Eternal Chinese

China-backed buyout fund founder charged in U.S. insider trading case

By Liana B. Baker
China's fifth column: Canyon Bridge Capital Partners

SAN FRANCISCO -- The founder of a private equity firm with Chinese state backing has been charged with insider trading related to the attempted acquisition of Lattice Semiconductor Corp, U.S. authorities said on Monday.
The charges against Benjamin Chow represent a major blow to the buyout firm he created just last year, Canyon Bridge Capital Partners, with capital from China Reform Holdings, a Chinese state-back fund. 

The indictment comes as Chow’s fund Canyon Bridge seeks to close its 550 million pound ($737 million) acquisition of British chipmaker Imagination Technologies Group Plc, after its $1.3 billion takeover of Lattice was blocked by U.S. President Donald Trump last month over national security concerns.
The Acting United States Attorney for the Southern District of New York and the Federal Bureau of Investigation said on Monday that Chow had conspired to commit securities fraud by sending material nonpublic information regarding the Lattice deal to an unnamed friend and former colleague.
A separate indictment by the U.S. Securities and Exchange Commission in February against that former colleague of Chow identified him as Michael Yin, a former Hong Kong-based private equity executive who had become a hedge fund manager.
Chow, a U.S. citizen born in China, is accused in the new indictment of tipping off Yin, who reaped $5 million of profit thanks to knowledge that the deal was in the works. 

Yin and China Reform Holdings could not be reached for comment.
Chow, 46, passed along information to Yin at in-person coffee meetings in Beijing, voice messages and text exchanges ahead of the announcement of Canyon Bridge’s deal to buy Lattice.
A Canyon Bridge spokesman said in a statement that it was aware of the indictment and that it is focused on completing its planned acquisition of Imagination. 

The fund added that it is not itself subject to any investigation.
Imagination did not immediately respond to a request for comment. 

Lattice declined to comment.
The indictment also said that Chow lied to the Financial Industry Regulatory Authority in response to inquiries in April about possible insider trading.
The charges against Chow carry a potential prison sentence and maximum fines of $5 million.
Canyon Bridge's funding can be traced back to China's State Council, the top decision-making body of the government, Reuters has previously reported. 

Canyon Bridge has been trying this year to attract investors from outside China. 

The indictment against its founder could represent a hurdle to these efforts.
Another Canyon Bridge partner, Ray Bingham, has also faced problems. 

The tech veteran joined Canyon Bridge last year but had to leave the boards of several tech companies, including Oracle Corp ORCL.O, due to concerns about his involvement with a firm with links to the Chinese state. 

Bingham could not be reached for comment Monday.

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.