E-Mails exchanged between Michael Gibson and State of Vermont Officials

On Mar 15, 2012 8:58 AM, "Candido, James" <James.Candido@state.vt.us> wrote:
Michael,
 
Thanks for the email.  I am taking this to our agency council this morning for review, and will plan a course of action in terms of addressing these concerns.  Thanks, and I will make sure to let you know of the developments.
 
James
 
James W. Candido
Vermont Agency of Commerce and Community Development
National Life Building
Montpelier, VT 05620-0501
(802) 828-3637
(802) 598-8043 CELL
(802) 828-3258 FAX

 

From: Michael Gibson <michael@usadvisors.org>
Date: Thu, Mar 15, 2012 at 6:24 PM
Subject: RE: Jay Peak Issues
To: "Candido, James" <James.Candido@state.vt.us>

James,
Thank you very much for looking it this it is appreciated and I am happy to do the best we can to produce a balanced piece so thank you for taking an active interest, that is already a big change and step in the right direction, good luck!

 

Date: Fri, Mar 16, 2012 at 9:49 AM
Subject: EB5
To: "michael@usadvisors.org" <michael@usadvisors.org>
Cc: "Candido, James" <James.Candido@state.vt.us>

Hi Michael
 It’s been a while since your travels brought you to Vermont.  Hope all’s well.
 
James Candido and I have discussed your March 14th email regarding Jay Peak Resort’s EB5 project.  As you may recall from your visit to our Agency’s offices here in Montpelier, we, as EB5 Regional Center administrators, provide promotion, administrative support and oversight related to EB5 projects going forward within ACCD’s Regional Center.  When the need arises for expertise we don’t possess, we secure it from outside ACCD.  So, as you can understand, we wouldn’t possess any forms or records related to securities laws and regulations.
 
With respect to your other request for certain records you described as the  Master Agent Agreement between Jay Peak and Rapid Visas, we do not have a copy of that document.  With respect to other information you identified in your email related to the Jay Peak Resort EB5 Project and Rapid Visas, I would suggest you contact those parties directly.
 
As I’m sure you can imagine, we are proud of our EB5 Regional Center and have worked hard to earn the high regard we enjoy among all EB5 programs.  We remain optimistic that Congress will continue the EB5 program – a tool that has helped us bring jobs and exciting new economic development projects to Vermont.
 
Thank you for your correspondence.  Let us know if you’ll be back in Vermont again someday.
 
JK
 
John W. Kessler
General Counsel
Agency of Commerce and Community Development
National Life Bldg., 6th Floor
Montpelier, VT  05620
(802) 828-5202

 

From: Michael Gibson [michael@usadvisors.org]
Sent: Tuesday, March 27, 2012 1:26 PM
To: Candido, James
Subject: Status?

Hi James,
Any luck with a response to our concerns?  I have some folks in the media from VT asking me about this and I would like to say that I have additional information from VACCD before expressing our concerns to them.  Could you please give me some guidance?

Best wishes,
Michael

Michael Gibson, Managing Director
Registered Investment Advisor CRD #157403

 

On Tue, Mar 27, 2012 at 1:53 PM, Candido, James <James.Candido@state.vt.us> wrote:
Michael,

concerns are in process and you should receive some response soon.  right now its following the course of due process but let me  know if you want more info and I can have john kessler engage with you again.  Thanks michael,

James

 

From: Michael Gibson <michael@usadvisors.org>
Date: Tue, Mar 27, 2012 at 3:26 PM
Subject: Re: Status?
To: "Candido, James" <James.Candido@state.vt.us>

James,
Super, right now the principal concern, to address the payments of fees to non-registered persons, do you have any Form D fillings for Jay Peak offerings?  Our research into EDGAR shows no filings which would be a problem, can you or John address that question now?  If they have filed the Form D for their offerings, could you please send those (public record) URL's or scanned copies of the filings?  
 
My sense, on the record, is that they never filed a Form D for any of their Reg. D offerings because they did not want to answer the questions concerning the payments of commissions to agents.  There may be other reasons, and you can provide those as well, but without the Form D in place, there will be consequences for them, the investors and I believe for the State of Vermont.  
 
http://www.sec.gov/edgar.shtml
 
http://www.sec.gov/answers/rule506.htm
Filings & Forms

All companies, foreign and domestic, are required to file registration statements, periodic reports, and other forms electronically through EDGAR. Anyone can access and download this information for free. Here you'll find links to a complete list of filings available through EDGAR and instructions for searching the EDGAR database.

http://www.sec.gov/answers/regd.htm

Regulation D Offerings

Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (or Reg D) contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC. For more information about these exemptions, read our publications on Rules 504, 505, and 506 of Regulation D.

While companies using a Reg D (17 CFR § 230.501 et seq.) exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what’s known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s executive officers and stock promoters, but contains little other information about the company.

In February 2008, the SEC adopted amendments to Form D, requiring that electronic filing of Form D be phased in during the period September 15, 2008 to March 16, 2009. Although as amended, the electronic Form D requires much of the same information as the paper Form D, the amended Form D requires disclosure of the date of first sale in the offering. Previously, disclosure of the first date of sale was not required. The Office of Small Business Policy has posted information on its web page about the filing requirements for the new Form D.

