GEO Investing

EB-5 programAmericans should be proud of the performance of the U.S. Securities and Exchange Commission (SEC) in stopping fraudulent immigration investment schemes targeting foreign investors.  Chinese investors, in particular, have been targeted by fraudsters offering fake investments touted as a pathway to U.S. residency under the EB-5 program administered by the U.S. Citizen and Immigration Service (USCIS).

It is high time for the China Securities Regulatory Commission (CSRC) to extend the same protection to U.S. investors conned by fraudulent Chinese investment schemes.

EB-5 Program Helps Foreign Citizens Qualify For U.S. Residency

For those unfamiliar with the EB-5 program, it is a USCIS program wherein foreign citizens may qualify for U.S. residency if they make a qualified investment of at least $1,000,000 in a specified project (or at least $500,000 in a Targeted Employment Area), creating or preserving at least 10 jobs for U.S. workers excluding the investor and their immediate family.

In the most notable recovery, SEC v. A Chicago Convention Center, et al., the SEC halted an alleged $158 million fraud primarily targeting Chinese investors and returned nearly all of the money ($147 million) to the investors. The SEC said that the American fraudsters lured the Chinese investors with a hotel and conference center development scheme in Chicago.  The fact that the Chinese investors were nearly made whole on their investment is a remarkable achievement by the SEC, which acted quickly on a tip provided by a whistleblower.

The fraudulent Chicago hotel investment scheme sounds similar, though smaller, to the dozens of China based investment frauds over the past 7 years touted to U.S. investors through back-door listings on U.S. exchanges. In contrast to the EB-5 schemes busted by the SEC, U.S. investors in Chinese frauds have been wiped out while significant restitution has never occurred.

The Chairman of one of the most notable Chinese frauds, Puda Coal, looted hundreds of millions of dollars from American investors only to be promoted to a membership in the Eleventh Standing Committee of the Chinese People’s Political Consultative Conference in Shanxi, China. Zhao’s ascendancy in China flies in the face of a $250 million judgment the SEC won against his company that can never be collected upon without the help of Chinese authorities. On essentially all occasions, Chinese C-level executives have been allowed to get away with fraud while keeping the money they steal.

Chinese authorities have repeatedly objected to any obligation to regulate and protect investments in U.S. listed Chinese companies, despite the fact that virtually all of the operating subsidiaries and management committing the fraud are based in China.  Fraudsters like Puda’s Ming Zhao should be facing jail time in China, and Chinese authorities should force them to compensate U.S. investors, just as the SEC has recovered funds for Chinese investors.

To date, the only Chinese U.S. listed company executive to be jailed for his crimes was Dickson Lee, CEO of L&L Energy.  The fact that Mr. Lee is a U.S. citizen certainly made his capture and arrest easier. However, the troubling lack of any cooperation from Chinese authorities ensured that whatever assets L&L had in China will never be recovered by U.S. investors wiped out by Mr. Lee’s scam.  Lee plead guilty in U.S. court and was sentenced to five years in prison. Had he been a Chinese citizen he, like all the others before and after him, would likely continue to live free, beyond our laws and beyond punishment for his crimes.

The question we should have for the Chinese government is: Why is it illegal in the U.S. for fraudsters to steal from Chinese investors, but in China fraudsters are not prosecuted for, stealing from U.S. investors? This question may sound harsh, but after years of outright theft from U.S. investors with no restitution, I’m afraid that this is what we are left with.

We must insist on reciprocity in whatever way we can get it. Let us start with the aforementioned EB-5 investor money recovered by the SEC. Maybe these funds should not be returned to the Chinese investors until the Chinese government agrees to start to recover the billions that have been stolen from U.S. investors. While this may not improve our relationship with China in the short term, I assure you it will call their attention to this inequity, and perhaps lead to more equal enforcement of anti-fraud laws for investors.

  • Dan David, Co-Founder, GeoInvesting, LLC

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