SEC

Accredited Investor Qualifications

Will the SEC Change the Accredited Investor Qualifications?

The SEC sets the accredited investor qualifications criteria and hasn’t made changes to the income qualification since 1982. In order for an investor to be considered accredited, they need to make $200,000 a year as an individual or $300,000 with their spouse. They need to have met the income standard for the past two years and be likely to do so again in the current year.

Inflation

When inflation is taken into account, a person making $200,000 a year in 1982 will need to make $495,000 a year in 2014 in order to have the same purchasing power. This uses a calculation of 2.88 percent inflation per year with a total inflation of 147.92 percent from 1982 to 2014. The average income growth rate in the United States has kept pace at 4.13 percent while currently only at 1.58 percent. Given these statistics, now would not be a good time for the SEC to raise the income criteria for an accredited investor. If the adjustments had been made during a period of economic growth, it may have made more sense. Currently, however, the average citizen is just recovering from a period of negative wage gains and seeing some stabilization.

If the SEC does move forward in raising the minimum income requirements

This is an important topic of discussion because if the SEC does move forward in raising the minimum income requirements, the number of accredited investors would significantly decrease which would further restrict access to capital. The U.S. economy has started showing signs of growth but with current global unrest and wage growth of only 1.58 percent nationally, consumer confidence is still low. This is already creating a situation where some investors are sitting on the fence. Eliminating others will only make the economy worst by making it more difficult for businesses to raise money for expansion which in turn creates new jobs.

What it means to be an “Accredited Investor”

The last time the SEC changed the definition of what it means to be an accredited investor was in 2011. In January of 2011, the SEC announced they were considering making changes to the net worth standards so that a primary residence could not be included in someone’s net worth. In December of that year, the new guidelines were finalized. It took almost a full year for the process to complete but once done, accredited investors could no longer use the positive equity in their home to help them qualify. This eliminated many investors that had been counting on home equity to increase their overall net worth. Home equity was also a standard addition when applying for loans and meeting various banking criteria. While fairly standard, the SEC felt it was a necessary measure after the housing market collapsed.

If the SEC follows through with changing the income criteria for an accredited investor, it may not be done until the middle of next year. This is following the timeline of how long it took for their last revision to be completed. Companies should be aware that this is on the horizon and create their private placement now so that money can be raised before the pool of potential investors shrinks. For a list of accredited investors visit www.SalesLeads.tv or www.AccreditedInvestors.net.

Learn What Makes a Qualified Investor

Whether raising money for a private placement or building your portfolio of investment clients, working with a qualified investor will help to improve your success. By working with a premier group of investors, you will be able to accomplish more in less time. The key is understanding what makes a qualified investor and how to find them.

The definition of a qualified investor is determined by the type of investment vehicle they are investing in. For example, anyone can invest in the stock market where accredited investors can invest in private offerings. If you are targeting investors to expand your client portfolio, the key is to look at how much they have to invest and what their future earning potential looks like. As a general rule of thumb, most investment brokers prefer to work with people that have at least $50,000 available to invest.

The best qualified investor is one that is an accredited investor with cash to invest. An accredited investor is someone that makes $200,000 a year as an individual or $300,000 with their spouse. They are required to have made this amount in the previous two years and be likely to continue earning at that level. Investors can also qualify using their total net worth, which must be greater than $1 million, excluding their primary residence. These are excellent investors to work with because they are able to participate in private offerings by investing in private placement memorandums. Since they make a higher than average amount, they are likely to have capital they can invest on an annual basis. Once you have a pool of investors to work with, you will be able to present them with opportunities that are tailored to their investment appetite.