If you are thinking about investing in a Reg D company, you should access the EDGAR database to determine whether the company has filed Form D. If you need a copy of a Form D filed as a paper filing (which will include any Form D filed before September 15, 2008) that has not been scanned into IDEA, you can request a copy using our online form. If the company has not filed a Form D, this should alert you that the company might not be in compliance with the federal securities laws

You should always check with your state securities regulator to see if they have more information about the company and the people behind it. Be sure to ask whether your state regulator has cleared the offering for sale in your state. You can get the address and telephone number for your state securities regulator by calling the North American Securities Administrators Association at (202) 737-0900 or by visiting its website. You’ll also find this information in the state government section of your local phone book.

For more information about the SEC’s registration requirements and common exemptions, read our brochure, Q&A: Small Business & the SEC.

http://www.sec.gov/answers/regd.htm
Rule 506 of Regulation D

Rule 506 of Regulation D is considered a "safe harbor" for the private offering exemption of Section 4(2) of the Securities Act. Companies using the Rule 506 exemption can raise an unlimited amount of money. A company can be assured it is within the Section 4(2) exemption by satisfying the following standards:

The company cannot use general solicitation or advertising to market the securities;
The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchases. Unlike Rule 505, all non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment;
Companies must decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws. But companies must give non-accredited investors disclosure documents that are generally the same as those used in registered offerings. If a company provides information to accredited investors, it must make this information available to non-accredited investors as well;
The company must be available to answer questions by prospective purchasers;
Financial statement requirements are the same as for Rule 505; and
Purchasers receive "restricted" securities, meaning that the securities cannot be sold for at least a year without registering them.
While companies using the Rule 506 exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what is known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters, but contains little other information about the company.

In February 2008, the SEC adopted amendments to Form D, requiring that electronic filing of Form D be phased in during the period September 15, 2008 to March 16, 2009. Although as amended, the electronic Form D requires much of the same information as the paper Form D, the amended Form D requires disclosure of the date of first sale in the offering. Previously, the closing date of an offering was used as the first date of sale. The Office of Small Business Policy has posted information on its web page about the filing requirement for the new Form D.

If you are thinking about investing in a Reg D company, you should access the EDGAR database to determine whether the company has filed Form D. If you need a copy of a Form D filed as a paper filing (which will include any Form D filed before September 15, 2008), you can request a copy using our online form. If the company has not filed a Form D, this should alert you that the company might not be in compliance with the federal securities laws

You should always check with your state securities regulator to see if it has more information about the company and the people behind it. Be sure to ask whether your state regulator has cleared the offering for sale in your state. You can get the address and telephone number for your state securities regulator by calling the North American Securities Administrators Association at (202) 737-0900 or by visiting its website. You’ll also find this information in the state government section of your local phone book.

For more information about the SEC’s registration requirements and common exemptions, read our brochure, Q&A: Small Business & the SEC.

http://www.sec.gov/answers/rule506.htm
http://www.sec.gov/info/smallbus/secg/formdguide.htm

Filing and Amending a Form D Notice

A Compliance Guide for Small Entities and Others*

Form D is a form to be used to file a notice of an exempt offering of securities with the Securities and Exchange Commission. Commission rules require the notice to be filed by companies and funds that have sold securities without registration under the Securities Act of 1933 in an offering based on a claim of exemption under Rule 504, 505 or 506 of Regulation D or Section 4(5) of that statute. Commission rules further require the notice to be filed within 15 days after the first sale of securities in the offering. For this purpose, the date of first sale is the date on which the first investor is irrevocably contractually committed to invest. If the due date falls on a Saturday, Sunday or holiday, it is moved to the next business day. The SEC does not charge any filing fee for a Form D notice or amendment.

Online Filing Required. Companies and funds must file their Form D notices and amendments with the SEC online, through the Internet, using the SEC's EDGAR (electronic gathering, analysis and retrieval) system. To file online using the EDGAR system, a company or fund must have its own filer identification number (called a "Central Index Key" or "CIK" number) and a set of password-like "access codes." You can obtain a CIK number and EDGAR access codes at any time, even well before your company or fund is ready to file its first online Form D notice. To get them, you must submit basic information about the filer to the SEC online at its Filer Management page and also submit a copy of a notarized paper document containing the same information on Form ID. The paper document is called an "authenticating document." You can submit it either by scanning and attaching or "uploading" it to the online submission in Portable Document Format (PDF) or by faxing it to the SEC at (202) 504-2474 or (703) 914-4240. If you want to upload it, you will have to prepare it and have it notarized before going online for your submission, using a blank paper copy of Form ID, and have it ready to attach to the submission in PDF. If you want to fax it, you can print out a copy of your online submission, have the printout notarized, and fax in the notarized printout. In general, uploading the authenticating document to your online submission should result in speedier assignment of your CIK number and EDGAR access codes, since internal SEC staff processing is reduced. On the other hand, faxing in a notarized printout of your online submission avoids the necessity of entering your data twice, once in completing the paper version of your authenticating document before you go online and then in entering the same information online. For more information on obtaining a CIK and EDGAR access codes, you may review the Commission staff's Guidance on Form D Filing Process. If you have questions about this guidance, you may contact SEC filer support personnel at (202) 551-8900 and choose Option No. 2.

