On October 1, 2013 the Securities and Exchange Commission (SEC) announced fraud charges in U.S. District Court for the Southern District of Texas against a Texas based EB-5 Regional Center USA Now Regional Center LLC for misappropriating the investment funds of 10 investors from Mexico, Egypt and Nigeria. The USA Now Regional Center LLC was approved by USCIS in 2010 and raised $5 million dollars before the SEC brought charges at the federal court.
The SEC complaints shall serve as a warning to all risky and fraudulent practices in the EB-5 community. The security fraud charges are based on false statements, misrepresentation and improper disclosure made in the Private Placement Memorandum (PPM) by USA Now Regional Center. The SEC has alleged that the Ramirezes told investors that USA Now would hold their investments in escrow until they received USCIS approval. Further, once the funds were released from escrow, they would be used for specific EB-5 business purposes. As it turned out none of the 10 investors’ funds were even placed in escrow, instead USA Now routinely diverted the funds for other uses not described in offering materials, often on the same day the funds were received. Among their misappropriations, the Ramirezes appear to have opened a Cajun-themed restaurant with investor funds and settled an unrelated lawsuit.
The timing of the soliciting has been examined in the complaints as well. The SEC alleged that before the USA Now Regional Center received its designation from USCIS, Ramirezes and other USA Now employees already had started soliciting investors by false statements and misrepresenting the use of proceeds.
USA Now Regional Center principals Marco and Bebe Ramirez and three companies - USA Now LLC, USA Now Energy Capital Group LP, and Now Co. Loan Services - they own have fraudulently raised at least $5 million from investors by falsely promising that their money would be invested in an EB-5 Regional Center. Instead of investing the money as promised, the Ramirezes routinely diverted investor funds to other undisclosed businesses and for their personal use. In at least one instance, they used new investor funds to make Ponzi-like payments to an existing investor.
The court has granted the SEC’s request to freeze the assets and accounts of the Ramirezes and their three companies. This effectively halts their ability to raise further money from investors or spend any remaining funds in the scheme.
The prosecution of the case is due to the joint efforts of the SEC and U.S. Citizenship and Immigration Services (USCIS). The SEC’s complaint alleges that the Ramirezes and their companies violated and aided and abetted violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint seeks various relief including preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.
An Investor Alert, released October 1, 2013, jointly released by the SEC and USCIS, states that: “the fact that a business is designated as a regional center by USCIS does not mean that USCIS, the SEC, or any other government agency has approved the investments offered by the business, or has otherwise expressed a view on the quality of the investment.”
The Commissions and the Services emphasize that it is important to thoroughly research any offering that purports to be affiliated with EB-5. Take these steps:
USCIS and the SEC have in recent years built a strong partnership with an emphasis on fostering EB-5 program integrity. The two agencies coordinate on issues at the case-specific and programmatic levels, and have participated in joint public engagement events to raise awareness among EB-5 developers and investors as to these issues. This Investor Alert is another example of our coordinated efforts regarding EB-5 program integrity.
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