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
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