Once you have a CIK number and EDGAR access codes, you can make Form D and other SEC filings online by logging in to the EDGAR system. You will have only one hour after your last keystroke to complete a Form D filing once you have logged in. Therefore, you will want to make sure you have all the information needed to complete the filing before logging in. You can compile the information using a paper version of Form D before entering it online. Once you have all the information you need, you can make your Form D filing by visiting the SEC's Online Forms Login page and logging in using your CIK number and EDGAR access codes. Once logged in, choose "Form D" under "Make a Filing" in the top left corner as shown in the sample image below.

Image removed by sender.

The online version of Form D will appear on your screen. The form provides all the instructions and other information you should need to complete and submit a Form D notice online with the SEC. Once you click the "Submit" button and submit your filing, you will receive an e-mail message notifying you of the status of the submission. If you have questions at this point in the filing process, you may contact SEC filer support personnel at (202) 551-8900 and choose Option No. 4.

Once your online Form D submission is accepted, you can obtain a printout of it by visiting the EDGAR Company Search page and entering appropriate search criteria.

Amendments to Form D Filings. A Form D filer may file an amendment to a previously filed Form D notice by indicating in the space provided on the form that the filing is an amendment rather than a new filing. A Form D filer should abide by the following guidance in determining whether it should file an amendment to a previously filed Form D notice:

·         A filer may file an amendment to a previously filed notice at any time.

·         A filer must file an amendment to a previously filed notice for an offering:

o    to correct a material mistake of fact or error in the previously filed notice, as soon as practicable after discovery of the mistake or error;

o    to reflect a change in the information provided in the previously filed notice, except as provided below, as soon as practicable after the change; and

o    annually, on or before the first anniversary of the most recent previously filed notice, if the offering is continuing at that time.

·         When amendment is not required: A filer is not required to file an amendment to a previously filed notice to reflect a change that occurs after the offering terminates or a change that occurs solely in the following information contained in a previous Form D notice or amendment:

o    the address or relationship to the issuer of a related person identified;

o    an issuer's revenues or aggregate net asset value;

o    the minimum investment amount, if the change is an increase, or if the change, together with all other changes in that amount since the previously filed notice, does not result in a decrease of more than 10%;

o    any address or state(s) of solicitation for a person receiving sales compensation;

o    the total offering amount, if the change is a decrease, or if the change, together with all other changes in that amount since the previously filed notice, does not result in an increase of more than 10%;

o    the amount of securities sold in the offering or the amount remaining to be sold;

o    the number of non-accredited investors who have invested in the offering, as long as the change does not increase the number to more than 35;

o    the total number of investors who have invested in the offering; and

o    the amount of sales commissions, finders' fees or use of proceeds for payments to executive officers, directors or promoters, if the change is a decrease, or if the change, together with all other changes in that amount since the previously filed notice, does not result in an increase of more than 10%.

Definitions of Terms Used in Form D. Terms used but not defined in Form D that are defined in Rule 405 or Rule 501 under the Securities Act of 1933, 17 C.F.R. § 230.405 or 230.501, have the meanings given to them in those rules. More specific information on these definitions may be found in the Guide to Definitions of Terms Used in Form D.

State Form D Filings. Many states also require the filing of Form D notices and amendments, and most of them charge a filing fee. For information on state Form D filing requirements, visit www.NASAA.org to get links to the proper state web sites. State web sites contain bulletins providing details on filing requirements and a contact person for specific questions. At the present time, all states that require Form D filings accept paper filings only; none permit online filings. You may be able to satisfy state Form D paper filing requirements using a printout of your SEC online Form D filing retrieved from the EDGAR Company Search page and submitting it along with the appropriate fee. You also may be able to satisfy such requirements by completing and submitting a paper version of Form D along with the appropriate fee.

Additional Information on Form D Processing. The staff of the SEC's Division of Corporation Finance is available to assist small companies and others with questions on filing and amending Form D notices. Our Guidance on Form D Filing Process may answer your questions on the EDGAR Form D filing process. You may direct additional questions on the process to SEC personnel by telephoning (202) 551-8900.

Additional Information on Form D Legal Requirements. The staff of the SEC's Division of Corporation Finance has published interpretations of Rule 503, 17 C.F.R. § 230.503, which imposes the SEC Form D filing requirement in most instances, in Section 257 of its Securities Act Rules Compliance and Disclosure Interpretations, and interpretations of the requirements of Form D itself, in Section 130 of its Securities Act Forms Compliance and Disclosure Interpretations. You may obtain answers to other interpretive legal questions relating to Form D by contacting the SEC's Office of Small Business Policy at smallbusiness@sec.gov or (202) 551-3460.

