SEC Enforcement Actions and Exam Priorities


Kurt: Since 2013, when the SEC filed its first enforcement actions related to EB-5, it has been vigorously pursuing and investigating misconduct and abuses. 

Last year I estimate there were twenty (20) SEC enforcement actions related to the EB5 program. The actual figure is unknown as the SEC doesn't publish all enforcement actions, however I was able to dig up ten (10) distinct SEC press releases.

Lori, do you have any thoughts about how the SEC approached the EB5 industry last year and how it might approach 2016?

Lori: As we have seen in the past several years, the SEC has been delving into what might be considered the more egregious of the EB5 projects, or at least those that were least able to account for their funds in some way. What the SEC essentially went after was the low-hanging fruit. And it seems to me that these more egregious cases might have piqued their interest in the industry and in EB5 in general.

Then, of course, the SEC typically expands its scope. Originally, it was just this easily identifiable fraud, where money was taken or not spent as it was intended. But then the SEC began delving further, investigating immigration attorneys and considering whether they were conducting unregistered broker-dealer activity, which I think we all know is a subject of particular interest to the SEC.

Again, using the low-hanging fruit analogy, the SEC appears to be delving more deeply into the issue of unregistered broker-dealers , and I think we can expect to see even more of that going forward.

We may learn more this year, by the actions the SEC brings, as to exactly what conduct is construed as unregistered broker-dealer activity. Then we may see various other aspects of the securities laws enforced.

We already know that anything concerning private placements is of interest to the SEC and is a stated examination and enforcement priority. I also think we might see inquiries into investment adviser registration as well. Ultimately, I think we will be seeing more, not less, from the SEC.

Kurt: The one thing that struck me as unusual is that the SEC came out with examination priorities for 2016. During the EB5 investor conference last weekend, John Tishler, Mike Homeier and Bob Cornish were on a panel and they all seemed to agree that they were surprised and alarmed to see EB5 being identified as an SEC examination priority, which appeared in a 4½ page annual priorities document ‘SEC Examination Priorities in 2016’

Lori: And it's in the FINRA list as well. We can expect that if the SEC and FINRA put this in a priority letter that we won’t see just examinations of these issues but enforcement actions as well.

Kurt: One of the comments Michael Homeier made during the conference that struck me was that SEC examiners typically get promoted by bringing successful enforcement actions. Considering the fact that their focus is obviously on their examination priorities, these guys are very much incentivized to dig up as much as they can on EB5 players for their own personal benefit. Obviously, its an important time.

This post originally appeared on EB5 Diligence. Reprinted with permission

About The Author

Kurt Reuss Kurt Reuss provides all his clients with free access to due diligence reports as a licensed broker dealer representative with Primary Capital. Mr. Reuss co-founded EB5 Diligence as a way to provide his clients with the most thorough due diligence reports possible and works closely with investors to assist them in selecting a suitable EB-5 investment.

Lori Patterson Lori H. Patterson, shareholder in the Baker Donelson's Memphis office, concentrates her practice in securities litigation and litigation involving governmental entities. Ms. Patterson regularly represents broker-dealers, registered investment advisers and financial institutions in (1) customer initiated arbitrations and litigation; (2) enforcement proceedings and investigations by the SEC, self-regulatory organizations and state securities regulators; and (3) intra-industry disputes such as "raiding" claims, claims related to non-competition agreements, the theft of trade secrets and injunctive proceedings. Specifically Ms. Patterson has extensive experience in defending claims and regulatory actions related to private placements, alternative investments and Immigrant Investor Program (EB-5) offerings.

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