SEC Charges the Luca Entities with Eb-5 Investment Fraud
On July 26, 2016, the Honorable Charles R. Breyer of the United States District Court for the Northern District of California entered a final judgment against Luca International Group, LLC, Luca Resources Group, LLC, Luca Energy Fund, LLC and relief defendants Luca Operation, LLC, Luca Barnett Shale Joint Venture, Luca To-Kalon Energy, LLC, Luca Oil, LLC, Luca I, Limited Partnership, and Luca Oil II Joint Venture (collectively, the “Luca Entities”). The final judgment imposes on the Luca Entities a permanent injunction against future violations of certain antifraud provisions of the federal securities laws and orders that certain Luca Entities pay $68.3 million in disgorgement.
In its complaint filed in July 2015, the SEC alleged that the Luca Entities, their CEO Bingqing Yang and her chief fundraiser Lily Lei orchestrated a fraudulent Eb-5 scheme targeting the Chinese American community as well as investors in Asia to invest in unregistered offerings of securities. According to the complaint, Yang and Lei represented to investors that their money would be invested in oil and gas drilling operations, that they could expect annual rates of return of 20-30 percent, and that their investments were risk free. In reality, as the complaint alleges, Yang, the Luca Entities and Lei deceived investors by misrepresenting that their operations as successful and projecting outsized investment returns, all while knowing the operations were losing millions of dollars and the enterprise was sinking under a mountain of debt. The SEC further alleges that Yang commingled investor funds to prevent the scheme from collapsing and used money from new investors to make sham profit payments to earlier investors. Besides reaching investors in the Chinese-American community through advertisements on Chinese-language television and radio, and in Chinese-language newspapers, Yang and the Luca Entities allegedly targeted Chinese citizens who sought permanent U.S. residence through the EB-5 Immigrant Investor Program, which provides a way for foreign investors to obtain a green card by meeting certain U.S. investment requirements.
In August 2015, the Luca Entities filed Chapter 11 bankruptcy petitions in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division. As stated in the final judgment, the Luca Entities agreed, as part of the settlement, that they shall allow and not contest the Commission’s bankruptcy claim for $68.3 million in the In re: Luca International Group, LLC, Case No. 15-34221-H2-11 (Bankr. S.D. Tex.) jointly administered bankruptcy case, as being the amount allegedly raised from investors. Under the final judgment, the Luca Entities’ payment of disgorgement is limited to the dollar amount of funds to be paid to the Commission, and directly allocated to investors, as provided in the Joint Chapter 11 Plan of Liquidation, which was confirmed by the Bankruptcy Judge in the bankruptcy case on July 18, 2016.
The final judgment permanently enjoins the Luca Entities from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Luca International Group, LLC is also permanently enjoined from violating Section 5(a) of the Securities Act of 1933.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.