The SEC has another classification of investors, “sophisticated investors”. Qualified investors with this designation may participate in Regulation D Rule 506b offerings. This has been the most common type of private placement. In order to be considered sophisticated an investor must have outside knowledge of financial matters that make them qualified to evaluate investment opportunities and to make informed decisions about them. A good example would be a business banker, investment broker, CPA, attorney, or someone with a degree in finance. Their education and on the job experience gives them valuable information and resources without necessarily paying them the amount required to be considered accredited. This rule is slightly ambiguous so before working with sophisticated investors you should create a checklist or policy document that clarifies your internal standards. This way, when you say someone is a qualified investor because they are sophisticated, you can prove how you arrived at that conclusion.

When raising capital for a Reg D private offering make sure to work with qualified investors and to document what makes them qualified. For Regulation D Rule 504, 505, and 506b, investors can self-certify. This means that if you give them a document, they can check the applicable boxes, write in their income and net worth, and sign the form stating they are accredited. If you are raising money for a Reg D Rule 506c offering, you must have outside verification of their accreditation status. Keep track of how you arrived at your conclusions for compliance purposes.

To start raising money today purchase your own list of qualified investors from www.accreditedinvestorleads.com or www.salesleads.com.

Rules Around Telemarketing Securities

Getting Familiar with SEC Telemarketing Rules

Many firms use telemarketing as a way to reach their customers. An often criticized approach, it is also highly effective in getting people to engage in conversation which is the first step to closing a sale. It is important for companies involved at any level in the sale of securities, however, to know that the Securities and Exchange Commission (SEC) has very stringent rules that they require be followed when cold calling prospective customers. With governing agencies like Financial Authority Regulatory Authority (FINRA) paying close attention, it behooves any cold caller to follow the rules.

There are restrictions placed on the time a cold caller may call someone at their residence.

The time, between the hours of 8:00am and 9:00pm, does not apply to calls to a work number or to people who have previously given the vendor permission to call them. As a general rule of thumb once a relationship of any sort is established with a client, it is always a good idea to get written permission to call them at their home, as this prevents any confusion and potential liability with either FINRA or the SEC’s telemarketing rules.

The Federal Trade Commission (FTC) is another agency that is intimately involved in regulating calls to consumers.

The Do Not Call Registry is available to any consumer and they may put their name on it at any time. Once a consumer has placed their name on the do not call list, vendors are required to take their name out of the database and not call them again. During the course of a cold call a consumer may request that they be placed on a company’s “do not call” list and the FTC requires compliance. There are exceptions and loopholes to this regulation, including calls from a friend or acquaintance, but it is far more prudent for a company to simply lose the contact than risk fines or worse from the regulators. When you make a call, the consumer may still request to be put on the do not call list and it is equally as binding.

Once the telemarketer has the consumer on the phone, it is required that they tell the consumer the following information promptly.

The caller’s name, their firm’s name, an address or telephone number for the firm, and that the purpose of the call is to sell you an investment. These disclosures are mandatory and should be made in a clear and concise manner, checking for understanding so that there is no confusion on the part of the consumer that could lead to a FINRA, SEC, or FTC complaint at a later date. Many companies make a habit of recording telemarketing calls for exactly this reason, so that they can demonstrate compliance with the requirements.

Brokers, telemarketers, investment advisors, and anyone else selling an investment cannot take money out of a consumers account without written permission. Authorization can come in the way of a form or a signed check, but money cannot change hands for an investment until the consumer has given that written permission. If a consumer requests written clarification to their questions or more information in the investment, the company selling the investment is required to comply before taking any money or enrolling the consumer in any programs.

Finally it is critical that telemarketers tell the truth when soliciting for investment over the phone, or at any time. The slightest exaggeration about any part of the investment opportunity by an overzealous telemarketer is considered a lie and a breach of Federal and State securities law.

Telemarketing is an effective way to get in front of customers, and having taken the proper precautions is advisable for most firms. The challenge is to ensure that all the sales staff are following the laws set out by the various agencies and for the company to have safeguards and procedures to ensure compliance.

