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February 8, 2013

SEC Alleges Fraud in Visa-for-Investment Scheme

By Amy Leisinger, J.D.

The SEC has brought an action against A Chicago Convention Center, LLC, Intercontinental Trust Center of Chicago, LLC, and Anshoo Sethi (collectively, the defendants) alleging multiple violations of the of the Securities Act and the Exchange Act. As the fraud is ongoing and over $145 million of investor funds remains at risk of misappropriation, the SEC seeks to enjoin the defendants' violations of the antifraud provisions of the federal securities laws, to freeze their assets, and impose sanctions in the form of disgorgement and civil penalties (SEC v. A Chicago Convention Center, LLC, et al., February 6, 2013).

In its complaint, the SEC alleges that, over the past 18 months, the defendants have perpetuated a large-scale hotel investment scheme to exploit a federal visa program that allows foreign nationals to obtain U.S. residency by investing in domestic projects that will create a minimum number of jobs for U.S. workers. According to the SEC, the defendants targeted Chinese investors for investments, purportedly to finance and build an environmentally friendly hotel and conference center in the Chicago area.

Alleged fraudulent activities. According to the SEC, the defendants have fraudulently sold over $145 million in securities and collected an additional $11 million in administrative fees from more than 250 investors by using false and misleading information in their solicitations. The SEC further alleges that the defendants have made materially false and misleading statements in their correspondence with, and have provided falsified documents to, U.S. Citizenship and Immigration Services (USCIS) to secure its preliminary approval of the project and provisional visas for the investors.

Under the offering memorandum, the investors' funds are to be held in escrow until USCIS determines that the project is capable of generating the jobs required to qualify under the investment program and adjudicates the investors' applications for provisional visas. The SEC noted that the offering memorandum states that the fees are fully refundable if an investor's visa application is rejected but alleged that the defendants have already dissipated over 90 percent of the fees collected, some of which was directed to Sethi's personal bank account in Hong Kong.

Specific misrepresentations. The SEC alleges that the private offering memorandum used to solicit investors falsely claims that several major hotel chains have signed on to the project. According to the SEC, the offering memorandum prominently features the participation of three major chains in the project: Starwood Hotels, Intercontinental Hotel Group, and Hyatt Hotels. The offering memorandum also states that the hotels have executed franchise agreements to locate at the site. However, none of these hotel chains have executed franchise agreements with the defendants or agreed to participate in the project described in the offering memorandum. Although Intercontinental Hotels and Starwood Hotels had previously entered into franchise agreements with Sethi and other companies affiliated with him, their business relationships were terminated well before the offering memorandum was circulated. The SEC stated that the defendants did not disclose these material facts to investors or in the documents provided to USCIS. Moreover, the SEC alleged, the defendants submitted a letter to USCIS purporting to be a "comfort letter" from Hyatt Hotels, which has stated that the letter is not genuine.

According to the complaint, the defendants also misrepresented that all necessary permits and approvals for the project have been acquired and substantially overestimated and/or miscalculated the value of the land they planned to contribute to the project and the potential number of jobs to be created, which the SEC believes constitute material facts for both investors and USCIS. The SEC also alleges that the defendants misrepresented their "backup financing" prospects with Qatar Investment Authority (QIA) in a letter to USCIS; when questioned, QIA informed the SEC that the letter is not authentic and was not issued on the authority of QIA.

Proposed sanctions. Asserting that the defendants knowingly, or with reckless disregard for the truth, falsified documents and submitted them to USCIS and made false and misleading statements in the offering memorandum, the SEC alleges that the defendants violated Section 17 of the Securities Act, as well as Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC requested that the court restrain the defendants from engaging in the practices described in the complaint, freeze their assets and subject them to an accounting, order the return of any investors' funds to the United States to be frozen, prevent the destruction of books and records, and order disgorgement and civil penalties.

Companies: A Chicago Convention Center, LLC; Hyatt Hotels; Intercontinental Trust Center of Chicago, LLC; Intercontinental Hotel Group; Starwood Hotels

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