EB-5 Attorneys Charged with $47M in Securities Fraud by SEC and FBI

Story is re-posted from September 05,2014 http://eb5news.com/categories/14-investigations/posts/331-eb-5-attorneys-charged-with-47m-in-securities-fraud-by-sec-and-fbi

A Los Angeles, CA immigration attorney, his wife, law firm partner, and five companies they are invested in are being sued, in a coordinated criminal and civil action, by the Securities and Exchange Commission (SEC) and the Federal Bureau of Investigation for fraud via the EB-5 Immigrant Investor Program. 

The Charges

The SEC’s civil case alleges that Justin Moongyu Lee along with Rebecca Taewon Lee and Thomas Edward Kent raised nearly $11.5 million from two dozen investors seeking to participate in the EB-5 program, which provides immigrants an opportunity to apply for U.S. residency by investing in a domestic project to create jobs for U.S. workers. The project promoted by the group was an ethanol production plant that would be built and operated in Ulysses, Kansas. However, investors’ money was misappropriated for other uses instead of the ethanol plant project. The plant was never built and the promised jobs never created, yet the Lees and Kent continued to misrepresent to investors that the project was ongoing and concealed their failure to generate the jobs required by the EB-5 program by submitting false documents to the USCIS (United States Citizenship & Immigration Services). 

According to the report of the indictment by the Los Angeles Division of the FBI, a federal grand jury in Santa Ana returned a nine-count indictment that alleges Lee took approximately $47 million from 94 foreign investors. The indictment alleges that Lee used advertisements in foreign newspapers and other means to solicit Korean and Chinese nationals to invest $500,000 each, plus another $40,000 for administrative and legal fees. Lee guaranteed small annual returns on the investments, as well as “green cards” for the foreign nationals. But, according to the indictment, Lee did not make the investments in purported biofuel production facilities and he submitted bogus paperwork to U.S. Citizenship and Immigration Services, which administers the EB-5 program.

The ethanol plant was never built and the promised jobs were never created, and the foreign nationals lost their opportunity to obtain permanent residency. The Lees allegedly misused several million dollars raised from the ethanol plant investors for other purposes, such as financing an iron ore project in the Philippines, an allegation that is mirrored in the indictment.

Also sued are Justin Lee’s companies American Immigrant Investment Fund I, LLC; Biofuel Venture IV, LLC; Biofuel Venture V, LLC; Nexland Inc. dba Nexland Investment Group; and Nexsun Ethanol, LLC.

The Project & Players

The plot gets thick. The California Secretary of State lists Lee as the primary contact for the American Immigrant Investment Fund, where the Chinese nationals’ money was initially transferred. A 2007 letter from USCIS names Lee as president of the Kansas Biofuel Regional Center, through which he promoted his EB-5 ventures. Finally, Nexsun’s own website lists Lee as the chairman and founder of the biofuel company. 

Justin Lee and Kent applied to the U.S. Citizenship and Immigration Services (USCIS) in 2006 for designation as a “regional center” under the EB-5 program. They claimed there would be “substantial economic benefit” and “thousands” of new jobs for this area in southwest Kansas as a result of the ethanol plant. However, by mid-2008, construction of the plant at the site was no longer economically feasible, and the Lees and Kent concealed their failure to generate the jobs required by the EB-5 program by submitting false documents to the USCIS. 

They also continued to mislead investors that the proceeds from their investment were being used for the plant and even ran investor seminars in Los Angeles with the ethanol plant as the main part of the presentation even though all construction had halted. In particular, the business plan updated in June 2010 and distributed to investors falsely represented that construction was “ongoing” and the plant would be in operation before November 2011.

“There is an obvious and stark conflict of interest in this case. Mr. Lee and Mr. Kent are EB-5 lawyers who had made direct selling efforts to solicit investors on U.S. soil. They are EB-5 lawyers who represented the investor. They are also the owners of a regional center and project owners who raised capital from the same group of investors they represented. As project owners, they participated primarily in marketing activities on US soil,” said Yi Song of Mona Shah & Associates, an experienced EB-5 attorney. (See her article on this fraud case on our sister site, EB5info.com.)

Prior Allegations

The story of the ethanol plant, to be built by Lee’s company Nexsun Ethanol LLC, began in 2007. According to a 2013 article in Kansas Watchdog.org the 6,000 residents of Ulysses’ high hopes of 50 good-paying jobs had long since vanished as the project came to a halt in just over a year of major promises. 

In February 2013, the State Bar of California (SBC) had filed disciplinary charges against Justin Lee for his role in the ethanol plant, alleging he misappropriated more than $500,000 from a pair of Chinese nationals. According to the SBC, Lee traveled to Asia in 2009 and 2010—two years after breaking ground on the Ulysses plant—to seek out foreign nationals interested in permanent residency in the United States.

A Chinese couple paid Lee to help them through the EB-5 program to secure U.S. residency for themselves and their child. But before their petition was approved, the SBC says, Lee allegedly transferred the couple’s money to Nexsun and spent it between Aug. 18 and Dec. 31, 2010. The Chinese nationals brought a lawsuit against Lee in 2012, and although they settled for $550,000, Lee ended up paying only $300,000, according to the SBC. 

Along with the investors, the town of Ulysses has been duped. In the Kansas Watchdog.org article, County Commissioner Marty Long said, “Nexsun initially poured about $1 million into the location on the western edge of Ulysses, mainly on railroad improvements on the site,” Long said. “Who would spend a million on a project and quit?” Today the site is a ghost town. 

Nexsun did open an herbal pill manufacturing and distribution business in town and also secured a contract to repair the roof of a local building, none of which has anything to do with an ethanol plant that would provide EB-5 investors with their visas. 

Lee is currently in custody in South Korea on charges related to this alleged scheme. South Korea is not obligated to extradite their own citizens to the U.S. for prosecution. Each of the nine wire fraud charges in the indictment carries a statutory maximum penalty of 20 years in federal prison. 

Prior Indications of Instability

A 2010 article in Hutchnews.com covered the trials and tribulations of Kent, Lee and their EB-5 investments going back to 2005. In the article, Michael Gibson, a registered investment advisor who performs due diligence on EB-5 projects through EB-5 News’ parent company USAdvisors, advised against going with biofuel projects and raised concerns about this particular company. 

“Two years ago (2008), his company visited every approved regional center to “do due diligence” and create a portfolio for investors. Lee & Kent was the only company unwilling to meet with him, Gibson said, even after he showed up outside their LA offices,” explains the article.

“We’ve been trying for two years to engage them,” he said. “The message I want your readers to take away is that this is a good program in 22 states. It has brought in billions of dollars in investments to projects that would never have obtained investment in the first place. But there are bad operations out there.”   

Mentions

• Justin Moongyu Lee
• Thomas Edward Kent
• USAdvisors
• Michael Gibson

States

• California
• Kansas