Yale to Investigate Chinese Investments Over Human Rights Concerns

Yale University said it will look into Chinese companies to determine if they are ineligible for investment due to human rights abuses.

According to student newspaper the Yale News, the university’s Advisory Committee on Investor Responsibility, which provides divestment suggestions to Yale’s board of trustees, recently decided to look into Chinese investments in addition to its main focus of potential fossil fuel-related investments.

“We’re in the process of [probing possible Chinese investments],” Yale law professor Jonathan Macey, who is chair of the ACIR, told the Yale News. “We’re going to be starting to do that early in the semester.” Macey added that “my intuition is that there’ll be a range of activities among companies and that some might be eligible for divestment.”

Although Yale’s investment office doesn’t report how much it invests in Chinese companies, the $42.3 billion portfolio allocates 6.5% to emerging markets, which would cover any investments in Chinese companies, according to the most recent annual endowment report. The report said its emerging markets portfolio is benchmarked against a combination of the MSCI Emerging Markets Investable Market Index and the MSCI China A Share Investable Market Index.

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The ACIR is tasked with verifying that the university allocates its investments based on certain social and political standards. It also works in cooperation with the Yale Corporation Committee on Investor Responsibility, which makes final decisions on investment practices. Both committees had major input in implementing Yale’s new fossil fuel investment guidelines last April.

“In any geography, we partner only with investment managers who meet our sterling ethical standards, and our relationships in China are no exception,” Yale CIO Matthew Mendelsohn told the News. “We are monitoring social and political developments in China, including and especially US–China relations. Geopolitical risk is necessarily a consideration in all foreign investment activity, and China is a top focus at the moment.”

In August 2020, the then-US State Department Under Secretary Keith Krach sent a letter to the governing board of US universities calling on college endowments to divest from Chinese companies holdings, citing human rights abuses and indicating that some of the companies might be delisted from US markets. Krach noted that Chinese firms, unlike other foreign issuers in the US, do not follow audit transparency requirements.

“I urge you to divest from companies that are on the entity list or that contribute to human rights violations,” Krach said in the letter. “I also ask that you strongly consider publicly disclosing to your campus communities immediately all Chinese companies that your endowment funds are invested in, especially the Chinese companies in emerging markets index funds.”

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Yale Chooses CIO From Within

Tags: Advisory Committee on Investor Responsibility, China, divest, human rights, Uyghur, Yale University

The Securities and Exchange Commission has settled its case against technology firm HeadSpin without fining the company, despite allegations that former CEO Manish Lachwani falsely inflated the company’s value by $800 million and doctored internal sales records to attract investors. The SEC said HeadSpin “made significant remedial efforts,” which included an internal investigation, a revised valuation, repaying harmed investors, and improving its governance.

According to the SEC’s complaint, which was filed in the US District Court for the Northern District of California, Lachwani allegedly reported false revenue and overstated key financial metrics of the company. The SEC alleged that Lachwani maintained control over all operations, sales, and recordkeeping, including invoicing, and had the final say on what revenue figures were included in the company’s financial records.

The complaint cites several examples of Lachwani allegedly instructing employees to include bogus revenue such as revenue from potential customers who merely inquired about the company or former customers who no longer did business with HeadSpin, as well as overstating existing customer revenue. Lachwani also allegedly provided investors with false information that over-reported HeadSpin’s annual recurring revenue by approximately $51 million to $55 million. The SEC said he concealed the fact that the figures were fabricated by creating fake invoices and altering real invoices to indicate customers had been billed higher amounts than they really were.

HeadSpin provides a service that allows customers to access mobile devices and remotely test their applications across different communications networks and in different locations. It earns revenue by selling subscriptions to clients for its services.

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The SEC said Lachwani’s alleged fraud came to light after the company’s board of directors conducted an internal probe that led to his removal, as well as a revised valuation from over $1 billion down to $300 million.

The regulator said HeadSpin’s remedial actions included hiring new senior management, expanding its board, and instituting processes and procedures intended to ensure transparency and accuracy of deal reporting and associated revenues. Although the company neither admitted nor denied the allegations, HeadSpin agreed to be permanently enjoined from violations of the antifraud provisions of federal securities laws. The settlement is subject to court approval.

“For companies wondering what types of remedial actions and cooperation might be credited by the commission after a company uncovers fraud, this case offers an excellent example,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement. “HeadSpin’s remediation and cooperation included not just its internal investigation and revised valuation, but also repaying harmed investors and improving its governance—all of which were factors that counseled against the imposition of a penalty in this case.”