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April 4 2015

SEC – Chicago

The verdict is in for the SEC’s civil action against A Chicago Convention Center, LCC (ACCC), Anshoo Sethi, and International Regional Center Trust of Chicago (IRCTC), in a fraudulent Chicago-based EB-5 venture.

Sethi set up a bogus regional center project and sold $145 million in securities and collected $11 million in administrative fees from more than 250 investors, principally from China. The project and its companies never existed.

While not admitting liability in the consent decree, it is clear that Sethi had his back against the wall with no defense.

The SEC hit a financial homerun for the government and, thank goodness, they stepped in early and all of the EB-5 investors’ $500,000 investments were returned. Here are the basic terms of the sweeping consent decree/judgment:

Disgorgement of $11,524,254 in subscription fees plus prejudgment interest of $169,060.74
To the extent defendants can prove it, this can be offset by brokerage commission credits or rollovers and adjusted accordingly
Civil penalties payable to the SEC from previously frozen assets in a number of banks are $1.4 million against Sethi, and $1.45 million each against ACCC and IRCTC
Sethi is barred from selling securities for 20 years and from owning more than five percent of any entity involving securities and/or having any management control
To assure full force of the penalties, if any investor sues and prevails based on similar facts, the defendants must pay with no credit given for any offset, disgorgement and/or individual penalties; should there be a penalty offset, defendants must pay the amount to the SEC
The egregious conduct by Sethi gave the entire EB-5 program a black eye, and may be part of the impetus for the appointment of Nicholas Colucci as EB-5 chief. Colucci’s background in investigation of suspected financial wrong doing including money laundering, terrorism financing, economic crimes and suspect banking practices gives him both subject matter knowledge and a network of contacts.

I expect more collaboration between the SEC and USCIS in creating policies and practices and reviewing individual cases. Regional centers need to work closely with securities counsel.