Get Qualified Leads from SalesLeads.tv by calling 800-590-5323

Chicago CPA Charged with Insider Trading

Chicago, IL: Federal Prosecutors have charged a certified public accountant and former director of corporate audits for Chicago based Allscripts Healthcare Solutions with insider trading.

Steven M. Dobrowski has been charged with 16 counts of securities fraud in the indictment, each of which carries a maximum penalty of 20 years in prison and a fine of $5 million.

According to the indictment, Dombrowski who is 49, used non-publically disclosed about Allscripts performance in the first quarter of 2012 for personal benefit. Using knowledge he had learned auditing and testing the processes and procedures Allscripts uses to compute and report it financial performance, Dombrowski accumulated trade profits of $286,000. In order to discuss his efforts at using insider information, Dobrowski purchased options through a trading account which he set up, and controlled, in his wife’s maiden name.

Because of his intimate knowledge of the company’s internal financial reporting, Dombrowski decided to sell short 1,000 shares of Allscripts stock in the weeks leading up to the earnings release, as well as buy more than 510 options that would be profitable if the company’s share price declined, the SEC said.

After the earnings release, Dombrowski liquidated and closed his positions and took in more than $286,000 in illegal profit. On April 26, 2012, Allscripts announced first quarter financial results that were much worse than the market had expected. Allscripts also announced that its Chief Financial Officer would soon leave the company for another job, and that the Chairman of the Board and several other members of the Board had resigned. Immediately after the announcement Dombrowski purchased Allscripts stock to close his short position, and the next day, on April 27, Dombrowski sold all of his options positions as Allscripts’ common stock fell $5.72, or approximately 35.7% from the previous day’s close.

“As alleged in our complaint, Dombrowski attempted to profit off his company’s poor financial results and hide his breach of duty to his employer by conducting his illegal trading through his wife’s account,” said Timothy L. Warren, associate director of the SEC’s Chicago office.

The Securities and Exhange Commission (SEC) in a parallel actions, is seeking a judgment that permanently enjoins Dombrowski from future violations of these provisions of the federal securities laws, orders him to disgorge all of his ill-gotten gains, plus prejudgment interest, and orders him to pay an appropriate civil penalty. The SEC also seeks an order requiring Dombrowski’s wife, relief defendant Lisa Fox, to pay disgorgement, plus prejudgment interest, as Dombrowski’s illegal trades were in her account.

 

Executives Charged with Securities Fraud

Austin, Texas: The Federal Bureau of Investigation (FBI) announced today that ArthroCare Corporation has agreed to pay $30 million in a monetary penalty to resolve charges that senior executives in the company engaged in securities fraud.

ArthoCare is a multi-business medical device company that manufactures, develops, and markets medical devices. However, members of the company’s executive staff have been charged with perpetrating securities fraud that resulted in more than $400 million in losses to investors. According to information released by the FBI ArthoCare perpetrated the fraud between December 2005 and 2008. ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock. On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.

“Truthful corporate earnings reports are critical to the soundness of our financial system. Today’s indictment alleges that those at the top of ArthroCare deceived investors and regulators by manipulating the company’s reports to inflate its stock, ultimately causing hundreds of millions in losses in shareholder value. The Criminal Division will continue to aggressively pursue corporate executives who undermine our financial markets for personal gain.” said Acting Assistant Attorney General Raman.

In a deferred prosecution agreement with prosecutors, ArthoCare admitted that senior executives inflated the company’s revenues by millions of dollars, artificially driving the shares higher. The company also admitted that its senior executives had conducted a number of sham transactions which were used to manipulate ArthoCare’s the earnings reports delivered to investors. Other revelations included a systematic “parking” of millions of dollars’ worth of medical devices at distribution facilities and then reporting these shipments as sales in its quarterly and annual filings, causing the company to appear to have met or exceeded external earnings forecasts

Two senior vice presidents John Raffle and David Applegate had previously plead guilty to conspiracy to commit securities and wire fraud in connection with the fraud scheme. David Applegate, 54, pleaded guilty before U.S. Magistrate Judge Mark Lane in Austin, Texas, to two counts of a superseding information which charges him with conspiracy to commit securities, mail and wire fraud, and with a false statements violation. Applegate admitted that he and other co-conspirators inflated falsely ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors and that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 with the U.S. Securities and Exchange Commission that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings.  Other executives are also facing charges in 2014. ArthroCare’s former chief executive officer, Michael Baker, and chief financial officer, Michael Gluk, are scheduled to stand trial on related charges on May 5, 2014.

