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  • Article: Much Sound and Fury that Signifies Nothing. By Matt Gordon

    Much Sound and Fury that Signifies Nothing

    by


    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. Reprinted with permission.


    About The Author

    Matt Gordon Matt Gordon's career spans business operations, finance and law. Mr. Gordon is a noted expert in the EB-5 field and is an authority on structuring EB-5 investments. 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.


    The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.

    Comments 1 Comment
    1. Nolan Rappaport's Avatar
      Nolan Rappaport -
      Why didn't they register? Doesn't registration serve some purpose? Certainly it isn't because they didn't have time to register. They acted as a broker for more than 150 EB-5 investors for more than $79 million in investments. Did they follow other brokering laws and requirements? The SEC charges also indicate that it is really just one company. Apparently, the US company created an entity in Hong Kong for tax purposes, which presumably means to avoid American taxes. This makes me wonder what they were avoiding by not registering as a broker.

      I agree with your point that the SEC probably didn't want to go further in litigating this case, but I don't think it was because they were afraid of the lawyer representing the respondents. If their personnel and resources are as short as other government agencies, such as ICE and USCIS, they probably weren't able to conduct a lengthy trial in this case. ICE has 6,000 officers for interior enforcement throughout the entire United States. To put that in perspective, NYC has 34,400 uniform officers, and that is for one city, albeit a very large one.
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