EB-5 Program: SEC Charges Unregistered Broker Dealers

In June 2015, the Securities and Exchange Commission (SEC) charged two companies for acting as unregistered broker dealers for more than 155 EB-5 investors seeking to obtain U.S. permanent residency.

The two companies, Ireeco LLC, based in Florida, and Ireeco Limited, based in Hong Kong, (collectively, “Ireeco”) promised to assist EB-5 investors in choosing the right regional center to invest in. Working with a small amount of regional centers, the regional centers paid Ireeco a commission of about $35,000 per investor (once USCIS approved the EB-5 investor’s I-526 petition).

Ireeco never registered with the SEC to act as broker dealers and they collected more than $3 million in commissions as a result of more than 155 EB-5 investors investing in EB-5 projects.

In a recent hearing, Ireeco was ordered to pay more than $3 million in disgorgement for the illegal commissions they received. Ireeco, however, had taken the commissions and illegally distributed them to two company owners, taking the money out of the companies and claiming the companies had no funds to pay the disgorgement. In response, the Judge ordered that the disgorgement could not be excused due to a lack of funds. This was the SEC’s first enforced action against an unregistered broker deal in connection to the EB-5 Program.

(Disgorgement means: A court can order a wrongdoer to pay back all the illegal profit.)

The SEC also began cracking down on lawyers who acted as unregistered broker-dealers.

In December 2015, the SEC charged lawyers across the country with offering EB-5 investments to EB-5 investors without being registered as broker dealers.

Andrew J. Ceresney, Director of the SEC Enforcement Division, stated that, “The lawyers in these cases allegedly received commissions for selling, recommending, and facilitating EB-5 investments, and they are being held accountable for disregarding the relevant securities laws and regulations.”

One law firm in particular, New York-based Law Offices of Feng & Associates allegedly (according to the SEC press release) acted as unregistered brokers by selling EB-5 investments and failing to disclose their commissions.

The SEC website also lists 7 other law firms that agreed to cease and desist from acting as unregistered brokers, without admitting or denying the SEC’s findings, and 6 of them agreed to pay disgorgement, prejudgment interests, and (a few paid) penalties, many of which were in the tens of thousands of dollars.

According to the SEC, broker registration violations were as following: 

1. The attorneys or law firms received commissions from EB-5 regional centers or their managers for each successful sale of a limited partnership interest.
2. These commissions were separate from legal fees received for providing legal services to the same EB-5 investor clients.
3. The attorneys or law firms engaged in recommending EB-5 investments, acted as liaisons between their clients and the regional centers, or facilitated the documentation of investment funds to the regional center.
4. The attorneys or law firms thereby violated Section 15(a) (1) of the Securities Exchange Act of 1934 and acted as unregistered brokers.

The SEC continues to conduct investigations into unregistered broker dealers and enforces strict mentalities on entities and individuals they find acting as unregistered broker-dealers.