In a recent CNBC interview, billionaire investor Mark Cuban argued that Alibaba (NYSE:BABA) shouldn’t have been allowed to list in the US—citing the difficulty of enforcing US insider trading laws for companies that are based in a communist country like China.

“If someone calls up someone at Alibaba and says ‘OK, I’m this bigwig and oh by the way you can tell me what’s going on with Alibaba or let me tell you about the new gulag we just built in southern China.’ There’s no choice. What are they going to say, ‘No, I’m violating insider trading laws in the United States?’ They’re not going to.”

Apparently, Mr. Cuban has a good point. In spite of all the reforms, the Chinese Communist Party continues to remain the gatekeeper of every industry, deciding who will be in what business and for how long. That certainly makes it very likely that someone high up in the government trades favors for inside information with executives of publicly listed corporations.

But shouldn’t the same be said for US listed companies based in Latin America, Europe, and Japan, where they usually enjoy cozy relations with government?

Who is to draw the line, the SEC or the financial markets?

The financial markets. As is well known in basic economics and finance, markets are discounted mechanisms. They discount every piece of public knowledge and information about different companies, including their home base, governance issues, and accounting practices.

The problem is, however, that emotionally charged investors often choose to conveniently ignore this basic principle, treating foreign listed stocks the same as US stocks.

That’s what happened back in the early 2000s, when investors chased after the first wave of Chinese stocks listed in the US, ignoring a controversial Chinese corporate structure, Variable Interest Entity (VIE). This structure allowed Chinese companies to list their shares in US Exchanges through “reverse mergers”—a practice that eventually came under the scrutiny of US regulators four years ago, after a string of accounting irregularities among these companies.