SEC Files Another Unregistered Broker Action Tied to EB-5

The Commission has brought a series of unregistered broker actions in recent years – the cases have become a staple of Enforcement. One of the areas which seems to generate a continuing series of these cases is the EB-5 program. That program is also the source of the Commission’s most recent case in this area. In the Matter of Edwin Shaw, LLC, Adm. Proc. File No. 3-18384 (March 5, 2018).

Respondent is a New York City based firm that specializes in the business of foreign investment in the United States. The firm is not registered with the Commission. It is owned by the Principal. The Issuer is a Long Island City based firm engaged in the taxi and livery business in the New York City metropolitan area. Its Managing Member is the majority owner of the firm, operating the taxi and livery business.

In April 2014 the Issuer decided to raise funds by selling membership interests to foreign investors who were interest in the EB-5 visa program. That program was created by Congress in 1990 to stimulate job creation by foreign investors. Essentially the program offers the prospect of a green card to foreign investors who invest $1 million – or $500,000 in certain areas – in the United States that creates a certain number of jobs. Typically the investments are structured as limited partnerships which invest the money in the job creating project. The limited partnership interests are typically structured as securities.

The Managing Member of the Issuer engaged Edwin Shaw to market membership interests to prospective investors. Over a three year period, beginning in April 2014, those interests were marketed by the Principal of Edwin Shaw who would meet with prospective investors in the United States. At the meeting there would be a discussion of the prospective investment and detailed information would be furnished.

The Edwin Shaw Principal negotiated an administrative fee with each investor as part of the transaction. That fee ranged from $5,000 to as much as $50,000. It was paid to the Managing Member of the Issuer. The Managing Member’s controller, in turn, paid Edwin Shaw from the administrative fee. About $400,000 of those fees were paid by Edwin Saw to employees and consultants and for distributions to the Principal.

Until August 2016 there was no written agreement between the parties. Subsequently, the Managing Member and Edwin Shaw executed an agreement documenting their relationship. It was backdated to August 2014. The agreement was prepared because the Managing Member’s bank had asked for documentation for the payments.

The Order alleges violations of Exchange Act Section 15(a). To resolve the matter Respondent consented to the entry of a cease and desist order based on the section cited in the Order as well as to a censure. In addition, Respondent will pay disgorgement of $400,000, prejudgment interest of $4,209.20 and a penalty of $90,535.

Previously, the Commission filed a series of similar cases. See, e.g., In the Matter of Kefei Wang, Adm. Proc. File No. 3-16987 (Dec. 7, 2015)(Section 15(a) action settled by attorney who effected transactions in EB-5 securities). This was one of eight such actions filed on the same date (here); see also In the Matter of Ireeco, LLC, Adm. Proc. File No. 3-16647 (June 23, 2015)(first Section 15(a) EB-5 case brought by Commission).

https://www.jdsupra.com/legalnews/sec-files-another-unregistered-broker-72896/

Mentions

• UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Litigation Cases

• UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Edwin Shaw, LLC

States

• New York