SEC Says Couple Blew Chance To Settle EB-5 Fraud Suit

The U.S. Securities and Exchange Commission has urged the Central District of California to rule against a husband and wife facing allegations that they misappropriated the bulk of $26.9 million raised in an EB-5 immigrant investor program, as the couple purportedly have not followed through on their promises as part of a possible settlement. 

Because Charles Liu and Xin Wang failed to adhere to their promise to the SEC that they would transfer $26.9 million into the bank account of their attorneys by March 17 as part of a potential settlement of the case, the court should enter summary judgment against them, according to a status report filed Monday by the SEC, which is seeking that they pay a $65.7 million penalty.

The money was supposed to be stashed aside as the SEC worked internally to approve the proposed settlement and as final judgment and amended preliminary injunction filings were made in the court, according to the status report.

“Liu and Wang have ... had their chance to compensate the victims of their fraud,” the status report reads. “But they have not transferred any funds to defense counsel.”

In May, the SEC accused Liu and Wang of collecting the money from 50 Chinese investors for a cancer treatment center, but failing to use the money for the promised purpose.

Rather, Liu transferred approximately $12.9 million of the investor funds to three marketing firms in China — including one of which he is CEO and chairman — and deposited more than $7 million in his and his wife’s personal accounts, the SEC said. Less than $250,000 remains, the government alleged.

The purported scheme took place through the apparatus of the U.S. government’s EB-5 immigrant investor program, in which foreign investors pledging at least $500,000 in capital investment in a commercial enterprise in the U.S. may be eligible for a two-year work and residency visa, with potential for permanent residency.

Counsel for the couple told the court Tuesday that their clients have indicated they need more time to acquire and transfer the funds, and that discussions concerning the matter have purportedly occurred in Beijing. The couple's attorneys specified that as they have not been a part of the discussions, and do not have first-hand knowledge of the timing of such a transfer, they cannot make any representation to the court about it, according to the statement they filed.

"Counsel for defendants hereby advise the court that we do not oppose the request by the SEC for the court to decide the pending and fully briefed summary judgment motion based upon the papers previously submitted by the parties," the statement reads.

In early June, U.S. District Judge Cormac J. Carney signed a temporary restraining order freezing the couple’s assets and prohibiting them from raising additional funds or spending any of the money they had raised.

In January, the court opted to put in abeyance the SEC’s summary judgment bid, asking the parties to weigh in on appropriate penalties, according to court documents.

The couple in February argued against the SEC’s proposed $65.7 million penalty, calling it “excessive.”

Rather, the couple suggested that the court start at $26.9 million and go down from there, giving them credit for “legitimate business expenses” such as the $9 million they conveyed as commission payments to overseas marketers and the $2 million they spent on salaries, according to the memorandum. They argued that a $10.9 million penalty would be more appropriate.

Counsel for the parties could not be reached for comment Wednesday.

The SEC is represented in-house by John W. Berry, Gary Y. Leung and Jacob A. Regenstreif.

Wang and Liu are represented by Lawrence B. Steinberg of Buchalter Nemer PLC, and Herve Gouraige of Sills Cummins & Gross PC.

The case is Securities and Exchange Commission v. Charles C. Liu et al., case number 8:16-cv-00974, in the U.S. District Court for the Central District of California.

https://www.law360.com/capitalmarkets/articles/904285/sec-says-couple-blew-chance-to-settle-eb-5-fraud-suit

Mentions

• UNITED STATES SECURITIES AND EXCHANGE COMMISSION
• Charles Liu

Litigation Cases

• UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Pacific Proton Therapy Regional Center

States

• California