The Securities and Exchange Commission (“SEC”) recently announced its first enforcement action against brokers handling investments in the government’s EB-5 Immigrant Investor Programs (“EB-5 Program”). Since at least January 2010, Ireeco LLC and its successor Ireeco Limited (collectively “Ireeco”) acted as unregistered broker-dealers in connection with the sale of securities related to the EB-5 Program to more than 158 foreign investors who invested a combined total of $79 million. This enforcement case serves as a reminder that the SEC continues to identify appropriate factual scenarios to charge entities and individuals as acting as unregistered broker-dealers.
The EB-5 Program, created by Congress in 1990 and administered by the U.S. Customs and Immigration Services, provides foreign investors an opportunity to apply for U.S. residency based on qualifying investments in certain domestic projects. Qualified EB-5 investors must invest at least $1 million, or at least $500,000 in a Targeted Employment Area, generally a high-unemployment or rural area, in an approved enterprise. While investors may be granted a two-year conditional permanent residency based on that initial investment, permanent residency requires further documentation that the investment created or preserved at least 10 jobs for U.S. workers, excluding the investors and their immediate families.
The SEC charged Ireeco with acting as unregistered brokers for EB-5 investors by soliciting those investors through a website that promised aid relating to the EB-5 program. Ireeco offered to assist investors in choosing the right regional center in which to invest while claiming to be fully independent and able to achieve a 100% success rate in obtaining conditional green cards for its investors. After initial meetings to determine investors’ interests and prospects, Ireeco provided information and “due diligence” on particular enterprises available for EB-5 related investments. Ireeco also registered investors with their chosen enterprise. While Ireeco is not alleged to have collected fees from investors, they did receive commissions averaging $35,000 per investor from the enterprises receiving the investments under referral partner agreements between Ireeco and the enterprises.
Neither Ireeco LLC nor Ireeco Limited was ever registered with the SEC in any capacity. In addressing the need for registration, Eric I. Bustillo, Director of the SEC’s Miami Regional Office, stated that “[t]he broker-dealer registration requirements are critical safeguards for maintaining the integrity of our securities markets, and the SEC will vigorously enforce compliance with these provisions.”
To partially resolve this matter, Ireeco agreed to a cease and desist order based on Exchange Act Section 15(a) and to a censure. The SEC will hold a further hearing to determine if any disgorgement or civil penalties are appropriate.
While the SEC has brought cases regarding the EB-5 Program previously, this enforcement action extends the SEC’s reach into the field of broker dealers and indicates that the SEC is continuing to focus on the EB-5 Program as a source of potential fraud. Perhaps more significantly, the SEC continues to identify appropriate contexts in which to bring charges of acting as an unregistered broker-dealer. This area continues to be facts-and-circumstances driven, as the SEC’s 2008 release stated and as subsequent enforcement cases and letter guidance from the SEC have made clear.