The EB-5 Immigrant Investor Program helps to secure the growth of the US economy. Unfortunately, some project managers or issuers have taken advantage of the program by defrauding immigrant investors. When an issuer has failed to disclose material facts in an EB-5 offering, the investor may be able to retain remuneration under supervision by the Securities and Exchange Commission (SEC), including suing the issuer, the project, and other individuals involved with the EB-5 offering.
Historically, due to its nature as a relatively emerging market, there has been little enforcement action or lawsuits against EB-5 attorneys, brokers, and others involved in the EB-5 offering process. However, as the EB-5 market matures, an analysis of recent cases and SEC actions reveal pending investigations and litigation may now include personal penalties, such as incarceration, the freezing of assets, disgorgement of compensation paid to them as individuals, and many more negative consequences, as explained by Michael G. Homeier and Osvaldo F. Torres. Take a look at some of the lessons learned from these recent cases.
Claims of Fraud Drive Filings.
With the exception of SEC administrative proceedings, the most common cause for filing a lawsuit against the issuer or individuals involved with EB-5 remains claims of fraud. Although SEC rulings require the disclosure of material issues, risks, and plans for a project, issuers may misappropriate investment funds or fail to fulfill obligations as planned. Therefore, disclosure may not be a sufficient defense for a claim of fraud.
Incarceration Is on the Table For Individuals.
Litigation against a project plan or manager has focused on addressing the potential assets and business actions of the respective organization. Yet, recent SEC penalties have started to include repayment of investments, permanent injunctions, civil penalties, and even incarceration of individuals. As a result, issuers must understand that financial remuneration is no longer the only potential consequence.
Take Action to Stop Fraud.
Historically, issuers have been required to disclose the risks and other material information about a given project prior to the investor’s decision. Unfortunately, this simplistic requirement has led to a position in which investors may blindly invest in a project. As a result, many organizations should take action to create a structured plan, which would prevent any possibility of misunderstanding or suspicious activity that may indicate fraud or inadequate disclosure of material facts.
SEC cases are dramatically changing how the EB-5 program functions. Penalties seem to be growing stronger, such as taking legal action against EB-5 attorneys who knowingly misrepresented a broker or issuer. To help prevent SEC enforcement actions, create a strong structure, retain knowledgeable securities counsel, and contact a knowledgeable EB-5 attorney at David Hirson & Partners, LLP at (949) 383-5358 today.