The Securities and Exchange Commission announced today charges against a San Francisco based oil and gas company with fraud in connection with running a $68 million ‘Ponzi-Like’ scheme that targeted the Chinese American community in California and also in Asia. Unlike the most recent case announced on June 23rd (see http://discuss.ilw.com/content.php?4597-Miami-Vice-By-Matthew-Gordon), which did not involve any allegations of fraud, but the failure to be a registered broker dealer, this case is back to the SEC’s more typical charge of going after the naked criminality of lying to investors in order get them to part with their money. The case has many of the typical fraud bells and whistles: The issuer lied about their capability to engage in the described business and they subverted funds from the promised use (in this case to allegedly buy a luxury home).
Going after fraud to protect confidence in the US capital markets is the meat and potatoes of SEC enforcement. Given that, this type of action is not particularly notable, especially since the issuer in the present case was using a variety of public advertising media in the United States to solicit the public directly and potentially in potentially large numbers. It is curious that the Justice Department did not join in on the fray with a parallel criminal action. Unlike the previous action in Florida, in which the defendants agreed to charges as part of a settlement that one could fairly assume helped keep the Justice Department at bay, in the present case, other than the settlement of the company’s CFO and an unregistered broker, the main defendant company has not settled the charges (at least yet).
The most interesting aspect of the case is the expression of appreciation in the SEC’s press release for those who helped in their investigation. In addition to the usual players, the SEC thanked the Hong Kong Securities and Futures Commission, and the China Securities Regulatory Commission. This is the first public acknowledgement in the EB-5 context that the SEC is working directly with their counterparts in China and may suggest that the Chinese are finally starting to pay attention to what is going on inside their borders. The problem of Chinese migration agents acting with impunity in which they say and do anything to get EB-5 investors is common knowledge in the industry, but the SEC alone lacks the jurisdictional nexus to target these companies and individuals. With the Chinese securities regulators now cooperating with the SEC, these rogue elements of the EB-5 community will have nowhere to hide. Chinese efforts, in combination with a marked increase in US enforcement activity, portends well for the groundswell of activity that is needed to rid the EB-5 program of the bad actors that threaten the entire program.
For a copy of the SEC’s press release, see: http://www.sec.gov/news/pressrelease/2015-141.html
For a copy of the SEC’s order related to those defendants who settled, see: http://www.sec.gov/litigation/admin/2015/34-75362.pdf
Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog