Understanding 5 Important Areas Scrutinized During an SEC Investigation

Magnifying Glass

According to recent in-depth coverage in the Regional Center Business Journal, the EB 5 Program is now privy to intensive investigations by the Securities and Exchange Commission, or SEC. Fraudulent documents and processes revealed the need for a closer look at the way investment capital is used across the board. If any of the investigations reveal fraudulent activity or mishandled documents, the perpetrators may be subject to financial or criminal repercussions. By using the recent Chicago Convention Center case as a guide, the investigations successfully reveal fraudulent activity wherever a problem exists.

The investigations focus on five key areas to keep investor funds from ending up misappropriated or otherwise squandered. SEC officers carefully browse through the documents to find document misuse, escrow exploitation, fund misallocation, interpersonal transgressions and Investment Company Act violations.

Five Phases Of the Investigation

The SEC office tends to begin the investigation by scrutinizing the documents to see if anything violates the rules explained in section 10b-5 of the 1933 Act. If the documents reveal any violations, purposeful fraud attempts are assumed and swift penalties are enacted, including possible criminal charges as seen fit by the Justice Department.

When investors place funds in escrow, they assume their investment remains intact and protected for the given duration. SEC officers may look for fraud by weeding through the escrow accounts and comparing agreement totals to the current balances. Investigators take a close look at release conditions to verify depleted escrow accounts met the terms of the agreement.

Furthermore, the SEC officers may explore if the investors’ funds are being used in accordance with the established business plans and budget documents. The investigators do allow some leeway to account for budget discrepancies, but a large mismatch in fund usage versus intended allocation will trigger additional audits and disciplinary action.

To explore possible broker-dealer violations, requests for email, phone call and letter transcriptions are sent out by the SEC employees. The investigation may delve into bank statements and other financial accounts to find and reveal all involved parties. Personal information is not out of bounds during this phase of the investigation. Any improper conduct or insider advice revealed during this phase can result in harsh penalties.

Investigators take a final look at the entire case to determine if any actions violated the applicable securities laws, including the Investment Company Act. Although SEC officers have not yet revealed any entities in violation of this act, any future violators will be handled swiftly according to the penalty schedule used for fraud within the EB 5 Program.

Seeking Legal Representation

Anyone contacted during the subpoena, discovery, deposition or settlement stages of a SEC investigation may need to contact an EB-5 attorney to request legal representation. The attorney will help ensure the individual does not face harsh penalties due to a misunderstanding or other error made by the SEC investigators. Attorneys can also help fight charges and reduce repercussions related to any of the five violation categories.

To contact an immigration lawyer at David Hirson & Partners, LLP, please call (949)383-5358.