* This guide was prepared by the staff of the U.S. Securities and Exchange Commission as a "small entity compliance guide" under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.

http://www.sec.gov/info/smallbus/secg/formdguide.htm

Best wishes,
Michael
Michael Gibson, Managing Director
Registered Investment Advisor CRD #157403

 

From: Terenik Koujakian [mailto:terenik@gmail.com]
Sent: Thursday, March 29, 2012 3:39 PM
To: Cronin, John
Subject: Jay Peak EB-5 Investment

John,
Michael Gibson gave me your contact information.
I have a client who invested in Jay Peak for an EB-5 visa. The I-526 was just recently approved.
However, Michael sent me an email from Rapid USA regarding Jay Peak, which caused my client serious concern.
Please call me at 818-990-7454 or provide me a telephone number where I can reach you to discuss Jay Peak.

--
Thanks,
Terenik Koujakian

 

On Thu, Mar 29, 2012 at 4:00 PM, Cronin, John <John.Cronin@state.vt.us> wrote:

Terenik-
Thank you for reaching out to me.  To be very clear the Vermont Securities Division is not conducting an investigation of Jay Peak.  We are gathering information regarding some of their offerings.

I am interested in the offering documents provided to your client.  If you have a copy and are willing to provide it I would appreciate it.

Thanks,
John

John R. Cronin, C.F.E.
Securities Director
john.cronin@state.vt.us
802-828-4857

 

From: Michael Gibson <michael@usadvisors.org>
Date: Fri, Mar 30, 2012 at 12:08 AM
Subject: What is Rapid Visas and their relationship to the State of Vermont?
To: "Cronin, John" <John.Cronin@state.vt.us>

Hi John,
I am not sure that if you are aware, but Rapid Visas is still very much involved in raising funds for EB-5 Projects in Vermont, principally Seldon Water.  They essentially run your EB-5 promotional website: http://www.eb5vermont.com/ and they are still stating this:

http://www.eb5water.com/

There are many advantages in choosing an EB-5 Visa Program within the State of Vermont Regional Center.
The Seldon Technologies Clean Water Products EB-5 Visa Program has entered into a 'Memorandum of Understanding' with the Vermont Agency of Commerce and Community Development. 
Highlights of this agreement are detailed below:
A formally designated 'Vermont Agency of Commerce and Community Development' (VACCD) Official to oversee and monitor the projects activities
USCIS notified in writing of designated official outlined in point above
Designated VACCD Official to assure project's compliance with U.S. Immigration Law and regulations concerning investments within a regional center in the EB-5 Visa preference category
Formal written reports required by VACCD every 90 days upon activites of the project
To someone from outside of Vermont, it still looks like there is an extremely close association with the State of Vermont, VACCD and Rapid Visas, an unregistered U.S. broker soliciting and marketing securities on behalf of the State.  One would assume that with such control and oversight of the project activity by VACCD and the State, there must also be the same level monitoring of agents handling or controlling EB-5 promotional activities for your securities offerings and surely there must be a contract with them for services and an understanding of how they will be compensated.  Could you please also look into the relationship with the State of Vermont, VACCD and this U.S. firm?

This is what they are stating on their website (which says EB5Vermont):

http://www.eb5vermont.com/about-us.php

We have helped people from over 56 different countries to understand the benefits of the State of Vermont EB-5 Visa Program. We are an acknowledged intermediary for the State of Vermont EB-5 Visa Program, the established gold standard in EB-5 Visa opportunities.

http://www.eb5water.com/about-us.php

We have produced this website to give you a comprehensive introduction to the Seldon Technologies Clean Water EB-5 Visa Program. We are the only authorised intermediary for the Seldon Technologies Clean Water EB-5 Visa Program.

About Us
At EB5 Water, we are dedicated to helping our customers capitalise on opportunities within the EB5 Visa program. We are the only approved and authorised intermediary for the Seldon Technologies Clean Water EB-5 Visa Program.

This website has been created by Regional Center Programs Ltd. of London, England to provide a comprehensive introduction to EB-5 Visa opportunities in the State of Vermont Regional Development Center.

Regional Center Programs Ltd. deal solely with all marketing and investor relations for the Seldon Technologies Clean Water EB-5 Visa Program.
The business planning for the Seldon Technologies Clean Water EB-5 Visa Program and related projects is handled by Rapid USA Visas Inc. of Florida USA, who are the exclusive business partners for the program.

question:  Who authorized this U.S. based unregistered broker "finder", what are their responsibilities and how are they paid for their services?  How are their activities supervised or monitored by the State of Vermont to ensure that they are in compliance with State and Federal securities laws?

I appreciate you taking the time to look into these issues, if you have any guidance for our audience we would appreciate hearing your thoughts on the above.  

