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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.
See Elkind, Peter. “Promoter of Failed EB-5 Project Is indicted.”
Fortune, 27 Aug. 2014.
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.
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.
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.
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
issues. Ms. Pollak practices in
EB5 INVESTORS MAGAZINE