Bob Cornish: One thing I’ve seen issuers put too much reliance on is the fact that they’ll provide the investor with the marketing materials at the same time that they provide the PPM, which actually is very good, however, giving out the PPM doesn’t shield you from any potential liability from misstatements made in the marketing materials.
There are dozens of SEC and FINRA enforcement actions where people have been brought to task for the distribution and use of misleading marketing materials on everything from basic stocks to mutual funds. If you go to the SEC website, these mutual funds have more disclosure than anything you’d ever see. These things need to be handled with care.
Kurt Reuss: John, could you talk a little about some of the more surprising situations that you’ve come across in EB5 which were related to marketing materials?
John Leo: Giving up complete control to your partner in China. I think they should be viewed as a partner, whereby you’re both on the same page. We’ve been involved in transactions where we’ve had conference calls with the agent and the issuer and they acted as partners, they followed the same procedures. With other clients however, we’ve been told, “Do not contact the agent. Do not get involved in this relationship.”
There’s a big divergence in what the issuers find acceptable or what the agents find acceptable and ultimately it’s going to fall on the issuer. They need to control their information. They need to control the process. If they take that position, they’ll stay away from any problems. Once you give up control and allow in a third party that’s not familiar with these regulations and with US law and the SEC, that’s got the potential to be a major problem. The bottom line is you don’t want to give up control of the information.