Best wishes,
Michael
Michael Gibson, Managing Director
Registered Investment Advisor CRD #157403

 

From: Michael Gibson [mailto:michael@usadvisors.org] 
Sent: Thursday, April 04, 2013 1:18 PM
To: Kessler, John
Subject: Well done and questions
 
Hi John,
I wanted to say well done here: http://vtdigger.org/2013/04/03/state-pulls-plug-on-eb-5-project/?goback=.gde_3747690_member_228941268.  I am writing to say congratulations on that but also to follow up on our chats soon after the Rapid Visa letter on the projects that you oversee and the way capital is raised in VT.  The reason for the renewed attention is directly due to the recent IRCTC action by the SEC which we have covered here (and attached) 
 
http://usadvisors.uberflip.com/t/40491
http://usadvisors.uberflip.com/t/43215
 
but more to the point, this action: http://www.sec.gov/news/press/2013/2013-36.htm which has not received much attention but we are highlighting in our April edition.  This may shed some additional views: http://www.andrewskurth.com/pressroom-publications-969.html#page=1  
 
My question is how is it possible for a very tiny ski resort operator able to raise $600 Million for assets with a marginal market asset valuation in a way that is compliant with U.S. securities laws?  Our position is that it is not possible given the relationships and compensation agreements that are in place with agents and U.S. attorneys.  I see that VT and VACCD are doing the right thing with DreamLife, but what about past activities?  My sense is that there will be a very large amount of investors who will not be happy when they try to redeem their time shares on the market and will be give a fraction of the $500,000 that they invested and will hold VT taxpayers responsible for relief, or at least the litigators they hire will.   
 
Given the 2 hour call with the SEC and USCIS yesterday it was made quite clear that any party that is compensated in relation to the marketing, sale and promotion of U.S. securities must be registered (this is established law whether or not the activity took place off shore or not) and my question to you and the other VA officials is that does it not concern anyone in VT how the capital is raised?  I have a transcript and recording of the call in case you missed it.  
 
I am open to an on the record or off the record chat but we will be seeking a comment from someone in VT and VACCD regarding these issues in light of the SEC action and their recent involvement with the EB-5 program and as the State is so heavily involved in the promotion of these activities and the oversight http://vtdigger.org/2013/03/07/state-official-businessmen-head-to-china-for-two-week-trip-to-find-investors/ I think that it is a fair question to ask.  I hope that you can see why I am brining this us, as you say, VT really does serve as an example to the rest of the industry.  Your guidance on how the State views capital raising in past and future projects would be helpful for the rest of the industry stakeholders.  
Best wishes,
Michael
Michael Gibson, Managing Director
Registered Investment Advisor CRD #157403

 

From: Michael Gibson <michael@usadvisors.org>
Date: Thu, Apr 5, 2012 at 10:32 AM
Subject: Re: Jay Peak EB-5 Investment
To: "Cronin, John" <John.Cronin@state.vt.us>

Hi John,
I have a Vermont TV Station calling me shortly to discuss Jay and our concerns, have you had a chance to review them?
 
Also, I spoke with an attorney from a prestigious firm in Houston who is willing to provide you with investor documents.  They have clients in several of Jay's offerings and are willing to share that information with you, would you like an introduction?
 
last, have you seen this:
 
http://www.7dvt.com/2012vermont-eb-5-visas
 
Gibson has also suggested that Hulme and Stenger may have violated federal securities laws, arguing Jay paid a commission to Rapid USA for each investor recruited, though Hulme is not licensed to sell securities. Stenger argues that Hulme got an “administrative fee” — 85 percent of the extra $35,000 to $50,000 Jay charges each investor for advertising, processing and legal expenses — not a commission.

“There is absolutely no foundation to that,” Stenger says. “They do not have to be a licensed dealer-broker, because we’re not paying them a commission.”

According to Stenger, Gibson is merely retaliating against Jay Peak because the resort has refused to share proprietary information with Gibson’s firm or participate in his various business ventures.  

According to our understanding, if the fee was paid upfront and not connected to the sale of the security, then he is correct, it could be called whatever he likes.  Once the fee is paid UPON the sale of the security, ie. after the transaction has occurred and was contigent upon the sale, then he cannot call it what he likes, it is a commission.  What is your understanding and have you looked into the timeline of when these fees were paid?

Any success in finding the Form Ds?

http://www.jdsupra.com/post/documentViewer.aspx?fid=33271499-d783-4f7a-9e9e-024a61a1fa52

http://blogs.findlaw.com/in_house/2012/03/is-your-finders-fee-agreement-unenforceable.html?=features

http://www.furnarischer.com/finders_fee.html

http://www.insidecounsel.com/2011/12/28/regulatory-your-finders-fee-agreement-may-not-be-e

http://www.hg.org/articles/article_1603.html

In order to determine whether a person or entity acts as a broker, the SEC looks at the
activities that the person or entity actually performs. The SEC sets forth three questions, and if the person or entity answers any with a “yes” answer, they may need to register as a broker. The questions the SEC recommends using in this determination are:
- Do you participate in important parts of a securities transaction, including solicitation,
negotiation, or execution of the transaction?
- Does your compensation for participation in the transaction depend upon the amount or
outcome of the transaction? In other words, do you receive transaction-based
compensation?
- Do you handle the securities or funds of others?
Recently, the SEC elaborated on the scope of the definition of a broker. A person effects
transactions in securities by participating in such transactions “at key points in the chain of distribution.” Such participation includes assisting an issuer to structure prospective securities transactions, and participating in the order-taking or order-routing process. Factors indicating that a person is “engaged in the business” include: receiving transaction-related compensation; holding oneself out as a broker, as executing trades, or as assisting in settling securities transactions; participating in the securities business with some degree of regularity; and soliciting securities transactions. BondGlobe, Inc., 2001 SEC No-Act. Lexis 140 (February 6, 2001).

