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From Securities Regulation Daily, December 14, 2018

Developers repay over $50M to investors in connection with fraudulent EB-5 offering

By Amy Leisinger, J.D.

The SEC has charged three Houston-area real estate developers with misusing foreign investor funds raised under the EB-5 Immigrant Investor Program on unrelated projects. According to the Commission, the developers told investors that their funds would be used exclusively for large, mixed-use real estate development projects, but the developer instead transferred over $20 million of investor funds to a separate entity to fund two unrelated projects. Further, the SEC alleged, the offering materials provided to investors improperly described the roles of two real estate experts. Without admitting or denying the Commission’s findings, the developers agreed to settle the matter and have already repaid $49.5 million that they raised from the investors (In the Matter of America Modern Green Senior (Houston) LLC, America Modern Green Community (Houston) LLC, and America Modern Green Residential (Houston) LLCRelease No. 33-10584, December 12, 2018).

EB-5 projects. Crown Point Regional Center, a "regional center" approved by U.S. Citizenship and Immigration Services in May 2011 to participate in federal government’s the EB-5 program, sponsored the real estate developers’ efforts to raise money to fund three separate residential and commercial developments. The developers told investors that their funds would solely be used to finance development and construction in mixed-use development projects located near Houston and, from May 2015 through March 2017, ultimately raised of $49.5 million from 90 Chinese investors.

Alleged fraud. According to the SEC, however, the developers did not use the investor funds as promised and improperly transferred $20.5 million of the investors’ funds to fund purchases with respect to two unrelated real estate projects by another entity. The developers did not disclose the use of investor funds for purposes wholly unrelated to the projects, the Commission alleged. In addition, the SEC stated, the developers provided investors with offering materials that misstated the purported management roles two real estate experts in the development projects.

By this conduct, the Commission alleged, the developers violated the antifraud provisions of Securities Act Sections 17(a)(2) and 17(a)(3).

Sanctions. To settle the matter, the developers collectively agreed to pay disgorgement of $49.5 million, plus $1,144,135 in interest, and an $800,000 penalty. In determining to accept the offer, the Commission considered remedial acts undertaken by the respondents, including the replacement of the misused funds prior to Commission staff intervention and the advanced repayment of $49.5 million to investors. The order deems the disgorgement satisfied by repayments made and provides that the interest will be distributed to the investors. The SEC also imposed a cease-and-desist order and required the respondents to provide a copy of its order to all 90 investors.

The release is No. 33-10584.

MainStory: TopStory Enforcement FraudManipulation

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