Court Enters Final Judgments in Eb-5 Scheme Ordering Return of $25.8 Million to Defrauded Chinese Investors
Securities and Exchange Commission v. Chen et al., 2:17-cv-06929 (C.D.C.A. filed Sept. 20, 2017)
On November 19, 2018, a U.S. District Court for the Central District of California entered final judgments on consent against defendants Edward and Jean Chen, husband and wife, and five entity defendants who had been charged with defrauding Chinese investors in connection with the EB-5 Immigrant Investor Program.
On September 20, 2017, the SEC filed a complaint against Edward and Jean Chen, Home Paradise Investment Center LLC, GH Investment LP, GH Design Group LLC, Golden Galaxy LP, and Mega Home LLC, alleging that the Chens, through the entities they controlled, raised more than $22.5 million from 45 investors in China for the development of an interior design center and an 80-unit condominium building. The complaint alleged that the Chens misappropriated and misused more than $12 million of investors’ funds by purchasing residential real estate unrelated to the two EB-5 projects. The SEC’s complaint further alleged that the Chens and their companies provided investors a fake lease for the interior design center that replaced the name of the true lessor with a Chen-controlled entity and overstated the true size of the leased space five-fold.
Without admitting or denying the allegations in the complaint, the defendants consented to the entry of final judgments resolving all claims. The final judgments enjoin defendants from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933, and further enjoin Edward and Jean Chen from participating in the offer or sale of any security which constitutes an investment in a “commercial enterprise” under the USCIS EB-5 visa program. The final judgments also order Edward and Jean Chen, GH Investment LP, GH Design Group LLC, Golden Galaxy LP, and Mega Home LLC to pay, on a joint and several basis, disgorgement of $24,655,000, with prejudgment interest of $1,173,098. The final judgments also order Edward and Jean Chen to pay civil penalties of $1,077,500 each. The disgorgement amount represents $22.5 million in capital contributions and $2.155 million in administrative fees the defendants received from the investors, and is subject to an offset for any amounts that may be distributed to the defrauded investors by the court-appointed receiver. Additionally, the final judgments order Home Paradise Investment Center LLC to pay, on a joint and several basis with the other defendants, disgorgement of $2.155 million, with prejudgment interest of $119,583, which has been deemed satisfied by amounts already collected and to be distributed to the investors by the receiver.