SEC Charges Immigration Attorneys With Defrauding Investors Seeking U.S. Residence; SEC-USCIS Issue Joint Alert

The Securities and Exchange Commission recently charged a Los Angeles, California-based immigration attorney, his wife, and his law firm partner with conducting an investment scheme to defraud foreign investors trying to come to the United States through the EB-5 Immigrant Investor Program.

The SEC alleges that Justin Moongyu Lee, Rebecca Taewon Lee, and Thomas Edward Kent raised nearly $11.5 million from two dozen investors seeking to participate in the EB-5 program.  The Lees and Mr. Kent informed investors that they would be EB-5−eligible if they invested in an ethanol production plant that they would build and operate in Ulysses, Kansas.  However, they misappropriated the investors’ money for other uses instead.  They never built the plant and never created the promised jobs, and the Lees and Kent continued to misrepresent to investors that the project was ongoing.

In a parallel action, the U.S. Attorney’s Office for the Central District of California announced criminal charges against Justin Lee.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, the investors defrauded by the Lees and Kent were primarily of Chinese and Korean descent.  Justin Lee and Mr. Kent applied to U.S. Citizenship and Immigration Services (USCIS) in 2006 for designation as a regional center under the EB-5 program.  They claimed there would be “substantial economic benefit” and “thousands” of new jobs for the area in southwest Kansas.  However, by mid-2008, construction of an ethanol plant at the site was no longer economically feasible, and the Lees and Mr. Kent concealed their failure to generate the jobs required by the EB-5 program by submitting false documents to USCIS.

In the meantime, the SEC alleges, when Justin Lee was running low on cash and having difficulty obtaining financing, he took money out of investor escrow accounts without the investors’ knowledge before the approval of their applications for U.S. residence.  Mr. Lee and his wife subsequently misused several million dollars raised from the ethanol plant investors for other undisclosed purposes, such as financing an iron ore project in the Philippines and repaying investors in other unrelated offerings.

According to the SEC’s complaint, the Lees set up and conducted investor seminars in Los Angeles at which the purported ethanol plant project was the main focus of the presentation, despite the halt of construction in 2008.  Mr. Kent, who visited the site frequently in 2008 and 2009 and knew no construction was taking place, also participated in the seminars.  Investors continued to be misled that the proceeds from their investment were being used to construct an ethanol plant.  In particular, the business plan updated in June 2010 and distributed to investors falsely represented that construction was “ongoing” and that the plant would be in operation before November 2011.

The SEC’s complaint charges the Lees, Mr. Kent, and five companies founded and controlled by Justin Lee (American Immigrant Investment Fund I, Biofuel Venture IV, Biofuel Venture V, Nexland Investment Group, and Nexsun Ethanol) with violations of §§ 17(a)(1), (2), and (3) of the Securities Act of 1933 and § 10(b) of the Securities and Exchange Act of 1934 as well as Rule 10b-5(a) and (c).  Justin Lee, Mr. Kent, and the entities also are charged with violating Rule 10b-5(b).  The SEC’s complaint seeks disgorgement, prejudgment interest, and penalties along with permanent injunctions.

The Association to Invest In the USA (IIUSA), a trade association representing more than 200 EB-5 regional centers, released a statement supporting the SEC’s actions in this case.  

SEC-USCIS joint alert. In response to similar cases, in 2014 SEC and USCIS issued a joint alert cautioning potential EB-5 investors about phony regional centers posing as legitimate investment opportunities.  The joint alert includes information about steps to take to research any offering that purports to be affiliated with the EB-5 program.  For example, would-be investors should:

• Confirm that the regional center has been designated by USCIS; 
• Obtain copies of documents provided to USCIS;
• Request investment information in writing;
• Ask if promoters are being paid;
• Seek independent verification;
• Examine structural risk;
• Consider the developer’s incentives; and
• Look for warning signs of fraud.

The joint alert notes that hallmarks of fraud may include: 

Promises of a visa or becoming a lawful permanent resident—investing through EB-5 makes a person eligible to apply for a conditional visa, but there is no guarantee that USCIS will grant a conditional visa or subsequently remove the conditions on lawful permanent residence.  USCIS noted that it carefully reviews each case and denies cases where eligibility rules are not met.  “Guarantees of the receipt or timing of a visa or green card are warning signs of fraud,” the alert notes;

• Guaranteed investment returns or no investment risk;
• Overly consistent high investment returns;
• Unregistered investments;
• Unlicensed sellers; and
• Layers of companies run by the same individuals.

See also:

• The SEC’s announcement is available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542843452#.VDnK4JDD-71.  
• The SEC’s complaint is available at http://www.sec.gov/litigation/complaints/2014/comp-pr2014-184.pdf. 
• IIUSA’s statement is available at https://iiusa.org/blog/category/press-room/press-releases/.  
• The SEC-USCIS joint alert is available at http://www.sec.gov/investor/alerts/ia_immigrant.htm. 

Confirm that the regional center has been designated by USCIS; 
Obtain copies of documents provided to USCIS;
Request investment information in writing;
Ask if promoters are being paid;
Seek independent verification;
Examine structural risk;
Consider the developer’s incentives; and
Look for warning signs of fraud.
The joint alert notes that hallmarks of fraud may include: 
Promises of a visa or becoming a lawful permanent resident—investing through EB-5 makes a person eligible to apply for a conditional visa, but there is no guarantee that USCIS will grant a conditional visa or subsequently remove the conditions on lawful permanent residence.  USCIS noted that it carefully reviews each case and denies cases where eligibility rules are not met.  “Guarantees of the receipt or timing of a visa or green card are warning signs of fraud,” the alert notes;
Guaranteed investment returns or no investment risk;
Overly consistent high investment returns;
Unregistered investments;
Unlicensed sellers; and
Layers of companies run by the same individuals.
The SEC’s announcement is available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542843452#.VDnK4JDD-71.  The SEC’s complaint is available at http://www.sec.gov/litigation/complaints/2014/comp-pr2014-184.pdf.  IIUSA’s statement is available at https://iiusa.org/blog/category/press-room/press-releases/.  The SEC-USCIS joint alert is available at http://www.sec.gov/investor/alerts/ia_immigrant.htm.