“These senior corporate executives participated in a scheme to artificially inflate their company’s stock prices, cheating shareholders and the investing public out of hundreds of millions of dollars,” Assistant U.S. Attorney General Lanny Breuer said in a statement.

Insider Trading in Miami

Miami, Florida: In a insider trading bust today, the Securities and Exchange Commission (SEC) charged a Miami based trader for trading in the stock of Chinese company and for conducting an illegal short sale in the securities of three other companies.

According to the allegations by the SEC, Charles Raymond Langston III had previously learned confidential information about AutoChina International’s stock. The new was obtained by Mr. Langston prior to a general announcement, which would subsequently significantly lower the stock of the Chinese firm. Later when Langston was approached by placement agents he promptly sold the 29,000 shares short. Collecting $198,108 from the illicit trading, Langston violated an agreement he had in place to keep the information which he had learned confidential and to not trade until after the company had made a public announcement.

“Langston agreed to keep confidential the information he learned from AutoChina’s placement agent and abstain from trading on it.  Yet he chose to place personal greed ahead of the integrity of the securities markets,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.

Fully aware of the duplicity and the illegal nature of his actions Langston attempted to hide the transactions. He made the trades through a separate entity, owned by himself, than the entity with which he had purchased the shares. He also use a different broker and a different account to help cover his tracks.

The SEC’s complaint filed in federal court in Miami further alleges that Langston and two of his companies, Guarantee Reinsurance and CRL Management, violated Rule 105 of Regulation M, which prohibits the short sale of an equity security during a restricted period. The restricted period is traditionally five business days before a public offering. The regulation further prohibits the purchase of that same security through the same offering. The rule has been put in place to prevent the reduction in proceeds received by a company through artificially decreasing its share value by illegally selling the shares short before the company places its public offering. Langston and his companies, Guarantee Reinsurance and CRL Management, made an unlawful gain of around $1.3 million.

“During restricted periods, Langston and his companies executed short sales that gamed the system and resulted in illegal profits. The SEC is resolutely committed to pursuing those who violate Rule 105.” said Glenn S. Gordon, associate director for enforcement in the SEC’s Miami Regional Office.

This case is likely to reach a swift conclusion as Langston has agreed to a settlement to the insider trading charges in the amount of $193,108, prejudgment interest of $22,204, and a penalty of $193,108.  Langston and the two companies also agreed to be enjoined for the short selling violations with monetary sanctions to be determined by the court at a later date. Langston, however, neither admits nor denies that he violated any SEC regulations.

Illicit behavior for profit is not uncommon in the share market world, which is why sharing information is a dangerous habit. Only giving information to trusted insiders, who cannot and will not benefit from the inside knowledge is a safety net that all companies must have when dealing with public offerings to avoid having their shares priced lower than they are worth due to the unscrupulous dealings of traders like Charles Langston.

Houston Firms Charged for Undisclosed Transactions

The SEC has charged two investment firms in Houston, Parallax Investments LLC and Tri-Star Advisors, along with three of their executives, for “engineering thousands of principal transactions” through a brokerage firm they are affiliated with without disclosing it to their clients.

In addition to these charges, a Chief Compliance Officer of one of the firms was charged with violating the custody rule relating to the holding of client funds or securities.
The charges come down to a conflict of interest.  Since the investment firms used an affiliate, without disclosing it to clients, they had a conflict of interest that clients were not made aware of or able to avoid.

