By Sarah N. Lynch

A Chinese probiotics manufacturer on Tuesday asked U.S. regulators to reinstate its securities registration, which was revoked in 2012 because the company failed to file some of its required financial reports.

In an appellate hearing before the five commissioners of the U.S. Securities and Exchange Commission, an attorney for Shanghai-based China-Biotics urged the panel to reverse a February 2012 decision by an SEC administrative law judge. The judge upheld an earlier 2011 SEC enforcement action seeking suspension or revocation of the company's registration.

"China-Biotics has retained a new auditor, has filed all of its missing reports, and is now fully up to date in its filings," said Jerome Fortinsky of Shearman & Sterling LLP.

China-Biotics is one of hundreds of companies that entered the U.S. capital markets through a backdoor method known as a "reverse merger," in which a private company purchases a public shell company in the United States so it can raise capital without doing a burdensome initial public offering.

For the past several years, China-based companies that have used reverse mergers have come under regulatory scrutiny by the SEC, amid accounting scandals, auditor resignations and delistings from U.S. exchanges.

Michael Foster, an attorney with the SEC's enforcement division, urged the SEC commissioners not to reinstate China-Biotics' registration, saying the company had "refused to identify" when its filings would become current and took more than a year to fix the issues.

The SEC commissioners said very little at the hearing and gave no indication of how they might rule.

Decisions on appeals are typically issued within seven months from the time a petition is filed, though the SEC can extend the time if needed.

As of June, the SEC had filed more than 65 fraud cases and deregistered the securities of more than 50 companies, including China-Biotics. The company's shares were also delisted from Nasdaq OMX in June 2011.

China-Biotics made news in 2011 after its auditor, BDO Limited, resigned after numerous allegations of possible accounting fraud, including a complaint that the company had directed the audit firm to a "suspected fake website" to help confirm its bank balances.

Its accounting practices had been originally questioned by Citron Research, run by investor Andrew Left.

The SEC's case made no mention of the company's accounting or the use of a possible fake website, nor did those issues come up during the hearing on Tuesday.

The case focused solely on the issue of the delinquent filings, with the company saying it has remedied the problem and that it had only missed two reports compared with companies in other cases that had failed to file many more.

"Ultimately the flawed premise of this appeal is that the commission must sit idly by while an issuer predictably misses filing after filing until it has racked up some threshold number of delinquencies that mirror other cases," the SEC's Foster said at the Tuesday hearing.

"I submit that investors deserve more than that."

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