Dan David of GeoInvesting has an interesting post today about how the SEC has done an excellent job protecting Chinese investors who have been ripped off in EB-5 investor scams. The EB-5 program offers green cards to foreigners who make job creating investments in the US. It is really a process of selling green cards to wealthy foreigners, most of whom are Chinese. Even Donald Trump has financed real estate projects with funds obtained from Chinese investors under the EB-5 program.
David points out that while the SEC has succeeded in helping Chinese investors get back most of their money from EB-5 scams, it has done very little to help US investors get money back from scams by US listed Chinese companies.
As David points out in his post, the only CEO to be jailed for defrauding US investors was Dickson Lee of L&L Energy. Lee, however, was a US citizen and was arrested on US soil, so Chinese authorities could not protect him.
Perhaps the most egregious case was Ming Zhao of Puda Coal, who faces a $250 million judgment from the SEC for ripping off U.S. shareholders. But Chinese authorities have not helped the SEC to enforce the judgment, and instead elevated Ming Zhao to the Eleventh Standing Committee of the Chinese People’s Consultative Congress. I guess he is viewed as a model comrade.
The Emerging Issues Task Force (EITF) is a group of accounting experts who help the FASB with complex accounting issues. The EITF has been working on a project to deal with diversity in the balance sheet presentation and cash flow classification of changes in restricted cash – including transfers between restricted cash and unrestricted cash, as well as direct changes in restricted cash (for example, when disbursements occur directly from restricted cash). Some believe that this diversity is also attributed to the lack of definition of restricted cash in U.S. GAAP.
In earlier meetings, most Task Force members agreed that restricted cash should be defined based on there being contractual or legal restrictions and not extended to self-designations by management. Some Task Force members preferred narrowing the definition to only cash that is controlled by another party, such as where a trustee or escrow agent restricts access to the cash. However, a majority of Task Force members wanted to also include situations where cash access is limited only through some type of economic penalty for failure to comply with the legal or contractual restrictions.