Virginia Democratic gubernatorial candidate Terry McAuliffe’s GreenTech Automotive took advantage of a loophole that allowed the company an exemption from Securities Exchange Commission regulation.
According to documents discovered by Watchdog.org, GreenTech took steps to ensure that the type of investors it brought in qualified it for the "safe harbor" exemption.
Watchdog.org explains:
According to documents reviewed by Watchdog.org, GreenTech claimed it qualified for one of those disclosure exemptions because it solicited investments exclusively outside the United States. The first page of a 2009 private placement memorandum issued by the firm’s investor-relations arm, Gulf Coast Funds Management, states that the purchaser must be "a foreign national, acquiring the unit outside of the United States in reliance upon Regulation S under the Act."
What exactly is Regulation S and how did it legally exempt GreenTech from the landmark "truth in securities" law?
"Regulation S was intended to help U.S. and foreign companies raise capital overseas quickly and inexpensively without having to comply with the expensive and lengthy registration process required under Section 5 of the 1933 Act," securities expert Jerold N. Siegan wrote in a 2009 compliance manual, "Securities Law and Compliance Manual for Regulation S Offerings."
Under Regulation S, the "safe harbor" exemption cited by Gulf Coast, companies are not required to comply with the SEC’s disclosure requirements as long as they comply with two requirements. According to the compliance manual, the investment (1) must be an "offshore transaction" and (2) cannot involve any "directed selling efforts" in the United States by the company or its representatives.
Gulf Coast Funds Management is an EB-5-visa-focused investment firm run by Anthony Rodham, the brother of Hillary Clinton and a long-time friend of McAuliffe.
The EB-5 visa program allows foreign investors to receive a visa in exchange for a sizable investment in a United States company and is at the center of GreenTech’s investment scheme.
Rodham traveled with former President Bill Clinton and former Mississippi Republican Governor Haley Barbour to China to solicit EB-5 investors for GreenTech Automotive.
The SEC loophole allows those who satisfy the requirements for the exemption to avoid filing basic registration forms for their business.
Information GreenTech avoided disclosing by circumventing these filings includes "a description of the company’s properties and business; a description of the security to be offered for sale; information about the management of the company; and financial statements certified by independent accountants."
McAuliffe quietly resigned from GreenTech last December, although his campaign did not disclose this to voters until several months had passed.