EB-5 Misappropriation: SEC Cases and What Investors Recovered

If the developer behind your EB-5 project spent investor money on things the offering never allowed, other EB-5 investors have been there. In the Vermont ski-resort and Chicago-area hotel cases below, the SEC brought antifraud charges against people and companies it accused of misleading investors about how their money would be used. In the Vermont case, $150 million came from a brokerage firm. In Chicago, investors got back the principal the SEC froze early, but most of their fees went unrecovered.

This post is part of a series on legal options for EB-5 investors. The cases below include the amounts investors actually recovered.

What does misappropriation look like in an EB-5 project?

A regional center is an economic unit, “public or private” (8 C.F.R. § 204.6(e)), that the Secretary of Homeland Security has designated to sponsor pooled EB-5 investments (8 U.S.C. § 1153(b)(5)(E)). Investors buy an interest in a new commercial enterprise (NCE), such as a limited partnership. The NCE then lends or invests the money in a job-creating entity (JCE), which the statute describes as the business responsible for creating the jobs (8 U.S.C. § 1153(b)(5)(D)).

The cases in this post show a few patterns described by the SEC and a court-appointed receiver. In a Seattle case, the receiver reported that money moved among the developer’s companies and concluded the transactions could not be unwound. In the Vermont case, the SEC alleged that money raised for later projects covered deficits in earlier ones. In a Queens case, the SEC alleged that developer-owned entities acted as developers and contractors and “received substantial payments of investor funds” (SEC litigation release). In the Vermont and Seattle cases, the SEC alleged that some of the money paid for the developer’s own taxes or home.

In the Seattle case, the SEC alleged that a developer’s companies raised at least $125 million from 250 Chinese investors for a downtown skyscraper and a mixed-use project in Everett, Washington. According to the SEC’s August 2015 announcement, “[the developer] diverted $14 million for unrelated real estate projects and $3 million for personal use including the purchase of his $2.5 million home and cash withdrawals at casinos.”

The SEC also alleged that the developer never told investors he had strayed from the business plan approved by immigration authorities, which put their petitions at risk too.

What happened to the Vermont ski-resort investors?

In April 2016 the SEC sued the then-owner of a Vermont ski resort, the resort’s then-CEO, and a group of related companies (S.D. Fla. No. 1:16-cv-21301). The SEC’s complaint alleged that the two men ran seven EB-5 limited partnership offerings and “systematically looted more than $50 million of the more than $350 million that has been raised from hundreds of foreign investors.” The SEC said investors were promised their money would fund only their own project. “Instead, in Ponzi-like fashion, money from investors in later projects was misappropriated to fund deficits in earlier projects,” the agency said in its press release. The alleged uses included buying the resort itself, a luxury condominium, and an unrelated ski resort.

The court froze assets and appointed a receiver over the companies “to prevent any further spending of investor assets,” the SEC said.

The receiver went after a brokerage firm whose accounts, according to the SEC’s complaint, much of the investor money had passed through. In April 2017 he asked the court to approve a settlement, reporting that “[the brokerage firm] will be paying One Hundred Fifty Million Dollars ($150,000,000.00).” In the same motion, he told the court the money would let him “refund one-hundred percent of the principal investment for many Investors.” The motion said the firm denied any participation in the fraud and settled “without admission of any liability.” The court granted preliminary approval two days later and final approval in June 2017.

The resort’s owner settled with the SEC in 2018 without admitting or denying the allegations (SEC release). The court entered a consent judgment in February 2018 and an amended one in May 2018, holding him liable for $81,344,166 in disgorgement (paying back profits from the conduct the SEC alleged), $2,515,798 in interest, and a $1,000,000 penalty, to be satisfied by turning over the resort, other properties, bank accounts and other funds to the receiver (court docket). The CEO also settled without admitting or denying the allegations. The SEC said that “[the CEO] was not alleged to have personally profited from the fraud,” and he agreed to a $75,000 penalty and a bar from future EB-5 offerings.

In the criminal case, the owner pleaded guilty under a plea agreement to conspiracy to commit wire fraud, money laundering, and concealment of a material fact, and the government dismissed the remaining counts, according to the court’s judgment and sentencing minute entry. In April 2022 a federal judge in Vermont sentenced him to 60 months in prison and ordered $8,338,600.77 in restitution.

Note where the $150 million came from: a financial firm, not the developer.

What claims have EB-5 investors brought?

The Supreme Court noted in a 2020 EB-5 decision (591 U.S. 71, discussed below) that “Investments in EB-5 projects are subject to the federal securities laws.” The SEC brought the Vermont and Chicago cases under the antifraud provisions of the Securities Act and the Exchange Act. The Vermont resort investors’ class action (S.D. Fla. No. 1:16-cv-21575) pleaded fraud and Florida racketeering (RICO) claims against the resort’s owner, and aiding-and-abetting and civil conspiracy claims against him and the escrow bank. The court later dismissed the claims against the escrow bank for lack of personal jurisdiction. In a 2023 Texas appellate memorandum opinion (No. 14-22-00197-CV), an investor whose $1 million went into the promoter’s other businesses had won a jury verdict on fraud, conversion (taking property that belongs to someone else), and fiduciary-duty claims.