The Finder Exception to the SEC’s Broker-Dealer Registration Requirements
In the 1970’s, the SEC took the position that in certain circumstances a finder does not
actually engage in the purchase and sale of securities and, consequently, should not be
considered a broker. “[W]e have indicated that an intermediary who did nothing more than bring merger or acquisition-minded people or entities together and did not participate in negotiations or settlements between them probably would not be a broker in securities and not subject to the registration requirements of Section 15 of the Exchange Act.” Henry C. Goppelt dba May-Pac Management Company, 1974 SEC No-Act. LEXIS 2,415 at 2-3 (May 13, 1974).

The SEC narrowly tailored the circumstances in which a finder is not considered a
broker. If the finder takes too active of a role in the investment transaction, the finder will be considered a broker by the SEC. “On the other hand, an intermediary who plays an integral role in negotiating and effecting mergers or acquisitions that involve transactions in securities generally would be deemed to be a broker and required to register with the Commission.” 
The SEC required a finder to register as a broker-dealer when it appeared that the finder
did more than merely act as a finder in bringing together parties to transactions involving the purchase and sale of securities. The SEC noted that the finder:
- proposed to negotiate agreements involving transactions in securities;
- engaged in further activities to consummate the transactions, such as assisting the client in providing background and other financial information, arranging meetings, formulating offers and assembling incidental documents; 
- advised the selling client on any offer received; and
- received a commission based on the total consideration received by the seller.

Involvement in negotiations and the transaction.
In the mid-1980’s, the SEC took a broader, more permissible view of finders, exemplified
by a no-action letter to Dominion Resources, Inc. in 1985. The staff specifically points to the following set of proposed finder activities as acceptable finder activities:
- analyze the financial needs of an issuer;
- recommend or design financing methods and securities to fit the issuer’s needs;
- recommend a bond lawyer, underwriters, or broker-dealers for the distribution or
marketing of the securities in the secondary market;
- participate in negotiations;
- introduce an issuer to a commercial bank to act as the initial purchaser of securities and
as a stand-by purchaser if the securities could not be readily marketed by a broker-dealer;
- recommend a commercial bank or other financial institution to provide a letter of credit
or other credit support for the securities; and
- receive a negotiated fee that would generally not be payable unless the financing closed
successfully and that would not be based on the successful issuance of securities to the
public.

The SEC advised Dominion Resources that:
[The finder] will not bid on any issues of securities nor will it underwrite, trade or hold funds or securities of the issuer. Representatives of [the finder] will be available, as requested by the issuer, for consultation regarding the terms of the financing, preparation of the official statement and other matters leading to the closing, and in such capacity as consultant, may participate in discussions and meetings prior to the closing among the issuer, issuer’s counsel, bond counsel, the underwriter or broker-dealer, authority counsel, and any commercial bank standby purchasers. At any meetings prior to and including the closing, [the finder] will provide financial advice consistent with its role as a consultant, but will have no authority to represent any of the parties in the negotiations or to bind them to the terms of any agreement. While [the finder] might, upon occasion, as part of the
consultative, advisory and negotiating process articulate, explain or defend negotiating proposals or positions that have been adopted by its client or that [the finder] had recommended for its client’s adoption, [the finder should,] under all circumstances, act only on behalf of its client and subject to the discretion of its client and [should] not act as an independent middleman generally between the parties. Dominion Resources, Inc., 1985 SEC No-Act. LEXIS 2,511 at 5-6 (August 22, 1985).

Following its position in its 1985 no-action letter to Dominion Resources, Inc., the SEC did not require broker-dealer registration of a finder, acting as a business broker, whose activities consisted mainly of selling businesses that were going concerns. International Business Exchange Corporation, 1986 SEC No-Act. LEXIS 3,065 at 1-2. The SEC based its decision on the following factors:

- the finder had a limited role in negotiations between the purchaser and seller;
- the businesses represented by the finder were going concerns and not “shell”
corporations;
- only assets were advertised or otherwise offered for sale by the finder;
- transactions effected by means of securities conveyed all of a business’s equity
securities to a single purchaser or group of purchasers formed without the assistance of the finder;
- the finder did not advise the two parties whether to issue securities or assess the
value of any securities sold;
- the finder’s compensation did not vary according to the form of conveyance (i.e.,
securities rather than assets); and
- the finder did not assist purchasers in obtaining financing, except to the extent of
providing a list of potential lenders, such as banking and venture capital firms,
that expressed an interest in extending credit, at the request of the purchaser or
seller.Id. at 5-6; see also Victoria Bancroft, 1987 SEC No-Act. LEXIS 2,517 at 3 (August 9, 1987).

