SEC Announces Asset Freeze In EB-5 Offering Scheme
On August 25, 2015, the Securities and Exchange Commission (SEC) announced an asset freeze obtained against a man in Bellevue, Wash., accused of defrauding Chinese investors seeking U.S. residency through the EB-5 Immigrant Investor Pilot Program by investing in his companies.
The SEC alleges that Lobsang Dargey and his “Path America” companies have raised at least $125 million in EB-5 Offerings for two real estate projects: a skyscraper in downtown Seattle and a mixed-use commercial and residential development containing a farmers’ market in Everett, Wash. But Dargey 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.
“We allege that Dargey promised investors in the EB-5 Offering their money would be used to develop specific real estate projects approved under the EB-5 program, but he misused millions of dollars to enrich himself and jeopardized investors’ prospects for U.S. residency,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.
According to the SEC’s complaint:
- Under the EB-5 program, foreign citizens may qualify for U.S. residency if they make a qualified investment of at least $500,000 in a specified project that creates or preserves at least 10 jobs for U.S. workers.
- Dargey and his companies obtained investments in from 250 Chinese investors under the auspices of the EB-5 offering program. Path America SnoCo and Path America KingCo operated as regional centers through which EB-5 investments could be made.
- Dargey told U.S. Citizenship and Immigration Services (USCIS) and investors in the EB-5 offerings that he would use investor money only for the Seattle skyscraper and Everett, Wash., projects.
- Dargey and his companies misled investors about their ability to obtain permanent residency by investing in the Path America projects. For example, Dargey knew that USCIS can deny investors’ residency applications if investor money is used for a project that materially departs from the approved business plan presented to USCIS. Dargey failed to tell investors that he and his companies had departed from the business plan by using investor money for personal expenses and unrelated projects.
On August 24, 2015, the court granted the SEC’s request for an asset freeze and issued an order restraining Dargey and his companies from soliciting additional investors in EB-5 offerings. The SEC also was granted an order expediting discovery, prohibiting the destruction of documents, and requiring Dargey to repatriate funds he transferred to overseas bank accounts.
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