Investors in another EB-5 case lost some claims on a different ground. Chinese investors in an electric-car venture sued over their EB-5 investments. A federal district court dismissed their breach-of-fiduciary-duty, unjust-enrichment and negligence claims because those claims belonged to the limited partnership. As the Fourth Circuit described that ruling, “[a]ny recovery to be had would be to the Limited Partnership and not to the individual [p]laintiffs.” The Fourth Circuit affirmed in 2019 (No. 18-2194, 927 F.3d 177).

The Fourth Circuit explained the test under Delaware law, which applied through a choice-of-law clause in the subscription documents: “Whether a claim is direct or derivative under Delaware law turns on whether the partnership suffered the alleged injury and whether it would receive the benefit of any recovery.” The investors’ fraud claims failed for a different reason. The court affirmed their dismissal because the complaint did not adequately allege that the investors justifiably relied on the statements.

What happens when a receiver takes over?

In the Seattle case, the receiver disposed of nearly all the receivership assets, reviewed claims that investors and others submitted under court-approved procedures, and then proposed a distribution plan.

Commingling complicated that work. The receiver told the court that the developer and his companies had made “extensive transfers of cash and purported loans between and among themselves.” His conclusion: “In light of the commingling of assets, the Receiver concluded early on that unwinding of these transactions was not possible” (distribution motion). So he pooled everything and proposed paying allowed claims pro rata, meaning each claimant gets the same percentage, instead of tracing each investor’s dollars back to one project.

The court entered a consent judgment against the developer for $18,391,182 in disgorgement and interest, but deemed it satisfied by his surrender of the receivership assets and by a separate criminal restitution order. In the criminal case he pleaded guilty to conspiracy to commit wire fraud and to a scheme to conceal information from the United States, received 48 months in prison, and the amended judgment set restitution at $23,477,190.

The Supreme Court has also limited what the SEC can take. In a 2020 decision (591 U.S. 71), itself an EB-5 case about a proton-therapy cancer center, the Court held that “a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible under §78u(d)(5).” Under that decision, disgorgement is limited to net profits and must be awarded for victims. Congress added an express disgorgement provision in 2021, and in a 2026 decision (No. 25-466) the Court held that “traditional equitable principles do not require a showing of pecuniary loss to justify a disgorgement award.”

How much did investors get back?

In 2013 the SEC charged an individual promoter and two companies with securities fraud in the sale of more than $145 million in EB-5 interests for a planned hotel and convention center near O’Hare Airport (N.D. Ill. No. 1:13-cv-00982). The SEC alleged that the promoter gave immigration authorities falsified documents and that his companies spent more than 90 percent of the administrative fees they had promised to refund if visas were denied (SEC release).

Because the SEC acted while the investment principal was still in escrow and frozen, the court ordered the return of “the entire $147 million of principal that had been frozen.” The defendants later consented, without admitting or denying the allegations, to a judgment of more than $11.5 million in disgorgement and interest, subject to offsets, plus penalties (SEC litigation release). When the court approved a distribution plan in December 2018, the fund held about $1,468,718.80, and the SEC-authorized notice to investors stated: “More than $11 million in Administrative Fees paid by the Investors remain uncompensated.”

In the Vermont case, investors had a receiver and a financial firm that agreed to pay $150 million. In Chicago, the SEC reported returning “the entire $147 million of principal that had been frozen pursuant to the SEC’s motions” (SEC litigation release), and most of the fees stayed unpaid.

In the Chicago case, the judgment was several times larger than the roughly $1.47 million the fund held when the distribution plan was approved.

Frequently asked questions

The SEC already sued the developer. Can investors bring their own case?

The Vermont resort investors filed their own class action weeks after the SEC sued, and the receiver and investor class counsel together settled with the brokerage firm. Under the 2020 Supreme Court decision, disgorgement the SEC obtains must be awarded for victims. In the Chicago case, the distribution fund held about $1.47 million against an $11.5 million judgment.

Can I sue the bank or the escrow agent?

In the Vermont case, a brokerage firm paid $150 million through a settlement with the receiver and investor class counsel. In the investor class action, the court dismissed the claims against the escrow bank for lack of personal jurisdiction (docket).

Will suing hurt my green card?

Ask your immigration lawyer before filing anything.

What to do now

1. Gather your offering documents: the private placement memorandum (PPM), subscription agreement, and limited partnership or operating agreement, plus any translations you received.
2. Save marketing brochures and slide decks, plus every email or chat message from the regional center, the developer, or any agent.
3. Write down what you were told about how your money would be used, who told you, and when.
4. Keep annual statements, fund-administrator reports, and any notices about a receiver, a bankruptcy, or a claims deadline.
5. Talk with your immigration counsel about I-526 and I-829 effects before you take action.
6. Consult a securities lawyer promptly, and bring any receiver or bankruptcy notices you have received.

Rosenberger + Kawabata does not give immigration advice. Before taking legal action, talk with your immigration attorney about how a lawsuit or a recovery could affect a pending I-526 or I-829 petition.

Rosenberger + Kawabata represents investors in securities fraud and investment loss cases, including claims by EB-5 investors against regional centers, developers and the professionals around them. Consultations are confidential.

Call Rosenberger + Kawabata at (310) 894-6921.

This post is attorney advertising. It is general information, not legal advice, and reading it does not create an attorney-client relationship. Prior results do not guarantee a similar outcome.