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From Securities Regulation Daily, August 6, 2018

SEC charges South Florida individuals and entities in EB-5 investment scheme

By Rebecca Kahn, J.D.

The SEC has charged two Florida residents in a securities fraud case for targeting immigrant investors. The SEC alleged that, over a period of more than two years, Joseph Walsh and Robert Matthews defrauded dozens of foreign investors participating in the EB-5 visa program. Administered by the U.S. Citizenship and Immigration Services, EB-5 gives foreign nationals the opportunity to qualify for permanent U.S. residency in exchange for a significant investment in domestic, job-creating projects (SEC v. Palm House Hotel LLLP, August 3, 2018).

The scam. According to the SEC's complaint, from November 2012 to March 2015, Walsh raised close to $44 million from at least 88 foreign investors in order to acquire, develop, and operate a Palm Beach hotel controlled by Matthews. Allegedly, Walsh misappropriated more than $13 million and Matthews misappropriated approximately $8 million of the investor funds. Matthews used some of the misappropriated funds to buy a 151-foot yacht and to redeem his former Connecticut home from foreclosure. In addition, Walsh and two companies he controlled—Palm House Hotel LLLP (PHH) and South Atlantic Regional Center, LLC (SARC)—allegedly misled investors about the use of an escrow account that purportedly held investor funds prior to disbursement to the hotel and about Walsh's and Matthews' backgrounds. In March 2018, Matthews was indicted for wire and bank fraud in connection with his activities related to PHH and Palm House LLC.

Charges. The complaint charged Walsh, PHH, and SARC with violating Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 and seeks permanent injunctions, disgorgement of ill-gotten gains with interest, and penalties. It also charged Matthews with violating Securities Act Sections 17(a)(1) and (a)(3) and Exchange Act Section 10(b) and Rules 10b-5(a) and (c) and with aiding and abetting PHH, SARC, and Walsh's violations.

Relief defendants. The SEC complaint also charged 160 Royal Palm, LLC and U.S. Regional Economic Development Authority LLC d/b/a EB5 Petition as relief defendants in an attempt to recover investor funds they received from Walsh and his entities or Matthews.

The case is No. 9:18-civ-81038.

Attorneys: Alejandro Oscar Soto for the SEC.

Companies: Palm House Hotel, LLLP; South Atlantic Regional Center, LLC

MainStory: TopStory FedTracker Securities FraudManipulation InternationalNews FloridaNews

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