious issue: minority American shareholders “squeezed out” by U.S. listed Chinese companies. ... Further complicating the issue is the controlling share structure of the companies, which allows founders to retain voting control. Minority investors, who own less than a 50% stake in the company, have little say in the direction of the company and are left powerless to contest a low-ball buyout offer. While that itself is not unique to Chinese firms, they have largely escaped shareholder repercussions because they are domiciled in the Cayman Islands, where minority investors have less protection than in Delaware, where most U.S. companies are registered, according to Harvard Law Professor Jesse Fried. “The problem from the perspective of minority shareholders is the fact that all the defendants, the assets, the records, are all in the People’s Republic of China, which makes them unavailable,” Fried says. “It also drives up the cost of litigation.”

The legal battle over who’s at fault for the opioid crisis, which involves more than 1,600 lawsuits in federal and state courts, could get even more complicated soon, with OxyContin manufacturer Purdue Pharma reportedly considering filing for bankruptcy. ...The idea is to produce a resolution in a faster, more focused manner than would be the case in civil court. And even if plaintiffs only receive a fraction of what they are owed, the aim is to get everyone a piece of the pie. Otherwise, different plaintiffs might try to accelerate their own efforts so they can take the full amount owed to them, leaving little for other plaintiffs. “If [a company] has to pay cases as they were finalized, the plaintiff that had reached a resolution in its case earlier might get paid in full, but there would be nothing left for anyone else,” said Jesse Fried, a professor at Harvard Law School.

An op-ed by Jesse M. Fried and Charles C.Y. Wang: Senators Chuck Schumer of New York and Bernie Sanders of Vermont recently announced they would introduce legislation to prohibit a public firm from repurchasing its own stock, unless the firm first invests in employees and communities, including paying workers at least $15 per hour and offering “decent” pension and health benefits. Welcome to the newest form of virtue-signaling on Capitol Hill, in which Democratic senators demonstrate their concern for employees by proposing bills that severely restrict — or even outlaw — buybacks. The proposals are based on misleading measures of corporate capital flows, as well as on a profound misunderstanding of how the US economy works. If enacted, such bills could threaten not only the capital markets but also the workers and communities the senators claim to care about.