UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Crown Point Regional Center

Filing Date:December 12, 2018

Case:SEC vs America Modern Green Senior (Houston) LLC, America Modern Green Community (Houston) LLC, and America Modern Green Residential (Houston) LLC

Jurisdiction:Securities & Exchange Commission

Status:Pending

Civil / Criminal:Civil

Breach of Contract

Breach of fiduciary duty

Fraud

Misrepresentation

Negligence

Securities Violations

The Securities and Exchange Commission (“Commission”) deems it appropriate that ceaseand-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) against America Modern Green Senior (Houston) LLC, America Modern Green Community (Houston) LLC, and America Modern Green Residential (Houston) LLC (“AMG Senior,” “AMG Community,” “AMG Residential,” respectively, and collectively the “Respondents”).

In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over Respondents and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease-and-Desist Proceedings pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.

On the basis of this Order and Respondents’ Offer, the Commission finds that:

Summary

1. Crown Point Regional Center (“CPRC”), a federally-designated regional center formed and approved to participate in the EB-5 Immigrant Investor Program (“EB-5 program”), sponsored the raise of $49.5 million from 90 immigrant investors in three EB-5 offerings. The EB5 program can provide a path to permanent residency and, ultimately, citizenship, to foreign investors. Respondents were formed so that qualifying equity investments could be made pursuant to the EB-5 program. Respondents told investors that their funds would finance a portion of the development and operation of a mixed-use real estate development project located near Houston, Texas (the “Project”).

2. Respondents, however, did not use investor funds as promised. Instead, Respondents improperly transferred $20.5 million of investor funds for undisclosed purposes; namely, to fund purchases with respect to two unrelated real estate projects.

3. In addition, AMG Community and AMG Residential provided investors with offering materials that misstated the title and purported management role of a Houston-area real estate expert, and similarly misstated the purported management role of a second Houston-area real estate expert.

4. Respondents’ misuse of $20.5 million of investor funds and their false statements and omissions regarding the use of funds and the management associated with the Project violated Sections 17(a)(2) and 17(a)(3) of the Securities Act.

Background

1. From May 2015 through March 2017, Respondents raised $49.5 million from 90 immigrant investors through three related EB-5 investment offerings. The EB-5 program, administered by USCIS, can provide a path to permanent residency and, ultimately, citizenship, to foreign investors who invest in a commercial enterprise that creates at least 10 jobs for American workers. Each offering consisted of a $500,000 capital contribution and a $50,000 administrative fee, and investors purchased equity interests in one of three entities: (1) AMG Senior, (2) AMG Community, and (3) AMG Residential.

2. According to Respondents’ offering materials, investor funds would be used solely for the development and construction of a particular phase of the Project. For AMG Senior, investment funds would “finance the development and operation of a senior independent and assisted living facility comprised of five building elements in mid-rise format.” For AMG Community, the investment proceeds would be used to “own, develop, construct, and operate a mixed-use residential community with townhomes and a clubhouse.” And for AMG Residential, investor funds would be used to “own, develop, construct, and operate a multifamily apartment community . . . and condominium community with [ground level] retail space with some age restrictions for residents.” Respondents also provided investors numerous brochures on the different phases of the Project’s development and tours of the Project site.

3. Approximately six months after AMG Senior started soliciting and receiving investor funds, it began transferring a portion of those funds to a different subsidiary of the International Parent Company—an entity unrelated to the Project (hereafter, “Unrelated Entity”). From November 2015 through February 2016, AMG Senior made three improper and undisclosed transfers of investor funds, totaling $14 million, to the Unrelated Entity. These funds were used to make purchases associated with an unrelated real estate project. Similarly, in May 2016, AMG Community improperly transferred $4 million of investor funds to the Unrelated Entity and used those funds to make purchases associated with a second unrelated real estate project. Finally, AMG Residential improperly transferred $2.5 million of investor funds in May 2016 to the Unrelated Entity also used to make purchases associated with the second, unrelated project. During the same time period, Respondents sent EB-5 investors at least 10 investor update letters touting the Project’s community support and detailing its progress, but they never disclosed the misuse of investor funds for purposes wholly unrelated to the Project.

4. The International Parent Company eventually replaced the $20.5 million that Respondents had improperly transferred.

5. AMG Community and AMG Residential also distributed to investors Private Placement Memoranda (“PPMs”) that included misstatements regarding the management of the master developer and CPRC by two Houston-area real estate experts. These misstatements were based on previous draft versions of the PPMs that were not corrected before distribution to investors. The two Houston-area real estate experts were instead associated with an affiliate of the International Parent Company not involved with the EB-5 offerings. They held no titles at CPRC, the master developer, or any other developer of the Project as stated in the PPMs for AMG Community and AMG Residential. The PPM for AMG Senior accurately described the roles played by these real estate experts. After being alerted to the misstatements, Respondents issued a December 2016 investor update, which clarified that one of the experts “did not provide any services to the Developer for the Project and was not involved in the Project” without specifying the update related to both AMG Community and AMG Residential.

6. Respondents should have known the transfer and misuse of investor funds, which were never disclosed, fell outside of the stated use of proceeds detailed in the offering materials. Respondents approved the improper transfers, knew none of the expenditures were related to the Project, and should have known those transactions would operate as a fraud or deceit on investors. Finally, Respondents should have known the misstatements regarding the Houston-area real estate experts were materially misleading.

7. As a result of the conduct described above, Respondents AMG Senior, AMG Community, and AMG Residential violated Sections 17(a)(2) and 17(a)(3) of the Securities Act.