Last issue we reported on the motion filed on behalf of investors of the EB-5 Chicago Center Project. The one investor named was Dong Mei Xu, but the motion includes the other investors that were subscribed to the IRCTC Chicago Convention Center project promoted by Anshoo Sethi that was recently the subject of an SEC (Securities and Exchange Commission) action. The SEC has opposed the motion to intervene.
On February 6, 2013, the SEC filed its complaint against Sethi and was the granted a temporary restraining and asset freeze order against the defendants, and a hearing on the SEC’s motion for preliminary injunction for was set for February 20. On February 19, Xu filed a motion to intervene. On February 20, the court granted the SEC’s motion for a preliminary injunction and asset freeze and also ordered responses to Xu’s motion to intervene be filed by March 6.
The motion states: “Xu’s motion to intervene in this civil enforcement action should be denied. The SEC commenced this civil enforcement action to protect investors from potentially millions of dollars of losses as a result of defendants’ fraudulent scheme to sell securities to foreign investors. Using the lure of gaining a pathway to U.S. citizenship through the federal EB-5 Immigrant Investor Pilot Program and using false and misleading information concerning a purported investment opportunity, defendants convinced Xu and over 250 other Chinese investors to wire a minimum of $500,000 apiece to a U.S.-based escrow account. Xu seeks to intervene in this civil enforcement action because, according to Xu, the SEC “does not adequately represent Xu’s and the investors’ most pressing interest,” i.e., “keeping Xu and the investors on track to gain U.S. citizenship.” Xu contends that this “interest” is only served by preventing the return of assets invested in defendants’ scheme so that he and other investors can invest those assets in some other EB-5 venture.”
“Xu contends that “the SEC’s requested relief – the recovery and return of fraudulently obtained money – does not adequately represent Xu’s and the investors’ most pressing interest.” That interest is “keeping Xu and the investors on track to gain U.S. citizenship.” According to Xu, “the SEC’s requested relief would foreclose (or severely delay) Xu’s and the investors pursuit of U.S. citizenship through the EB-5 program.” Therefore, Xu claims that he and other investors “do not want the court to return their investment; they want that investment to remain with the escrow agent or an alternative escrow agent” in order allow Xu and other investors to “invest the funds in a legitimate EB-5 program venture.”
“However, Section 21(g) of the Securities Exchange Act of 1934 prohibits Xu’s interference in the SEC’s civil enforcement action. While some courts have permitted private plaintiffs to intervene in limited circumstances, courts have uniformly denied motions to intervene in SEC enforcement actions where, as here, a would-be intervenor seeks to recover from the very defendants the SEC is suing.”
The SEC states that Xu cannot demonstrate that the SEC fails to adequately project his interests and that there is no conflict between his interests and those of the SEC.