Without much fanfare by the SEC, this past Good Friday (March 25th), an administrative law judge ordered Boca Raton-based Ireeco LLC and Hong Kong-based Ireeco Ltd. to pay $3,179,633 in disgorgement, which is the amount in fees the companies collected with respect to arranging for the investments of 150 EB-5 investors. The action was based on the companies’ failure to have registered as Broker-Dealers. The SEC Press Release from June 23, 2015, can be found at this link:
https://www.sec.gov/news/pressrelease/2015-127.html.
You can also find my original article on this case entitled Miami Vice at: http://discuss.ilw.com/showthread.ph…Matthew-Gordon
There were several notable aspects of this action. Firstly, it was truly a ‘victimless’ crime (if a crime were even committed) as there was no allegation of fraud by any party or any other misdeed apart from failing to register. The judge in the case refused to grant the SEC’s request for further penalties beyond disgorgement noting that “there was no fraud or mismanagement on the part of Ireeco or its owners and that the companies could not have foreseen that the SEC, which had never taken this kind of action before, would come after them for this activity.” See the article appearing on http://www.law360.com/articles/77689…-unlawful-fees by Carolina Bolado for a full summary of the order.
Even the SEC did not take a particularly aggressive stance in this case is it did not seek to get the owner of the two companies named, but only the companies themselves, which had long since transferred the fees. It is important to note that the owners are not personally liable for the disgorgement order against the companies. The SEC essentially gets a free pass uncontested win, by allowing the purported miscreant to keep the fruits of his alleged crimes.
It is possible that the SEC did not want to pick a real fight with someone with sufficient resources to give them a fight. It is notable, that the defendants’ counsel was Joseph Sacher of Gordon Rees, who was the very same securities litigator who handed the SEC a stinging defeat on the very same point of broker-dealer registration in the now famed, SEC v. Kramer case (778 F.Supp.2d 1320 (2011)).
The conclusion of this case (or really the fact that it was pursued at all) is a wholly unsatisfying result. Here, no one was hurt and no one was punished, so why all the bother. As most in the EB-5 community know, there are real transgressions occurring every day that injure investors and the confidence in the overall market. One would hope that the SEC would focus its limited investigative and prosecutorial resources on the cases that matter, instead of racking up meaningless notches on its belt on the ones like this, that don’t.
© 2016 Matt Gordon.
About The Author
Matt Gordon is a noted policy expert in the visa-based investments field and is an authority on structuring visa-based investments. Mr. Gordon’s career spans business operations, finance and law. He is the editor of the EB-5 Book, the legal treatise on the EB-5 program and a frequent lecturer to immigration attorneys. Mr. Gordon has participated in policy events, including those hosted by the White House and Harvard University’s Kennedy School of Government. Prior to founding E3iG, Mr. Gordon was an investment banker for a decade and ran the US division of a Swiss multi-national corporation. Mr. Gordon is a licensed attorney, having practiced mergers and acquisitions law at the beginning of his career with the largest and most reputable Wall Street firms including Fried Frank and Sullivan & Cromwell. Mr. Gordon received his B.S. in Policy Analysis from Cornell University and his J.D., cum laude, from the University of Pennsylvania School of Law.