As the debate over the merits of Sarbanes Oxley heated up over the years, we pointed to the rise of Chinese companies trading on U.S. markets, which as group seemed gung-ho on Sarbanes Oxley compliance.

The idea was that they needed the Good Housekeeping seal of approval that 404(b) compliance offered in order to appeal to U.S. institutional investors. We applauded that trend. But now comes news that the Justice Department is reviewing accounting irregularities at various companies based in China, including much ballyhooed Chinese Internet companies such as Youku, Tudou, Baidu, Sohu and Sina.

Many of these ADRs have tumbled on the news. Of particular concerns are reverse mergers, in which a shell company that trades publicly merges with another company that effectively offers a backdoor way to being fully public. The SEC has halted trading in many of these companies. Some have been delisted. The companies have responded by firing auditors, restating earnings or owning up to "lying about assets."

There have been plenty of cases where auditors have been thrust into the spotlight. Sino Forest, for example, made headlines when a Hong Kong-based short-selling outfit published research calling it a scam, which brought into question the role of Ernst & Young, the auditor. It's unclear how all of these companies were able to legitimately comply with Sarbox. It's fair to ask where the auditors were. It's a sad days when companies start to view Sarbox compliance simply as an IR tool.

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