Banana Republic

Kushner Companies EB-5 Activities in China Constitute Securities Fraud
BY GARY CHODOROW

As has been widely reported, Kushner Companies recently put on a roadshow to market to Chinese investors a New Jersey real estate project called One Journal Square. 

The investments are structured such that investors may qualify for green cards through the EB-5 program, which requires a minimum $500,000 investment resulting in the creation of at least 10 U.S. jobs.
Initial reporting about the roadshow led the Kushner Companies to apologize last week for boasting about their ties to White House adviser Jared Kushner during the roadshow. 

“In a sector where investors are wary of failing projects and policy changes that would jeopardize their visas,” writes Alexandra Harney for Reuters, such boasts are meant to “reassure potential investors their EB-5 projects will be successful.”
Reuters is now reporting that Kushner Companies’ activities may have crossed the line from boasting to misrepresentation, making the company vulnerable to charges of securities fraud by the U.S. Securities and Exchange Commission (SEC). 

Specifically, advertisements by the company’s marketing agent in China contain multiple misrepresentations about the safety of the investment.
Kushner Companies’ marketing agent, QWOS Group, also known as Qiaowai, produced an online advertisement claiming that the investment “in a real sense guarantees a permanent green card and the safety of the investment principal.” 

After Reuters asked Qiaowai for comment, the advertisement was deleted. 

Other advertisements for the project made similar false claims.
The SEC enforces Section 10(b) of the Securities and Exchange Act of 1934, and Rule 10b-5, codified at 17 C.F.R. 240.10b-5, which target securities fraud. 

EB-5 investments are frequently structured as a type of “security” subject to the antifraud provisions of federal securities laws, according to SEC congressional testimony. 

Rule 10b-5 makes it unlawful to “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.”
Qiaowai’s advertisements violate the rule in two ways. 

1. First, EB-5 investments are financially risky, not guaranteed. The immigration law specifically prohibits investments where the money is not at risk. 
2. Second, there is no guarantee that an investor will actually get a green card. There are a host of reasons why an investor could be denied a green card. 

Some are related to the investor, such as health issues, membership in the Communist Party, inability to prove that the funds invested were earned legally, prior U.S. immigration violations, etc. 

Some are related to the project, such as failure to employ the required number of U.S. workers, or delays or changes to the project.
In a jointly issued Investor Alert, USCIS and SEC warn against precisely these types of misrepresentation:
Beware if you spot any of these hallmarks of fraud:
Promises of a visa or becoming a lawful permanent resident. 

Investing through EB-5 makes you eligible to apply for a conditional visa, but there is no guarantee that USCIS will grant you a conditional visa or subsequently remove the conditions on your lawful permanent residency. 

USCIS carefully reviews each case and denies cases where eligibility rules are not met. 

Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.
Guaranteed investment returns or no investment risk. 

Money invested through EB-5 must be at risk for the purpose of generating a return. 

If you are guaranteed investment returns or told you will get back a portion of the money you invested, be suspicious.
Kushner Companies may not be shielded from liability just because they hired Qiaowai rather than doing the marketing themselves. 

They may be liable for the actions of their agents, sometimes referred to in the industry as “finders.” Securities lawyers advise that developers should know the parties marketing their deal abroad. 

The best practice is to have a clear agreement with the agent in which the agent agrees to comply with securities laws and to provide all marketing materials to the developer’s securities counsel for review before publication.
The SEC did not respond to questions by Reuters about Qiaowai’s ads.
Besides the One Journal Square project, Qiaowai previously helped the Kushner Companies raise funds for Trump Bay Street, an apartment complex in Jersey City, New Jersey, that The Trump Organization licensed its name to.

Why China is loath to pursue US probe into JPMorgan hiring

‘Princeling’ hiring scandal exposes nexus of corruption between party and Wall Street
By Tom Mitchell in Beijing


The Chinese Communist party’s corruption watchdog has a tricky problem that the US Securities and Exchange Commission, of all organisations, may be able to help solve.
The Central Commission for Discipline Inspection (CCDI) has been a victim of its own success when it comes to catching “tigers” — Chinese government, military and state-owned enterprise officials with vice-ministerial rank or higher.
When you have bagged, on average, more than 50 tigers a year for three years running, the public expects the skins to keep coming. 

But that is easier said than done, even in a country where corruption flourished as much as it did before the launch of Xi Jinping’s anti-corruption campaign in 2013.
This is where the SEC could come in. 

All the CCDI needs to do is start pulling on some of the threads recently unravelled by the US securities regulator.
Last week the US regulator accepted a $264m settlement offer from JPMorgan, which admitted to running a sophisticated jobs-for-mandates scheme. 

Chinese “princelings” — the progeny of China’s most senior government officials and executives at state-owned enterprises — were granted jobs or internships in return for which the same officials and executives steered business towards the US investment bank.
According to the SEC, at least 100 “referral hires” on behalf of Chinese officials at more than 20 SOEs and 10 government agencies yielded JPMorgan tens of millions of dollars in investment banking revenues.
It constituted a blatant violation of the US Foreign Corrupt Practices Act. 

The SEC’s 26-page summary of JPMorgan’s “Sons & Daughters” programme would be amusing were it not so outrageous.
Some of the referral hires were so incompetent they were referred to internally at JPMorgan as “photocopiers”. 

Contracts often ran from mid-January until mid-December so the hires would not show up on end-of-year headcount tallies — and were renewed only if the mandates kept coming.
Chinese officials have been given very long jail terms for less.
Two years ago, Liu Tienan, a former vice-minister at China’s powerful economic planning agency, the National Development and Reform Commission, was sentenced to life in prison after he and his son were charged with accepting bribes totalling Rmb36m, or $5.2m at the current exchange rate.
The bribes included a shareholding in a car dealership for Liu Junior. 

The arrangement was facilitated by a state auto executive whose company was regulated by NDRC.
Just $5.2m in alleged bribes? 

What amateurs. 

In last week’s settlement with JPMorgan, the SEC documented more than $100m in investment banking revenues attributable to the jobs-for-mandates scheme.
The CCDI could easily increase its tiger count if it asked some awkward questions of the Chinese executives and officials who directed more than $100m in state funds JPMorgan’s way so their sons and daughters could work or take internships there.
However, there are a few reasons why the party’s corruption investigators are unlikely to pick these low-hanging fruit.
It is one thing when official graft involves state-owned enterprises. 

That does not surprise the average man or woman on the Chinese street. 

But a corrupt intersection between the Chinese Communist party and Wall Street? That is too sensitive a connection.

The CCDI also likes to control its corruption investigations start-to-finish, and there is no telling where some of the SEC’s threads might lead.
In one example of the often collusive nature of Chinese corruption, a government official was able to get his son an internship in JPMorgan’s Hong Kong office but not a coveted analyst position in New York. 

So the official asked for help from an executive at a Chinese SOE, who joined the eventually successful lobbying effort.
The whole sorry saga does, however, highlight one big difference between Chinese and American justice. 

When Chinese officials find themselves in the CCDI’s crosshairs, they often spend the rest of their lives behind bars. 

When investment bankers are targeted by Uncle Sam, their employers just pay a fine.