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“The Cold Never Bothered Me Anyway!” SEC Again Uses Its Power To Freeze An Alleged EB-5 Scam

Like Elsa, the Princess in Disney’s classic Frozen, once again the Securities and Exchange Commission (SEC) has utilized its power to freeze. In this case, the freezing of assets. In what has become an increasingly common tactic, the SEC successfully sought to freeze assets of several individuals and corporate entities in a complaint it recently brought alleging fraud in connection with securities offerings for projects under the EB-5 immigration program. As we have reported previously, particularly in the EB-5 space, the SEC has in recent years utilized the asset freeze as an enforcement tool. The EB-5 program allows foreign investors to apply for green cards in exchange for a minimum $500,000 investment in a job-creating enterprise.  

In its case against Edward and Jean Chen, both residents of Arcadia, California, the SEC alleged that the Chens engaged in a “staggering” misappropriation of investor funds – diverting to themselves at least $8.6 million of the $9.5 million they raised from investors in one project, and another $3.5 million of investor funds from a second project. Rather than use the investors’ money for the EB-5 approved projects, the SEC claimed that the Chens took it for their own use, purchasing numerous foreclosed residential real estate properties.

Last week, Judge Anderson in the US District Court for the Central District of California agreed with the SEC, “that good cause exists to believe that, unless restrained and enjoined by order of this Court, Defendants will dissipate, conceal, or transfer assets which could be the subject to an order directing disgorgement or the payment of civil money penalties in this action” and froze 16 separate bank accounts controlled by the Chens. In addition, Judge Anderson appointed a receiver to take control of the several related corporate entity defendants the Chens controlled and also ordered the Chens and the corporate defendants to submit an accounting of all property valued at $5,000.00 or more.

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About this Author

Adam Sisitsky, Mintz Leving Law Firm, Boston, Corporate and Litigation Law Attorney

Adam is an experienced trial attorney and litigator whose practice encompasses a wide range of matters focusing on business and securities litigation, internal investigations, and government enforcement actions. Adam represents corporations, officers, directors, accountants, and other individuals in SEC investigations and enforcement proceedings, as well as in civil litigation. He routinely counsels public and private companies and others in matters involving compliance issues, including matters arising under the Foreign Corrupt Practices Act (FCPA).

Douglas Hauer, Corporate Immigration Attorney, Government Investigations, Mintz Levin Law

Doug is a Member in the firm's Corporate & Securities Practice and Immigration Practice. On the corporate side, he focuses on private offerings and related securities work. Doug serves as counsel to developers and businesses seeking capital through the EB-5 investor visa program. He also counsels lenders, private equity firms, and EB-5 Regional Centers on all aspects of EB-5 financing. In the immigration law space, Doug represents corporate, institutional, and individual clients in routine and complex immigration matters. He has in-depth experience advising companies on the immigration consequences of corporate restructuring. He also advises businesses on the legal aspects of establishing new offices and operations in the US.

Doug also has experience counseling ultra high-net-worth individuals on all aspects of the US visa process, dual nationality, expatriation from the United States, and green card relinquishment. He is frequently called on by tax lawyers and accountants to resolve novel immigration issues that arise in counseling individuals on US tax compliance. He also has experience representing investors seeking permanent residence status through the EB-5 program. 

Doug serves as Co-chair of Mintz Levin’s EB-5 Financing Practice and is also active in the firm's International Practice.