According to the SEC Parallax Investments LLC and Tri-Star Advisors conducted thousands of securities transactions which led to John P. Bott II, owner of Parallax, and William T. Payne and Jon C. Vaughan, CEO and President of Tri-State Advisors receiving over $2 million in compensation.

In other words they used their affiliation to trade client shares and receive large fees for doing so.  Their clients were not informed, nor did they provide consent.  Payne and Vaughan were the primary beneficiaries of the scheme and received over half of the $1.9 million the firms collected for these transactions, over 2,000 total from 2009 to 2011.

Marshall Sprung of the SEC said,“By failing to disclose principal transactions and obtain consent, Parallax and Tri-Star Advisors deprived their clients of knowing in advance that their advisers stood to benefit substantially by running the trades through an affiliated account.”

The investment firms appeared to be full participants as they  used their inventory accounts to buy mortgage-backed bonds from the others clients. They would then transfer the bonds to their own client accounts.  This trading went back and forth between the two companies with executives on both sides pocketing millions of dollars.

These “principal transactions” are when an investment adviser buys from or sells to a client account using an affiliated broker dealer. The SEC requires that clients are informed and agree to these activities in writing in order to avoid a situation like this where clients end up paying millions in fees while their broker receives additional benefit.

The additional custody violations came because Parallax was an adviser to the private fund Parallax Capital Partners LP.  The rule states that Parallax needs to have a suprise exam once a year or have a registered PCAOB-registered auditor audit their fund.  The company did have their fund audited but they didn’t hire a PCAOB-registered auditor in 2010. They also didn’t deliver the financial statements within the required 120 days.

The SEC found that the company and its Chief Compliance Officer, F. Robert Falkenberg were aware of the deadline and that their auditor was not approved but hired the auditor anyway. Falkenberg and Bott are charged with aiding, abetting, and causing the custody and compliance violations that Parallax is facing.  These charges are under the Investment Advisers Act of 1940.

The SEC regularly investigates companies and investment firms to look for fraud.  Investors that are concerned about affiliations between firms or other potential violations can complain using their tips hotline.

SEC Assess a Penalty Against Municipal Issuer

The SEC Assess a Penalty Against a Municipal Issuer for the First Time

Municipal Issuer Hid the Fact that an Independent Consultant Reviewed Financial Projections and Raised Concerns Over Financial Viability.

The Greater Wenatchee Regional Events Center Public Facilities District, in Washington State, was charged with misleading investors by the SEC.  They issued a bond offering to finance the construction of a regional events center that would house a hockey arena.  The bond issuance mislead investors and the developer Global Entertainment, CEO Richard Kozuback, the underwriter Piper Jaffray & Co. and Jane Towery, and Allison Williams, a senior staff member for Public Facilities District were included in the charges.  As a result the Public Facilities District is settling by paying a $20,000 fine to the SEC, the first time a municipal issuer has ever had to do so.

Andrew Ceresney, co-director of the SEC’s Division of Enforcement said, “Financial penalties against municipal issuers are appropriate for sanctioning and deterring misconduct when, as here, they can be paid from operating funds without directly impacting taxpayers.  This municipal issuer is paying an appropriate price for withholding negative information from its primary offering document and giving investors a false picture of the future performance of the project.”

Furthermore, Piper Jaffray & Co. and Towery will pay penalties of $300,000 and $25,000 each.  Global Entertainment and Kozuback will pay penalties of $10,000.  Williams consented to a cease-and-desist order.  None of the parties admit to or deny the SEC charges.

Mr. Ceresney’s statement that they paid an “appropriate price” may be up for debate by investors.  Afterall they issued $41.77 million in bond anticipation notes and three years later defaulted on principal payments.  One has to ask how much money the developer made on a project of this size.  Is $10,000 anything more than a slap on the hand?

