Banking and Finance

SEC Prosecution against A Chicago Convention Center EB-5 Project

Investor confidence in EB-5 should be bolstered with the breaking news released on February 8, 2013, that the Securities and Exchange Commission (SEC) has charged the EB-5 project A Chicago Convention Center (ACCC) and its principal Anshoo R. Sethi for securities fraud. It is expected this is the first step of a series enforcement actions the Commission is going to take against fraud and securities law violations in the EB-5 program.

The project offered 499 limited membership interests to EB-5 investors and has sold more than $145 million in securities all under fraudulent pretenses. Anshoo Sethi has collected $11 million in administrative fees from more than 250 investors, most of which are from China, where the project was heavily marketed. Unfortunately, more than 90 percent of the administrative fees have been spent. More than 2.5 million was deposited to Sethi's personal bank account in Hong Kong.

Despite the obvious flaws in the project structure and documents, one of the reasons that ACCC project was well received in China was because  of the exceptionally high commission to the migration agents. On information and belief that the commission to raise each $500,000 reaches as high as $100,000, paid over a period of five years.

The ACCC offering documents included a false statement and misleading information. Anshoo Sethi falsely stated to their investment would be used to construct the world's first zero carbon emission platinum LEED certified hotel and conference center near O'Hare Airport in Chicago. Intergra Realty Resources performed the investment analysis for the ACCC project.

EB-5 investors believed that they have acquired all the necessary permits and licenses and several major hotel chains had partnered with ACCC, including Hyatt, Intercontinental Hotel Group and Starwood. In fact, none of the said hotel chains have executed franchise agreements with Sethi and his companies. Two of those hotel chains actually just terminated deals with Sethi's related entities.

The offering documents further stated that the project construction would commence in 2012. While in fact the only relevant permit obtained for ACCC is the permit to build a groundbreaking ceremony tent, the demolition permit, the permit to construct a fence and to put minor electrical wiring. Further Sethi stated in the offering documents that he has over fifteen years of experience in real estate development and management, when in fact he is  only 29-years-old. The documents falsely stated that the project developer has more than 35 years of experience. Furthermore the developer company was only incorporated in 2010.

It is believed that the SEC investigation against the project started in September 2012. It is the first EB-5 case SEC filed after USCIS announced its plan to coordinate and cooperate with the SEC in the Stakeholder Meeting in October 2012. In the complaint the Commission filed on February 6, 2013 with US District Court of Northern District Illinois, the Commission obtained an emergency court order to freeze the assets and to protect the remaining $145 million raised through EB-5 program. The Commission seeks permanent injunctions and other monetary relief. 

The scheme of the investment separate the administrative fee $41,500 from the investment capital $500,000. The fact that administrative fee is separated from the $500,000 facilitates the Sethi's scheme to spend the administrative fee and deposit the rest to his personal bank account.

The SEC complaints against ACCC and Anshoo Sethi can be found here:

Mona Shah & Associates reserve and hold for their own use, all rights provided by the copyright law, including but not limited to distribution, producing copies or reproducing, sales of this document. This article is a general summary of complex securities law issues. No legal advice is provided in this article.  Please consult the securities attorney for advice applicable to your particular circumstances.

All rights reserved by Mona Shah & Associates ©

For more information about LexisNexis products and solutions connect with us through our corporate site.