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Report: Justice Department joins probe of Chinese firms' accounting

September 29, 2011 | 12:44 pm

Khuzami
The Nasdaq Stock Market is getting hit today, with the composite index down 1.1% at about 12:45 p.m. PDT, even as the Dow industrials and most other U.S. market indexes are positive.

One factor in Nasdaq’s slump: A report that the Justice Department has joined the Securities and Exchange Commission in looking into possible accounting fraud at Chinese companies that list their stocks on U.S. markets.

That is slamming some popular Chinese Internet-related issues on Nasdaq, including Youku.com (down 23% so far today), Baidu Inc. (down 11%) and Sohu.com (down 6%). They already were under pressure as Chinese shares in Shanghai hit a new 52-week low overnight.

From Reuters:

A top securities regulator said U.S. criminal authorities are investigating accounting irregularities at Chinese companies listed on U.S. stock exchanges.

"There are parts of the Justice Department that are actively engaged in this area," said Robert Khuzami, director of enforcement at the U.S. Securities and Exchange Commission.

In an interview with Reuters this week, Khuzami revealed that a number of federal prosecutors around the country are looking into the issue, but declined to name them.

The involvement of the Justice Department adds investigative firepower to the SEC and the FBI, which are also probing Chinese accounting fraud.

"I think that you will see greater (Department of Justice) involvement as time goes on," said Khuzami, a former federal prosecutor himself, when asked why no criminal charges have yet been filed in the massive Chinese accounting scandal.

But it's a tough day for many Nasdaq tech issues in general. Market darlings Apple Inc. and Amazon.com are down 2% and 4.2%, respectively, which may be tied to end-of-quarter profit-taking. The third quarter ends Friday.

ALSO:

Is China putting development ahead of safety?

China central bank chief says policy remains stable

-- Tom Petruno

Follow me on Twitter: Twitter.com/tpetruno

Photo: Robert Khuzami, center, the enforcement chief at the Securities and Exchange Commission. Credit: Jacquelyn Martin / Associated Press.

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