The issuer, The Greater Wenatchee Regional Events Center Public Facilities District, is formed by nine cities and counties in Washington State.  They created it to fund the Town Toyota Center in Wenatchee, Washington.  This Eastern Washington town is rural and mostly known for wine production and agriculture.  It is also the largest city in the area, and where people in surrounding towns go to access big box retailers.

During their investigation, the SEC  found inaccuracies in the primary disclosure document that accompanied their offering in 2008.  

Calling it inaccurate is tame, as the omitted facts directly impact investors.  The statement claimed that no independent party had reviewed the financial projections.  In truth, an independent consultant had examined them multiple times and raised concerns that the project was not financial viable. Additionally the financial projections had been revised to show an increase in revenue and profits based on city leaders saying the community would support the project.  The challenge is that there were not risk factors mentioned pertaining to the city’s proposed support such as, the City of Wenatchee’s debt capacity limits its ability to support future long-term bonds.

Unfortunately, investors made decisions based on facts that simply were not true.  They trusted the District, the auditor, and the offering statements to be accurate and have suffered because of it.  As with any investment scheme it is important to review the provided documents and decide for yourself if it makes sense. Conduct your own due diligence before investing.  Even municipalities and cities make mistakes and can be corrupted by greed so don’t trust the name – trust your research.

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Childrens’ Courses Pyramid Scheme Busted

SEC Busts Pyramid Scheme for Investing in Online Childrens Educational Courses

 

The SEC froze the assets of five entities that collectively went by “CKB” and “CKB168”.  A string of international organizations participated in this world wide Ponzi scheme that targeted Asian Americans.  The company offered “risk free” investments in their online childrens educational courses.  The three main executives, living overseas, and their US based promoters raised over $20 million from US investors, with additional investors coming from China and Hong Kong.  They leveraged relationships within the Asian American community to raise these funds.p

CKB put out promotional material, videos, websites, and seminars to make the company appear to be legitimate.  However, this was all smoke and mirrors.  Behind the lovely façade there was no actually operating company.  They were not selling consumer products, as they claimed to be.  In fact they did not generate any revenue at all.  The only funds brought into the company were from investors.  The majority of those funds were paid out to CKB executives and their promoters.

Antonia Chion, an associate director in the SEC’s Division of Enforcement said, “CKB’s operators and promoters profited by abusing relationships of trust within the Asian-American community and promising investors they can earn more money by recruiting other investors instead of selling actual products.  What CKB really sells is the false promise of easy wealth.”

The SEC has formerly charged the following executives and promoters of CKB:

  • Rayla Melchor Santos
  • Hung Wai (“Howard”) Shern
  • Rui Ling (“Florence”) Leung
  • Daliang (David) Guo
  • Yao Lin
  • Chih Hsuan (“Kiki”) Lin
  • Wen Chen Hwang (“Wendy Lee”)
  • Toni Tong Chen
  • Cheongwha (“Heywood”) Chang
  • Joan Congyi Ma
  • Heidi Mao Liu

It appears as though CKB attempted to structure its dealings to avoid the SEC, however, that strategy did not work.  The SEC considers their dealing to be the improper sale of unregistered securities.  The company told people that wanted to purchase an educational course that they had to invest in CKB, then they would receive “Profit Reward Points”.  When the points increased in value the investor would supposedly see a return.  They were also promised that the company would go public on the Hong Kong Stock Exchange in 2014, giving them another opportunity to earn money.

The investors were also promised that they could make more money by recruiting additional investors.  The promises were lavish, Kiki Lin even added, “And for those who really want to make money, who are really hard working, in a short time you would all be like John,” who she claimed “made money to buy five houses in Las Vegas.”  They would turn investors into recruiters and continued to grow through this practice until eventually enough investors complained and the SEC got involved.

This is a clear example of why it is important to conduct due diligence.  As an investor you should be leery of companies that are promising that you can make money by getting other people to contribute money.  Companies traditionally make money by selling goods and services, not be recruiting investors.  The SEC publishes regular information on scams and companies that have been busted.  Read our blog and their reports before you make an investment to be sure that the company you are interested in isn’t on the watch list.

