SEC Brings First Unregistered Broker Charges Based on EB-5 Program
by Thomas Gorman
The EB-5 program was designed to create a path to becoming a permanent residence in the U.S. for certain immigrants while facilitating job creation in the United States. Initiated in 1990, the program gives a foreign applicant a path to permanent residency following an investment of $1 million, or $500,000 in a targeted employment area. The investment must be in a USCIS approved U.S. commercial enterprise, defined as any for-profit activity formed for the ongoing conduct of lawful business. The applicant obtains a conditional green card following the investment. It is good for two years. If the investment creates or preserves at least 10 full time jobs during the two year period the applicant may obtain a permanent green card.
While the program has been successful at spurring investment in the U.S. and giving applicants an opportunity to obtain a permanent green card, there have been difficulties. In the past the SEC has brought fraud actions based on the investment program. Now the Commission has brought its first action charging individuals with acting as unregistered brokers in connection with the EB-5 program. In the Matter of Ireeco, LLC, Adm. Proc. File No. 3-16647 (June 23, 2015).
Respondents in the proceeding are Ireeco, LLC, Ireeco Limited, LLC is a Florida limited liability company, while Limited in a Hong Kong entity. Between January 2010 and May 2012 LLC solicited foreign investors who wished to invest in the program through regional centers – an entity involved with the promotion of economic growth approved by the USCIS to administer projects. Applicants through a center are only required to invest $500,000.
LLC solicited potential investors through a website which claimed the firm had extensive experience in the area and could guide applicants to the correct center for them. In 2012 Messrs. Parnell and Bartlett formed Limited. It became a managing member of LLC. Eventually LLC became the contracting party. Solicitation continued through the website.
Applicants who contacted Ireeco were eventually guided to a regional center. The firm earned fees under the “referral partner agreements” it had with regional centers for brining in customers. The fee was paid once a conditional green card was approved by USCIS. The fee was a commission based on a fixed portion of the administrative fee the investor paid to the center, on average about $35,000 per investor.
From January 2010 to present Ireeco was paid fees for actively soliciting 158 foreign investors. The applicants invested about $79 million in the regional centers. The Order alleges violations of Exchange Act Section 15(a)(1).
To partially resolve the proceeding Ireeco consented to the entry of a cease and desist order based on Exchange Act Section 15(a). They also agreed to a censure. A hearing will be conducted to determine if it is appropriate to order disgorgement and/or civil penalties.
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