There’s an old adage on Wall Street that says to get news of bad news out on Friday and good news on Monday, the logic being that after trading on Friday, the weekend will lessen the blow when trading resumes on Monday. It seems the SEC in its settlement with CMB on Friday, September 21 st, was rather polite and nice to CMB by waiting to issue its press release until a Friday afternoon.
You can find a copy of the SEC press release here: https://www.sec.gov/news/press-release/2018-208
Assuming the factual allegations of the SEC are true, it is not terribly surprising that in substance the settlement seems to have let CMB get away with years of misdeeds by literally over three dozen of their project entities. In sum, the settlement called for a payment of a little over $11.8 million. While a significant sum in one sense, in another, it’s quite insignificant in the context of a company that has raised hundreds of millions of dollars if not billions of dollars in the EB-5 program in which it flouted the US Securities laws for years. On a technical note, the order alleges violations of both the ’33 and ’34 Acts.
The fine, in the context of CMB’s overall business, amounted to nothing more than a sales tax or rounding error. It’s a shame that the SEC chose to go easy on what seems to be such a flagrant violator of the US laws. They had the opportunity to send a strong message and they missed it. From this action, the market has undoubtedly heard that if you are big enough, if you can lawyer up enough and if you can pay what seems like a large enough number, you can get away with it and treat lack of compliance with US securities laws merely a cost of doing business.
In previous articles I’ve written about the nature of the SEC actions in the context of ‘victimless’ crimes. In this action, no one is alleging fraud or that the projects themselves were not conducted properly. What occurred here was a system of non-compliance in order to create a large and successful business. Here CMB did such a good job, they literally helped create a robust market in China for EB-5 investments. The harm, if the SEC allegations are true, is that the market that was created was a monster, where unregulated agents followed no rules in order to sell. Until retrogression pulled the rug out from the Chinese market, it was a fiasco. The market itself had been trained to hold the ‘US rules’ in distain. The victim was the market.
While CMB and its agents may not have committed outright fraud, their actions, if the SEC is to be believed, helped set the stage for an ecosystem where others took advantage of the lawless environment to abuse unsuspecting and unprotected investors.
Interestingly, if the allegations are true, the investors who entered into transactions by way of unregistered agents now have the right of rescission against CMB. As I pointed out in a previous article, this rescission right could be interpreted by USCIS as a redemption right that is illegal under Izumi and use that as a basis to deny pending I-526 and I-829 petitions. Then again, if some of the CMB investors are waiting in the 10 year (or longer) queue, they may want to get out earlier than their contracts otherwise provided.
Matt Gordon is a noted policy expert in the visa-based investments field and is an authority on structuring visa-based investments. Mr. Gordon’s career spans business operations, finance and law. He is the editor of the EB-5 Book, the legal treatise on the EB-5 program and a frequent lecturer to immigration attorneys. Mr. Gordon has participated in policy events, including those hosted by the White House and Harvard University’s Kennedy School of Government. Prior to founding E3iG, Mr. Gordon was an investment banker for a decade and ran the US division of a Swiss multi-national corporation. Mr. Gordon is a licensed attorney, having practiced mergers and acquisitions law at the beginning of his career with the largest and most reputable Wall Street firms including Fried Frank and Sullivan & Cromwell. Mr. Gordon received his B.S. in Policy Analysis from Cornell University and his J.D., cum laude, from the University of Pennsylvania School of Law.