 

 

SEC Shuts Down EB5 Scam in Texas

The Securities and Exchange Commission (SEC) announced today that they were filing fraud charges against a Texas based couple for allegedly stealing funds from investors based in foreign countries, while promising these investors a path to citizenship in the United States of America (US) through the EB-5 visa program.

In a joint release with U.S. Citizenship and Immigration Services (USCIS), the Securities Exchange Commission gave a joint statement giving details about the EB-5 program with the intention of preventing investors from become likely targets.

According to the statement The EB-5 program provides certain foreign investors, who can demonstrate that their investments are creating jobs in this country, with a potential avenue to lawful permanent residency in the United States. Business owners apply to USCIS to be designated as “regional centers” for the EB-5 program.  These regional centers offer investment opportunities in “new commercial enterprises” that may involve securities offerings.  Through EB-5, a foreign investor who invests a certain amount of money that is placed at risk, and creates or preserves a minimum number of jobs in the United States, is eligible to apply for conditional lawful permanent residency.

The complaint filed in the US District Court for the Southern District of Texas alleges that Marco and Bebe Ramirez, a married couple, targeted internationally based investors for investment in their three companies. The investors were promised that the investments would be invested as part of an EB-5 Immigration Pilot Program. However the money, once deposited with USA Now LLC, USA Now Energy Capital Group LP, and Now Co Loan Services, never actually invested the money in any such program. Rather large sums of the money was diverted to the Ramirez’s personal expenses and to other, undisclosed entities. There is at least one case of a Ponzi like situation where the Ramirez family paid off a previous investor using the funds from new investment.

“Through their investment scheme, the Ramirezes abused a program intended to attract foreign capital to create U.S. jobs. The Ramirezes misappropriated investor funds for their own purposes without any regard for the harm they caused investors who were seeking an avenue to U.S. residency.” said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office.

In 2010 the Ramirez’s applied with the USCIS to be part of the EB-5 program, a decision had not yet been reached. However, the non-issue of the status did not stop the couple from soliciting investors with false promises about how their money would be invested. Other employees of USA Now LLC were also involved in the hoodwinking of investors. As part of the scheme, the Securities Exchange Commission complaint alleges, the Ramirez family would tell investors that their investments would be held in an escrow account until they had received the USCIS decision. In truth the money was instantly diverted to other places, often the same day as the investor would place the funds into their account. Among the misappropriation was the starting of a Cajun themed restaurant, settling of an unrelated law suit, and purchasing of gifts for themselves and their employees. Initially targeting investors from Mexico, the Ramirezes and their companies soon expanded their scheme to include investors from Nigeria and Egypt as well and were able to raise over $5 million from gullible investors seeking a path to US citizenship.

“Even though investors provided the Ramirezes with at least $5 million, none of them have ever received conditional visas let alone green cards. Instead, the Ramirezes opened a restaurant and purchased other assets for themselves and their employees.” said David Peavler, Associate Director of the Securities Exchange Commission Fort Worth Regional Office.

The SEC was successful in seeking the courts approval to freeze the assets and accounts of the Ramirezes and their three companies, effectively precluding them from raising any more money or spending the money already raised through the scheme. The SEC is charging Marco and Bebe Ramirez and their companies with violating, aiding and abetting in the violations of the antifraud provisions of the Securities Act of 19330.

Fraud can rear its head in almost any situation, and the EB-5 program is one of the most simplistic areas for cheats to take advantage of those seeking a better life in the United States. Investors in the United States have also been targeted in the past trying to bring their loved ones into the country. Any time a person invests there is always a chance that the person on the other end may be someone out to steal the investment for their own personal gain, which is why having the right vetting mechanisms, stringent due diligence, and keeping abreast of the current schemes being perpetrated are all good ideas.