EB5 Investors Magazine - Page 44

Continued from page 41 It is important to note that, at this point, the investigation is only that–an investigation. Suit has not been filed and the SEC is still in the process of determining whether to proceed with that route. Having counsel present when testimony is given is extremely important. After testimony has been completed, the SEC may continue its investigation by requesting follow-up information or additional documentation. If the SEC seeks to continue, it may elect to file suit in federal court or administratively. SEC enforcement against fraud An example of an SEC suit involving an EB-5 program can be found in a recent case SEC v. A Chicago Convention Center, et al. No. 13-cv-982 (N.D. Ill. Feb. 6, 2013). As most industry stakeholders already know, the SEC began an investigation after receiving a tip from the SEC whistleblower program in late 2012. In its complaint, the SEC claims that the companies and its principals misled investors for the purpose of enticing them to invest. Specifically, investors were promised a return of their administrative fees in the event the EB-5 visa applications were denied. However, in actuality, investor money was spent on personal items prior to these applications ever being submitted. The SEC ultimately filed suit, and in March 2014, the U.S. District Court entered a judgment against defendants. In sum, the defendants raised approximately $158 million from nearly 300 investors who sought a route to gain citizenship through the EB-5 program as part of a fraudulent offering.1 For one of the defendants, Anshoo Sethi, his legal problems did not end there. In August 2014, a federal grand jury brought criminal charges against him for his role in this scam EB-5 project.2 The indictment charged Sethi with eight counts of wire fraud and two counts of making false statements. Additionally, the indictment seeks recovery of an additional $11 million in administrative fees – $41,500 per investor – that Sethi collected. Sethi allegedly told investors that their money was “fully refundable” if their visas were not approved, and that their money was going to be used solely for project expenses, but instead it was used for luxury personal items. Conviction on each count of wire fraud carries a maximum penalty of 20 years in prison. Each count of making false statements could carry a maximum sentence of five years in prison. In another recent case, SEC v. Marco A. Ramirez, et al., No. 7:13cv-00531 (S.D.T.X. Sept. 30, 2013) (Dkt. 1), the SEC brought suit against a husband and wife in Texas for allegedly stealing funds from foreign investors under the guise of an investment opportunity to create jobs and a path to U.S. residency. The defendants guaranteed investors a 5 percent return on their investment in addition to the acquisition of an EB-5 visa. The SEC alleged that these statements occurred and investors were solicited before See Litigation Release No. 22945. U.S. Securities and Exchange Commission, 19 Mar. 2014. 1 See Elkind, Peter. “Promoter of Failed EB-5 Project Is indicted.” Fortune, 27 Aug. 2014. 2 42 the business was even designated as a regional center. Instead of holding investor money in escrow like the defendants represented, the SEC contends that they used this money for personal items. Ultimately, the investors failed to receive conditional permanent residency. This case is still pending. Conclusion The SEC has not hidden its agenda to target the EB-5 program. More often than not, tips to SEC come from unhappy investors. Investors, who receive the run around or who do not receive timely payments often turn to the SEC in an effort to shed light on what they view as barriers to transparency. Other times, with public companies, SEC filings may trigger an examination into possible illegal conduct. It is therefore imperative for individuals suspected or contacted by the SEC or other agencies to take proactive steps to protect themselves from possible exposure. Contact from the SEC will generally come through subpoenas, examiners, or attorneys seeking to speak to certain witnesses and/or potential defendants. Once the SEC is involved, it will investigate, and often times seek administrative or civil action. Experienced defense counsel can be invaluable to helping one understand and work through the process to protect not only him or herself but also to protect the viability of the investment. One thing is clear: the SEC intends to protect investors and legitimate companies alike, by identifying and preventing fraud within the EB-5 program. ★ Jeff Ansley heads Bell Nunnally’s white collar and regulatory defense practice. Before entering private practice, he served as an assistant U.S. attorney in the major fraud and public corruption section of the U.S. Attorney’s Office and an enforcement attorney for the SEC. Jeff represents corporate and individual clients in high stakes litigation and investigations, conducts internal investigations, and develops corporate compliance and ethics programs. Jeff Ansley Greg Kelminson, of Bell Nunnally & Martin , focuses his practice on the representation of clients in complex criminal and regulatory investigations and charged proceedings. Additionally, Greg has experience handling federal and state administrative actions instituted by securities regulators. Greg Kelminson Karen-Lee Pollak is a partner at Bell Nunnally & Martin, LLP where she chairs the immigration practice group. Ms. Pollak focuses her practice on EB-5 investments and employment and family based visas. She authors a blog--Immigration Solutions--and speaks and writes frequently on immigration issues. Ms. Pollak practices in Dallas, Texas. EB5 INVESTORS MAGAZINE Karen-Lee Pollak