[UPDATE: This article was updated to correct the names of the respondents in the described case.]
The Securities and Exchange Commission (“SEC”) has further demonstrated its intent to take a more active role in ensuring that participants in the EB-5 program are in compliance with securities laws.
It charged two firms for illegally brokering over $79 million from foreign EB-5 investors. These charges are the first against unregistered brokers facilitating investments for the EB-5 investor visa program; but they come on the heels of earlier actions against fraudulent EB-5 offerings, indicating that the program is under increasing scrutiny from the regulatory agency.
The respondents in the case were Ireeco LLC, a Boca Raton-based limited liability company, and Ireeco Limited, a Hong Kong-based entity operating in the United States. They were charged with acting as unregistered brokers, soliciting over 158 foreign investors. According to the SEC, the firms used their website to illegally solicit foreign investors seeking permanent residence in the US, some of whom were already in the US on temporary visas.
The firms promised to help investors choose the best regional center to invest with; but according to the SEC, they directed the vast majority of investors to only a handful of regional centers—ones that were paying them a lofty commission of around $35,000 per investor once USCIS granted the investors a conditional green card. The receipt of per transaction compensation in the United States for referring investors to an EB-5 project is generally only permitted by investment professionals registered as broker-dealers that make a determination that the investment is suitable for the EB-5 investor. The receipt of such fees by firms not registered as broker-dealers is generally not permitted, and may subject those firms to prosecution by the SEC.
“The broker-dealer registration requirements are critical safeguards for maintaining the integrity of our securities markets, and the SEC will vigorously enforce compliance with these provisions,” said Eric Bustillo, director of the SEC’s Miami Regional Office. Without admitting or denying the SEC’s allegations, both Ireeco LLC and Ireeco Ltd. have agreed to be censured and to cease and desist from committing such violations in the future. They have also agreed to administrative proceedings to determine what the penalties will be for their violations.
This is the first time the Commission has charged firms with acting as unregistered brokers in relation to the EB-5 program. It is evident that the SEC is now monitoring the EB-5 program more closely. As previously discussed in this space, the SEC has also indicated its increased interest in the EB-5 program by lobbying for provisions that would give them substantial oversight of EB-5 projects under S. 1501 (titled “the American Job Creation and Investment Promotion Reform Act of 2015”).
Though the current provisions of the bill relating to securities laws are overly onerous on Regional Centers and will likely be scaled back, there almost certainly will be heightened oversight of the EB-5 program for compliance with securities laws in any final legislation.
While there the vast majority of EB-5 projects operate in compliance with securities laws, it should not come as a surprise if there are further SEC crackdowns in the future. This is especially the case as USCIS and the SEC are likely to receive additional resources and powers to ensure compliance with these laws upon renewal of the EB-5 program.
Gorman, Thomas O. "SEC Brings First Unregistered Broker Charges Based on EB-5 Program." SEC Actions. SEC Actions, 23 June 2015. Web. 24 June 2015.
Waddell, Melanie. "SEC Busts Firms in $79M Immigration Scheme." ThinkAdvisor. ALM Media, LLC, 23 June 2015. Web. 24 June 2015.
Omar Hakim is an attorney at Mona Shah & Associates in New York City. The firm is an established source for EB-5, assisting numerous Regional Centers/EB-5 Projects and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Omar offers clients years of experience in corporate finance, the financial regulatory system, securities matters and in general corporate governance matters. Additionally, he is able to draw on his experiences at major federal regulatory agencies and bodies, which includes work at the SEC, the United States House of Representatives Committee on Financial Services, and the CFTC. He earned his J.D. at the University of Virginia; his Master of Laws in Securities and Financial Regulation at the Georgetown University Law Center; and his B.A. in Economics at Georgetown University.
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