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Cady Bar the Door Insight & Commentary on SEC Enforcement Actions and Related Issues

SEC Brings Case Involving EB-5 Investment Program

Posted in Investment Frauds

It’s not often that the securities enforcement and immigration law worlds collide, but I suppose it occasionally happens.  It did happen earlier this week when the SEC brought a case in the Northern District of Illinois against Anshoo R. Sethi and two of his companies, known as A Chicago Convention Center (ACCC) and Intercontinental Regional Center Trust of Chicago (IRCTC).

To understand how we got here, you have to understand that if you are not an American citizen, but would like to live here, one option available to you is to have a lot of money and pledge to invest it in the United States.  The EB-5 Immigrant Investor Pilot Program provides foreign investors an avenue to U.S. residency by investing in domestic projects that will create or preserve a minimum number of jobs for U.S. workers.  Specifically, these foreign investors must invest $1 million (or $500,000 in a “Targeted Employment Area” with a high unemployment rate) in a project that creates or preserves at least 10 jobs for U.S. workers, excluding the investor and his or her immediate family.

The SEC makes a number of allegations in its complaint.  First, it claims that Sethi and his companies duped investors into believing that by purchasing interests in ACCC, they would be financing construction of the “World’s First Zero Carbon Emission Platinum LEED certified” hotel and conference center near Chicago’s O’Hare Airport.  Second, the SEC alleges that Sethi and his companies falsely told investors they had acquired all the necessary building permits and that several major hotel chains had signed onto the project.  They also allegedly provided falsified documents to the U.S. Citizenship and Immigration Services (USCIS) — the federal agency that administers the EB-5 program — in an attempt to secure the agency’s preliminary approval of the project and investors’ provisional visas.  Finally, the SEC claims Sethi and his companies used the EB-5 program to convince investors to wire a minimum of $500,000 apiece plus a $41,500 “administrative fee” to U.S. bank accounts.  More than $11 million in administrative fees were collected with the claim that they were fully refundable to investors if their visa applications are rejected.  Allegedly Sethi and his companies have instead been spending those funds.

The Commission says it has secured an asset freeze “to protect the remaining $145 million in investor assets that were at risk of being similarly misappropriated by Sethi and his companies.”  It’s hard to know what to make of that language, but if the SEC has been able to obtain a freeze of $145 million, that would be truly remarkable.  I will be interested to see what happens as the case develops.