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SEC Freezes Assets of EB-5 Asset Manager LLC and Alleged Fraudster Lin Zhong

For alleged EB-5 fraudster Lin Zhong there is a cold winter ahead. A deep freeze. As we expected when news of the case recently broke, the Securities and Exchange Commission (SEC) obtained a court order freezing Zhong’s assets as well as those of her company EB-5 Asset Manager LLC. It is alleged that under the guise of the EB-5 regional center program, Zhong raised at least $8.5 million for EB-5 projects.  Zhong is accused of diverting nearly $1 million to purchase luxury personal items such as a boat, a BMW and a Mercedes. Zhong is the latest alleged EB-5 fraudster to be stopped in her tracks by the SEC.

It is clear that the SEC is now focused on prosecuting EB-5 market participants and issuers who violate the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The allegations here are similar to those alleged in recent cases – the SEC has alleged material misrepresentations and omissions to investors by Zhong.  According to the SEC’s website and recent press release, the Commission also obtained a court order appointing a receiver to administer and manage the business affairs and assets of the company and its subsidiaries for the protection of investors.

What does all of this mean to participants in the EB-5 industry?  In means that the SEC is watching the EB-5 marketplace closely so all participants need to be sure they are taking the necessary steps to protect themselves in these transactions.  There are a number of issues that are common to all in the industry, namely:

  • Deficient or vague disclosures to investors about management fees paid to general partners in deals

  • Failure of a general partner to fulfill fiduciary duties to EB-5 limited partners

  • Comingling EB-5 funds of investors in different projects, or paying back existing EB-5 investors with recently acquire funds meant for new EB-5 projects

  • Undisclosed self-dealing such as land sales between related parties

  • Substandard accounting practices and financial controls

  • Lack of data privacy and cyber-security policies.

The SEC’s willingness to commit resources to EB-5 related investigations and litigation is an indicator that at the Commission there is more awareness, now than ever before, about the EB-5 program. Enforcement is on the rise, so all market participants need to be aware of these issues and take steps to protect themselves. Do not wait for the SEC to come knocking on your door. You should take steps NOW to ensure that your EB-5 regional center has the necessary protective compliance policies in place.

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About this Author

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

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).

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617-348-1689
Francis J. Earley, Mintz Levin, Complex Commercial Disputes Attorney, Class Action Suits Lawyer
Member

Frank is a litigator who skillfully handles a broad range of complex commercial and securities disputes. He frequently represents individuals and public and private companies across numerous sectors, advising on corporate governance issues in cases that challenge, among other things, the terms of a merger or acquisition and directors’ and officers’ actions with regard to the transaction. Representing a wide array of clients in class action cases, SEC investigations and enforcement proceedings, FINRA proceedings, and other arbitration matters is another major part of his practice. Frank is a co-founder of the firm’s Distressed Debt & Claims Trading Practice.

Frank focuses on securities and on complex commercial disputes. His practice includes representing both public and private companies and their directors and officers in class action and derivative suits including mergers and acquisitions and other transactions that implicate directors' and officers' fiduciary duties. Frank also represents corporations, officers, directors, accountants, and other individuals in SEC investigations and enforcement proceedings.

Frank has significant jury and nonjury trial experience in federal court. He has litigated in various state and federal courts throughout the country and has arbitrated extensively before the Financial Industry Regulatory Agency (FINRA, formerly NASD, and the NYSE) as well as the American Arbitration Association and JAMS. He also has mediated a number of disputes before those same bodies.

Frank is also co-founder of the firm’s Distressed Debt & Claims Trading Practice.

As part of our New York EB-5 litigation team, Frank assists clients at all stages in an EB-5 deal with responding to litigation threats or disruptions to a deal. He guides parties through crisis management and litigation and has a particular strength in working with issuers in mitigating risk.

212-692-6230
Douglas Hauer, Corporate Immigration Attorney, Mintz Levin, Immigration EB-5 Financing Securities & Capital Markets Israel
Member

Doug is a noted authority on the EB-5 investor visa program, which gives developers a path for securing capital for real estate, hospitality, and infrastructure projects. His fluency with the program makes Doug an essential resource for companies looking for financing from offshore sources. International entrepreneurs and companies also rely on him when launching a business within the borders of the US. He is ideally positioned to advise clients on immigration and corporate law issues that arise in doing business in the US. 

Doug is a Member in the firm's Corporate & Securities...

617-348-3044