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Who Controls the Translation of the PPM?

March 10, 2015

MICHAEL HOMEIER, ROBERT CORNISH, JULIAN MONTERO, JOHN TISHLER

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Michael Homeier
Securities Attorney, Homeier & Law

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Robert Cornish
Securities Attorney, Phillips Lytle

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Julian Montero
Securities Attorney, Arnstein & Lehr

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John Tishler
Securities Attorney, Sheppard Mullin

Julian Montero: With respect to translating the PPM into foreign languages, IIUSA adopted in its Best Practices a standard that PPMs should be fully translated although it’s clear that the English language document should control. Bob how do you feel about that and whether it poses a particular risk and whether it should be avoided?

Bob Cornish: The usefulness of the PPM being translated is really only as good as the translation itself. I can’t tell you how many times someone has asked me whether they can just run it through Google Translator. The resulting document regarding risk disclosure could be talking about the color of the hanger in the closet for all you know and that’s something you certainly want to avoid.

If you are going to get a PPM translated, and you should, make sure that you’re using a certified translator. Court translators or document translators that lawyers use on a regular basis can certify the translation.

Clearly the language of business and the parlance of securities disclosure requires something more than a Google Translator but there are just some words that don’t translate and your English document should govern.

Mike Homeier: I totally agree. If our goal is to help our clients make full disclosure to investors and do it in 'Plain English' and maybe 'Plain Mandarin', if there is such a thing, certainly helping investors understand by having documents translated by a reliable translation service into the native tongue is a step in the right direction. We can't control and have no practical way of knowing if the translation of our client’s documents is a good translation or not. We always say the English language version will control, the idea being we know what we are saying in English and we’re going to be protected or hung out to dry on the basis of what we’re saying in English.

Lawyers can get into trouble if they are trying to be too cute and walk too fine a line between making a disclosure and casting it in a softer and gentler way. Lawyers may pride themselves on their ability to turn phrases that work well in English by giving bad news without making it seem too bad and those kinds of nuances can be lost entirely in foreign translations with items either coming across as overly heavy-handedly negative or less negative about warning of risk factors than they should.

It’s really essential to get an excellent translation service as Bob was talking about so that the lawyers trying to turn these nice phrases and straddle between the marketing and the disclosure in a PPM, don’t lose what their effort was supposed to do.

Julian Montero: What happens when you have a client that is primarily focused on the Chinese market and they are going through a registered agent in China who tells the the Issuer that they (the foreign agent) will be responsible for and pay for the translation. How do you advise your U.S. issuer? 

John Tishler: I will tell you I’m quite uncomfortable with having an agent control the translation. I think agents are very good at what they do but I’m not sure that one of the things that they should do is translate technical securities documents.

Even if the documents are in plain English, they are still technical. It’s a mistake to think that ‘Plain English’ is somehow soft and fuzzy. ‘Plain English’, when done well, is very precise. Ironically it’s often more expensive to draft in ‘Plain English’ than in legalese because it is very precise and yet at the same time you’re taking care of the suitability concern. Handling that off to an agent is very risky.

The word agent has a legal meaning in the law. Agent means they are authorized to act for you and so if you hand something off to an agent you’re responsible for what they do, yes you can get an indemnification agreement that may or may not help you down the road but I think at the end of the day it will be hard to argue that I’m not responsible when the translation was either just inexpertly done or maybe, I hope nobody would do this, but even deliberately mis-done because somebody didn’t like the disclosures so they just changed it in the translation. 

One other thing that I will add is that an additional layer that some of our clients do and it’s not cheap but it’s valuable is that you can have a securities lawyer who is bilingual, review the translation. We do that here in Sheppard Mullin because we have bilingual securities lawyers in our China offices and that’s the best way to make sure that those nuances that Mike was talking about aren’t lost. 

In the scheme of how much money we’re raising and how much liability there is, the cost of that is not that high. However in the scheme of potentially very low expectations of transaction cost that can cause some sticker shock for people. It is absolutely available. There are I think in every language that EB5 has ever been done you can find a bilingual securities attorney who can review the translation. 

Bob Cornish: John, if you have an agent doing the translation, would you believe that would be a conflict of interest that would need to be disclosed in the PPM? 

John Tishler: I have to say I’ve never been asked that and I guess I don’t really know the answer whether it’s a conflict. Its an interesting question. 

Kurt Reuss: And how would they translate that? 

Julian Montero: We advise our clients, the issuers, to control their translations. 

Mike Homeier: In our experience there is a fear that the agents are going to just translate in a way that diminishes the negative and overemphasizes the positive and a lot of the larger agents we’re working with are being very good about not going in that direction. These are long term player that are here to stay and they recognize that even though they are across the ocean and the SEC can’t reach them directly, they know the Issuers are ultimately responsible, and of course that’s the bottom line which is it always comes back to the issuer.

The issuer is going to get blamed if there is a problem and it may not be that they get in trouble for a bad translation but it can be the straw that breaks the back if the SEC is coming after the issuer or if private attorneys are bringing litigations against the issuer. 

Bob Cornish: I’d like to note that last week the SEC actually delisted about 128 companies I believe, most of them Chinese-based and coincidentally the SEC issued their cease and desist order not only in English but in Mandarin, the first time I’ve seen it.

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