By: Scot O’Brien, Partner, Akerman LLP and Mark Y. Liu, Partner, Akerman LLP
The recent U.S. Securities and Exchange Commission (“SEC”) enforcement action against Allen Chi of California illustrates the SEC’s continued crackdown on unregistered broker-dealers and finders compensated for facilitating introductions between foreign investors and sponsors or promoters of EB-5 projects.
On August 21, 2017, the SEC instituted cease-and-desist proceedings against Allen Chi, a resident of Arcadia, California, pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), alleging that Mr. Chi violated Section 15(a)(1) of the Exchange Act. The SEC order alleges that Mr. Chi, through his company, Mason Investments, LLC, helped introduce Chinese investors, who hoped to qualify for U.S. residency under the EB-5 program, to Suncor Companies, a provider of nursing care facilities. In return for such introductions and related work (detailed below), Mr. Chi allegedly received transaction-based compensation from Suncor Companies in the form of commissions based on a percentage of the amount invested. (Such activities and compensation are hallmarks of broker activities under the Exchange Act.)
The SEC order also noted that the principals of Suncor Companies had previously been determined to have misused and misappropriated investors’ funds, although Mr. Chi was not charged with any misappropriation. Although it is unclear, it is possible that the SEC’s civil injunctive action against the Suncor Companies led to the SEC order involving Mr. Chi.
Section 15(a)(1) of the Exchange Act makes it unlawful for any broker or dealer “to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security” unless such broker or dealer is registered with the SEC in accordance with Section 15(b) of the Exchange Act. At no time during the fund-raising efforts (September 2012 through February 2014) was either Mr. Chi or Mason Investments a registered broker-dealer under Section 15(b) or associated with a registered broker-dealer. Chi’s subsequent association with a registered broker-dealer came after the date of his activities in the Suncor Companies matter.
