The SEC announced today that it has obtained settlements in the civil action related to the Chicago Convention Center case. A link to that announcement can be found here: “SEC Press Release on Chicago Case Settlement” and the full press release can be found here: http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513998#.UynJ3oXeQ6E
The penalties are significant from the civil perspective, including million dollar plus fines and a 20 year ban on offering or selling securities issued by any entity owned or controlled by the defendants.
At its heart, this case was about garden variety fraud. The sponsors knew material information they were telling to investors was not accurate, they had every expectation that the investors were going to rely on the information and the investors in fact did rely on the information.
Beyond the significant financial and emotional harm to the individual investors, what was and continues to be at stake is so much greater. The EB-5 Program, despite its twenty plus year history, is just coming of age. It is growing in breadth and popularity across the globe. While the current visa cap is limited to 10,000, there is no reason that in future this program could not be expanded to many times its current size as bringing foreign direct investment capital into private business to grow the American economy and create jobs is perhaps the finest example of immigration policy. The only reason for the EB-5 Program’s failure would be a lack of demand brought about by investors losing confidence in the program. As my readers now know well, I have long called for a cleaning up of the ‘best practices’ of our industry. Sponsors must be mindful of the US Securities Laws. While the application of these laws and regulations to the extra-territorial nature of the EB-5 program is difficult, it is nonetheless crucially critically important. For the EB-5 program and its stakeholders to be successful, the investors must have confidence that investment sponsors say what they do and do what they say.
The SEC should be applauded for going after the truly bad apples in the industry and holding them accountable. There is no place, under any circumstances, for engaging in fraud at any level. As the industry continues to mature, all stakeholders will need to work together to ensure that the program is regulated effectively so sponsors can conduct their operations to raise needed EB-5 capital in a way that engenders market confidence.