The Security and Exchange Commission issued a litigation release today announcing the settlement for the biggest fraud in EB-5 history. On March 17, 2014, the United States District Court for the Northern District of Illinois Eastern Division issued the final judgment in the Securities and Exchange Commission v. A Chicago Convention Center, LLC, (“ACCC”). ACCC conducted a fraudulent offering targeting the EB-5 Immigrant Investors. Please click here to read the full judgment.
The judgment includes $3.9 million civil penalties against ACCC ($1.45 million), the regional center entity ($1.45 million) and Anshoo Sethi, individually ($1 million). It is noted that ACCC has paid $5.7 million commission to agents and representatives to raise approximately $158 million dollars from 300 investors. It is unknown whether the agents are located overseas or in the United States. The judgment does not mention the legitimacy of the commission payment or whether there are any violations in the registered broker/dealer issues.
The judgment states that due to the termination of the offering, the respective agents are obligated to return the commission of $5.7 million to credit the payments back to each investor. If the agents fail to refund the commission, ACCC is jointly and severally liable for the $5.7 million administrative fee. ACCC is required to provide an update to the Magistrate Judge within three (3) months of the land sale closing.
The SEC settlement resolves the disposition of approximately $11 million in administrative fees paid by investors, the only funds remaining to be returned to the investors. On April 19, 2013, the court granted the SEC’s motion to return the investment funds of $147 million to the EB-5 investors at $500,000 /per investor. Some investors have already re-invested the funds to other projects that agree to waive the administrative fee. It is unclear whether the remaining administrative fee will eventually be refunded. It depends on the ACCC’s land sale and liquidation of other assets.
Here are a summary of the judgment:
Civil Penalty $3,900,000
Defendants are liable to pay civil penalties individually in the following amounts Defendant ACCC is liable for a civil penalty of $1,450,000; Defendant Anshoo Sethi is liable for a civil penalty of $1,000,000; and Defendant IRCTC is liable for a civil penalty of $1,450,000. Defendants shall pay the amounts held in the frozen accounts to the SEC within fourteen (14) days of service of this Final Judgment
Jointly and Severally Liable for the Administrative Fee $11.5 million
Defendants are jointly and severally liable for disgorgement of $11,524,254, representing proceeds of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $169,060.74. The disgorgement amount represents administrative fees that investors paid to the Defendants.
Defendants contend that pursuant to written agreements between the Defendants and the investors’ representatives, a significant portion (approximately $5.7 million) of the proceeds of the administrative fees received by the Defendants were then forwarded to the investors’ representatives as refundable commissions or fee payments.
Due to the termination of the offering, the investors’ representatives are obligated per contractual agreements to return the refundable commissions/fee payments of approximately $5.7 million, or to credit and/or rollover these commission payments back to each of their relevant investors.
Within three (3) months of the closing of the entire parcel of real property in the Land Sale (which shall be inclusive of a short sale or foreclosure sale), Defendants shall provide documentary evidence satisfactory to Magistrate Judge Rowland to identify the investors and the specific amounts credited or returned to each investor to support the amount of the disgorgement credits, rollovers and/or offsets due to the Defendants and any recalculation of prejudgment interest.
If the Land Sale does not occur within one-year of entry of this Final Judgment, the Defendants shall provide a status report to the Court and SEC detailing the Defendants’ efforts to sell the Property. The SEC may then, upon good cause shown, petition the Court to order the Defendants to take other steps to sell the Property.
Permanently Injunctions on Fraudulent Scheme
The judgment states that the defendants A Chicago Convention Center, LLC (ACCC), Anshoo Sethi and Intercontinental Regional Center Trust of Chicago, LLC (IRCTC) are permanently restrained and enjoined from violating the Anti-fraud provision in Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 and Section 17(a) of the Securities Act of 1933 (the “Securities Act”) in the offer or sale of any security by the use of scheme to defraud, untrue statement, misrepresentation and omission of a material fact or to engage in any transaction that operates as a fraud or deceit upon the securities purchaser.
20 Years Bar to Sell Securities for Controlling Company
Defendants are restrained and enjoined for a period of twenty (20) years from the date of the final judgment from offering or selling securities issued by defendants or by any entity that is owned or controlled by Defendant Sethi, such that Defendant Sethi possesses greater than 5% of the entity’s securities, or has the practical ability to direct the actions of the entity’s management or policies, through ownership of voting securities, by contract, or otherwise.
Yi Song is an attorney at Mona Shah & Associates in New York City. She is also licensed to practice law in People’s Republic of China. Before joining Mona Shah & Associates, she worked at a securities litigation firm in Manhattan. She clerked at China’s high court – the Supreme Court of People’s Republic of China. At Mona Shah & Associates, Yi practices EB-5 law and securities law and works on many successful EB-5 capital raising projects. She obtained her LL.B. degree from Beijing Foreign Studies University and she is a graduate from Georgetown University Law Center in Washington, DC. Her articles on EB-5 and securities law are published by LexisNexis, AILA, eb5info.com, ILW. Yi is a native speaker of mandarin Chinese. She speaks fluent English and basic French.
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