Thus, the SEC deemed a finder who had never negotiated the terms and conditions of acquisitions to be made for securities issued by the acquiring company not to be a broker.

International Business Exchange Corporation, 1986 SEC No-Act. LEXIS 3,065 at 1-2.
However, during the early 1990’s, the SEC noted that a finder that was “actively involved in securities transactions, by negotiating their terms, providing advice regarding their terms [and] providing other assistance” would be required to register as a broker-dealer. Davenport Management, Inc., SEC No-Action Letter, [1993 Transfer Binder] Fed. Sec. L. Rep. (CCH) 76,643 at 77,737 (April 13, 1993). See, e.g., Fulham & Co., 1972 SEC No-Act. LEXIS 4,548 at 1-2 (December 20, 1972) (noting that a finder was considered a broker because the finder arranged the structure of the offerings and in some cases negotiated on behalf of the issuer of the securities).

Recently, the SEC has narrowed its view of what role a finder may play in a transaction.
In March, 2000, the SEC reversed the no-action position taken in its 1985 no-action letter to Dominion Resources, explaining that “in the intervening years since its 1985 no-action letter, technological advances, including the advent of the Internet, as well as other developments in the securities markets, have allowed more and different types of persons to become involved in the provision of securities-related services,” and noting that the staff has taken more narrow views of finders in recent years. Dominion Resources, Inc., 2000 SEC No-Act. LEXIS 304 at 3 (March 7, 2000). In the 2000 no-action letter to Dominion Resources, Inc., the staff clearly points out that it has reversed its position and no longer finds that an entity conducting the activities described in the August 22, 1985 letter to Dominion Resources would be exempt from registration as a broker-dealer under Section 15 of the Exchange Act. Dominion Resources, Inc., 2000 SEC No- Act. LEXIS 304 at 3 (March 7, 2000). In reversing its grant of no-action relief, the staff specifically points to the same proposed finder activities as it had in its 1985 no-action letter:

analyze the financial needs of an issuer;
recommend or design financing methods and securities to fit the issuer’s needs;
recommend a bond lawyer, underwriters, or broker-dealers for the distribution or marketing of the securities in the secondary market;
participate in negotiations;
introduce an issuer to a commercial bank to act as the initial purchaser of securities and as a stand-by purchaser if the securities could not be readily marketed by a broker-dealer;
recommend a commercial bank or other financial institution to provide a letter of credit or other credit support for the securities; and
receive a negotiated fee that would generally not be payable unless the financing closed successfully and that would not be based on the successful issuance of securities to the public. Dominion Resources, Inc., 2000 SEC No-Act. LEXIS 304 at 1-2.
Receipt of commissions.
The SEC also considers the fee arrangement of the finder in reviewing any registration requirements. In the past, the SEC has generally taken the position that if the finder receives a commission based on the consideration of the transaction, the finder is not exempt from registration as a broker. Fulham & Co., 1972 SEC No-Act. LEXIS 4,548 at 1-2 (December 20, 1972). However, in the 1985 no-action letter to Dominion Resources, the staff did not object to fees charged by the finder for its consultative and coordinating services which were negotiated with the issuer and were related to the overall size of the financing that the client wished to arrange, and generally were not payable unless the financing closed successfully. The staff added that the finder’s fees were not based upon successful issuance of securities to the public or affected by secondary trades thereafter. Dominion Resources, Inc., 1985 SEC No-Act. LEXIS 2,511 at 7 (August 22, 1985).

Recently, however, the SEC has narrowed its position regarding finder’s fees to disallow all transaction-related compensation. The staff reversed its position regarding no-action relief for Dominion Resources, Inc., noting that because the finder planned to receive a negotiated fee that would generally not be payable unless the financing closed successfully, the finder is not exempt from broker registration. Dominion Resources, Inc., 2000 SEC No-Act. at 2 (March 7, 2000). The SEC’s current view regarding a finder’s receipt of commissions is that if a finder’s fee is contingent upon the consummation of the transaction, the finder is not exempt from registration as a broker. BondGlobe, Inc., 2001 SEC No-Act. Lexis 140 (February 6, 2001).

The SEC has not required the registration of a finder when the finder’s compensation is not contingent upon a transaction. For example, the SEC did not require registration when a finder’s compensation did not vary or depend on the size or success of a securities offering or transaction, and the price for goods and services provided by the finder to program participants did not vary from that charged to non-participants. Stockback.com, LLC, 2000 SEC No-Act. LEXIS 762 at 3 (July 28, 2000).

