The stock prices of Chinese tech giants listed in the US slid on Tuesday after the Securities and Exchange Commission filed complaints against the Chinese divisions of major accounting firms in a standoff that could result in the delisting of those stocks.

As of 9:57am Pacific, Sina’s stock had plunged 7.2 percent to $42.18, while Baidu had fallen 6.4 percent to $89.77. Youku Tudou had dropped 4.5 percent to $15.82 and Sohu stood at $38.02, down 3.9 percent. Meanwhile, Chinese social network Renren remained flat as an upgrade from Deutsche Bank balanced out concerns about the SEC.

China and the US are in a tense disagreement over jurisdiction and sovereignty of US-listed firms. The SEC has requested documents for audits of Chinese companies, but Chinese law prevents the accounting firms from turning over the information. The issue came to a head on Monday when the SEC filed charges against Deloitte, KPMG, PricewaterhouseCoopers, BDO and Ernst & Young. Reuters reports that the SEC is specifically requesting documents for nine companies that it is investigating, and the regulator could lodge sanctions against the accounting firms if they refuse to cooperate.

“Only with access to work papers of foreign public accounting firms can the SEC test the quality of the underlying audits and protect investors from the dangers of accounting fraud,” Robert Khuzami, Director of the SEC’s Division of Enforcement, said in a statement. “Firms that conduct audits knowing they cannot comply with laws requiring access to these work papers face serious sanctions.”

Sanctions imposed against the firms could result in the de-listing of their Chinese clients. The SEC says it is especially concerned about reverse mergers and foreign issuers. According to Bloomberg Businessweek, reverse mergers have less stringent disclosure requirements because they involve the purchase of an inactive listed company.

Statements from the accounting firms allude to the fact that they are caught in the middle between China and the US.

Regulatory uncertainty and the current economic climate have put a damper on IPOs or listing of Chinese companies in the US. New listings haven’t stopped altogether, however, as China Mobile Games and Entertainment Group and YY have hit the market in recent months.

The Chinese stock situation is beginning to feel like the Irresistible force paradox, but something will have to give eventually. At least for today, investors are wary of how this will play out.

(hat tip Seeking Alpha)

Image credit: Brian Glanz