The SEC continued its program of enforcement actions in connection with the Federal EB-5 Program by bringing charges against two firms which raised approximately $79 million for EB-5-related situations. This matter is a little different in that it is the first SEC action to be brought in connection with unregistered broker-dealer activities in the EB-5 context. This action is important and should be reviewed by all participants in the EB-5 arena because it demonstrates the SEC’s willingness to exercise its enforcement powers in connection with these immigration-related matters. It also shows the SEC’s willingness to partner with other regulatory agencies (in this case the U.S. Citizenship and Immigration Services (CIS)). The SEC’s action is summarized in its June 23 press release.
The Federal EB-5 Immigrant Investor Program is designed to provide a way for foreign nationals to achieve legal residency in the U.S. by investing in certain approved U.S.-based businesses or designated regional economic development centers. The requirement for investment in a regional economic development center is generally less than the amount required to invest in a U.S. business under this program.
According to the SEC’s Order, Ireeco LLC and a successor company, Ireeco Limited, acted as unregistered broker-dealers in raising funds from a number of foreign investors. According to the Order, these companies promised to help investors locate the best regional center in which to make their investments, but they allegedly only directed these investors to a small number of regional centers. These regional centers allegedly made payments to the Ireeco companies once the CIS granted certain approvals for conditional residence to the investors. The SEC alleged that the two Ireeco companies raised approximately $79 million in this manner
The SEC’s action was based on rules and regulations that require a person acting as a broker-dealer in a securities transaction to be registered as a broker-dealer. Specifically, the SEC charged that the Ireeco companies willfully violated Section 15(a)(1) of the Securities Exchange Act of 1934 by effecting transactions in, or inducing the purchase or sale of, securities for the accounts of others without registering as a broker-dealer with the SEC or without associating with a broker-dealer registered with the SEC. As seen in the press release, SEC representatives used this action as an opportunity to strongly reaffirm both the importance of broker/dealer registration and the SEC’s willingness to vigorously enforce compliance with these registration requirements.
Neither Ireeco company admitted or denied the SEC’s allegations in this matter, but both of these companies agreed to cease the activities that the SEC alleged were unlawful and to refrain from similar activities in the future. The companies also agreed to participate in future administrative proceedings to determine if economic penalties, such as the disgorgement of profits or the payment of penalties, should be imposed in this matter.
The EB-5 Program has resulted in a significant number of productive immigration situations. When used correctly, this Program can be a win/win situation for both the immigrant and the business or regional center in which the investment is made. Participants should remember, however, that the Federal securities laws directly apply to some aspects of the EB-5 process (as they did in this matter), and accordingly all participants should be sure to seek the proper advice to assure that they comply with the requirements of both immigration and securities laws.