The Securities and Exchange Commission, once again, has galloped onto the scene to clean up messes created by the ever-messy EB-5 (immigrant investor) program — this time handing down orders on two different cases within a few days of each other in the week of March 21.
It ordered one set of middlemen, in Florida, to disgorge about $3.2 million in ill-gotten EB-5 fees; in a Washington State case, it consented to a settlement in which an EB-5 lawyer agreed to pay the Commission $278,169 in disgorgement, interest, and penalties.
In both cases the parties had acted as unregistered broker-dealers; one might think that professionals handling multi-million dollar EB-5 deals would know better, but that was not the case. The EB-5 program gives sets of green cards to investors (for the alien, the spouse, and all their children under 21) who provide DHS-licensed regional centers with half-million-dollar investments.
One of the negative glories of the ultra-complex EB-5 program is that there are so many moving parts, and so many players, that there are endless opportunities for illegal behavior, and for lawsuits between and among the participants, as we have reported before. The program represents perhaps the most convoluted possible way to move money from overseas to the United States.
In contrast, a resident of South Africa, for example, who had dumped her local gold mine shares could call her stock market broker and in a matter of a minute or two, and with no fuss and a near zero chance of legal complications, buy $500,000 in U.S. stocks and probably pay a fee of no more than $5,000.
In neither of these SEC cases, unlike some others we have reported, is there a charge of fraud; the people concerned simply failed to register as broker-dealers with SEC.
The Florida case involved two individuals, Stephen Parnell and Andrew Bartlett. They created Ireeco LLC, in Florida, and Ireeco Ltd., in Hong Kong. They used those entities to steer 158 foreign investors to various (unnamed) EB-5 projects in Florida, and counseled the investors who were in the process of making $79 million in investments.
Then the fees, to quote the decision by the SEC administrative law judge, "were paid to them by the EB-5 projects." That may be an oversimplification by the judge, as the logical payers would seem to be the (unnamed) regional centers. The Florida company was told to disgorge $1.7 million and the Hong Kong one $1.48 million.
Meanwhile, again according to the decision, Parnell and Bartlett pocketed all the money from the two companies that they controlled, leaving the sued entities broke and creating a situation in which the decision said: "any disgorgement may be difficult to collect."
The March 24 decision was an initial one by an ALJ, and the litigation may go on for years; so far all it has cost the Ireeco pair are their lawyers' fees.
The Washington State case involved a single attorney, Linda Yoo, and smaller sums of money. In her case she took fees from both the EB-5 alien applicants and the regional centers who received the investments; that sounds like a conflict-of-interest situation to this non-lawyer, but that variable was not mentioned in the SEC document. She agreed to a cease-and-desist order not to violate Section 15(a)(1) of the Exchange Act in the future, and to pay the $278,169 in disgorgements and other penalties.
The government tends to operate in silos, so SEC did its thing regarding its own rules, but did not, in either of these documents, indicate even the names of the regional centers or the EB-5 projects that paid the illicit fees. I think it would be appropriate to go on the record with these names so that everyone — investors, middlemen, and regulators — would know about their past actions. One would hope that a government agency finding that an entity had secured millions in ill-gotten gains would have dropped a note to IRS about that whole situation — maybe SEC did those things, but you cannot tell from these two documents.
But given the life-long record of IRS and Social Security Administration non-helpfulness in connection with enforcing the immigration laws, the attitude of SEC on this point cannot come as a surprise.