Monday, July 4, 2011
Following up on my earlier posts (here and here): It strikes me that a fair challenge to my position would be to say, "So what?" A theory is useless unless it has specific practical consequences that are different from those of a competing theory. In this case, a fair question (although not the only question) would be to ask, "What are the consequences of my theory for disclosure under US securities laws of a VIE structure (or some similar structure that is questionable under formal law)?" Stan Abrams at China Hearsay is clear about what he thinks the disclosure ought to be (he's sort of kidding, but only sort of). Does my theory dictate or allow a substantially different disclosure?
Here's Stan's favored disclosure, borrowed from Fredrik Öqvist of the China Finance blog:
Although our corporate structure is intended to circumvent Chinese laws and regulations, and is thus illegal, enforcement of these rules in China is subject to substantial uncertainty. We do not believe that the PRC authorities will enforce these laws in our case, but we cannot assure you that the PRC authorities will take the same view.
Somehow I feel it ought to be possible to be honest about at least some structures without declaring that they're "illegal." As I noted in an earlier post, the same thing could be said about joint ventures in Zhongguancun set up with an individual Chinese investor (specifically and openly permitted and welcomed by the Beijing municipal government, although pretty clearly illegal under any plausible interpretation of the Law on Legislation), or limited partnerships set up under local rules at a time when the Partnership Law didn't allow them. However, I have to admit I don't have good suggested wording of my own, and so I'm really in no position to make objections. Suggestions?