WASHINGTON, DC—As the EB-5 program's expiration date looms -- September is when Congress must renew it -- brokers, developers and investors are scrambling to wrap up unfinished business. The last thing these players want to deal with is sudden interest on the part of the Securities and Exchange Commission. So if you are part of this group, take heed of the recent enforcement action by the SEC.

This week Securities and Exchange Commission charged two firms that illegally brokered more than $79 million of investments by foreigners seeking US residency. The SEC has brought enforcement actions against developers, or people who have paid referral fees to brokers. These charges are the first against brokers handling EB-5 investments.

What was key about this action was that the brokers were not registered with the SEC and collecting funds from within the US, Catherine DeBono Holmes, chair of JMBM's Investment Capital Law Group, told GlobeSt.com.

"We knew the SEC was looking at this for some time – it had issued various subpoenas. We fully expect it will continue to take these actions."

For a developer or real estate owner seeking such funds, it could be easy to get caught up in such a situation, she says. There are a lot of unregistered securities brokers in the US collecting referral fees, she notes. "You need to make sure you are not unwittingly working with the wrong people," she says.

Ireeco LLC, originally of Boca Raton, Fla., and its successor Ireeco Limited, a Hong Kong-based company operating in the US were charged with acting as unregistered brokers for more than 150 EB-5 investors.

The firms used their website to solicit EB-5 investors, some of whom were already in the US on a temporary visa. While Ireeco LLC and Ireeco Limited promised to help investors choose the right regional center to invest with, they allegedly directed most EB-5 investors to the same handful of regional centers, ones that paid them commissions of about $35,000 per investor.

"The broker-dealer registration requirements are critical safeguards for maintaining the integrity of our securities markets, and the SEC will vigorously enforce compliance with these provisions," said Eric I. Bustillo, director of the SEC's Miami Regional Office, in a prepared statement.

Ireeco LLC and Ireeco Limited agreed to be censured and to cease and desist from committing or causing similar violations in the future. They also agreed to administrative proceedings to determine whether they should be ordered to return their allegedly ill-gotten gains, pay penalties, or both based on their violations.

"This action by the SEC is a reminder that every regional center should review its marketing and compensation policies and practices to determine if it is conducting its EB-5 investment business in accordance with U.S. laws and regulations, and every person engaged in marketing EB-5 investments should consider whether their activities require broker-dealer registration under US laws," Holmes wrote in a blog post on the case.

Instant Insights /

Is Your EB-5 Broker Registered With the SEC? Better Check.

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