Consequences of Failing to Properly Register as a Broker-Dealer
The failure of a broker to register with the SEC could subject the broker to monetary penalties and to certain injunctive actions by the SEC, pursuant to Section 21 of the Exchange Act. The SEC is authorized to seek civil injunctions in federal district court against persons violating or about to violate the provisions of the Exchange Act, including the broker registration requirements. The SEC may seek civil money penalties as well. The SEC also has the authority, after notice and opportunity for hearing, to issue a cease-and-desist order in response to a violation of these provisions. In addition, the SEC is authorized to refer the matter to the Attorney General for prosecution. Finally, failure to register when required is grounds for denial by the SEC of a later application for broker registration. The “Finder’s” Exception From Federal Broker-Dealer Registration, John Polanin, Jr., 40 Cath. U.L. Rev. 787 (1991), 792-793.
Best wishes,
Michael
Michael Gibson, Managing Director
Registered Investment Advisor CRD #157403

 

On Tue, Apr 23, 2013 at 9:52 PM, Michael Gibson <michael@usadvisors.org> wrote:
Hi John,
That sounds good.  It seems that there is no slowdown in the amount of capital that is being raised for the NE Kingdom and I suppose the questions remain the same as no one in the state appears to be registered with the SEC or FINRA in the process.  Since your Center has raised more funds than anyone else in the program, or is among the top three, then the actions of those involved in those capital raising efforts will be in the spotlight.  

Did you have a chance to read any of the recent SEC actions and is there any concern on the way funds are being raised in your state?  Is there any concern that if those activities violated federal or state laws, such as unlawful broker dealer or investment company activity, that there may be consequences beyond recission for the VACCD, VT and its taxpayers? 
 

From: Michael Gibson <michael@usadvisors.org>
Date: Wed, May 22, 2013 at 10:36 PM
Subject: Re: Well done and questions
To: "Kessler, John" <John.Kessler@state.vt.us>

Hi John,
Haven't heard back from you but reading the S.744 from Senator Leahy and hearing his comments on the securities provisions and with the recent call with the SEC I was wondering if we could get a comment from anyone in Vermont regarding the way the capital has been raised and payments of fees to non-registered persons in the process? 
Best wishes,
Michael
Michael Gibson, Managing Director
Registered Investment Advisor CRD #157403

 

From: Michael Gibson <michael@usadvisors.org>
Date: Thu, Oct 15, 2015 at 11:57 PM
Subject: Seldon, Rapid & VACCD potential litigation?
To: "Kessler, John" <john.kessler@state.vt.us>
Cc: "Joan S. Peters" <JPeters@guillemardlaw.com>

Hi John,
I hope that this finds you well and you are all enjoying the Fall season in VT, best time for getting on the road and riding those long criterions.  

I really don’t want to be a burden but we are going to write a follow up article on the Seldon closure next week and I wanted to get my facts straight and obtain comments from you or anyone at VACCD / State of VT. before we published anything.  

So Seldon failed, not your fault, but I wonder if you could tell me the number of investors, if they got their I-829s approved (conditions lifted) and if their principal had been returned?  

My understanding, by reviewing the contracts and published marketing, is that Rapid Visas was engaged by parties who represented Seldon, VACCD and/or the State of VT. to raise capital for projects approved and under the State’s oversight, and paid success based commissions for that service.  This relationship may have ended with one or more of the parties, but appeared to continue with others for several years, even now?   

I wrote to you and others in the State about my concerns for violations of securities laws by paying unregistered persons (not only Rapid, but many of the immigration attorneys who sent clients to invest in your projects) in 2012 and those issues were never addressed by anyone there, so I am back to revisit these topics in light of recent developments in the State.  

Before now, no one has been harmed by any of those investments, the ways in which the marketing had been conducted, overseen, or by the methods used to raise the capital and pay for those services.  You may, however, have those who soon feel otherwise and may choose to litigate:

http://vtdigger.org/2014/07/27/vtdigger-exclusive-jay-peak-loses-trust-first-eb-5-investors/
http://ethanallen.org/10-6-15-slaughterhouse-eb-5/

Before we did not have any enforcement actions by regulators against unregistered brokers (such as Rapid) but that changed on June 23, 2015 with the SEC’s action against IREECO https://eb5projects.com/litigation/6

Which may be why Jay is under investigation:

http://vtdigger.org/2015/06/24/jay-peak-projects-under-sec-investigation/

So I have three questions: 

1. What role did the State play in overseeing the role of unregistered agents such as Rapid and payment to other unregistered parties such as the immigration attorneys that got paid finder’s fees?  

2. What consequence (liability) could there be for the State if investors lost their green card and/or capital invested in projects overseen by VACCD where it can be shown that securities laws were violated by the payment of fees to unregistered persons? 

3. In the redacted internal memo, I see pages and pages of concern over Rapid’s marketing practices and your concern over potential misunderstandings by investors regarding which web site they are viewing and other potential misrepresentations, but not one word about potential securities violations regarding having unregistered firms raising capital and being compensated for doing so, or paying attorneys and others finder’s fees in return for placing their investors in VT. projects.  Was no one in the State concerned about this following the very clear Brumberg Mackey No Action letter issued by the SEC concerning the role and compensation of unregistered finders?  

I am including here my general counsel, Joan Peters, who has asked me to reach out to you before we publish any article setting out our questions and concerns to get your feedback, on or off the record.   

I think that these are valid and fair points to raise in an industry rife with unregistered activity, having your comments on the above would be helpful and appreciated.  I am also including here some of the material that we will reference in our article so that you can comment on those as well if you would like.  
Best wishes,
Michael
Michael Gibson, Managing Director
Registered Investment Advisor CRD #157403