By Spencer Mc Grath-Agg, Esq. | The Law Office of Spencer McGrath-Agg
On February 6, 2013, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Northern District of Illinois against A Chicago Convention Center, LLC (“ACCC”), the Intercontinental Regional Center Trust of Chicago, LLC (“IRCTC”), Anshoo Sethi. The complaint alleged that the defendants fraudulently sold over $145 million in securities, plus obtained an additional $11 million in administrative fees. At the same time it filed the complaint, the SEC requested, and was granted a Temporary Restraining Order, Asset Freeze, and Other Emergency Relief against all of the defendants.
Approximately two weeks after the complaint was filed, intervener Dong Mei Xu appeared. Ninety anonymous interveners followed suit on March 28, 2013. Dong Mei Xu argued that the SEC could not adequately represent his interest in obtaining a Green Card. The SEC opposed the intervention of Dong Mei Xu and the anonymous interveners. On July 10, 2013 all of these motions to intervene were denied as moot because the invested funds had been returned to the investors.
Before answering the complaint, the defendants moved to modify the asset freeze order. The asset freeze order has been modified several times throughout this case, including the IIUSA-endorsed move to return escrowed funds to investors (see: IIUSA amicus brief filed in the case). The following chart summarizes the modifications to the asset freeze order:
- March 8th: All defendants – Unfreeze funds in an account not related to the case (funds were frozen because Anshoo Sethi was a signatory on the account). (GRANTED)
- April 19th: SEC/ All defendants/ IIUSA as amici curiae – Direct the Excrow Agent to return funds to investors. (GRANTED)
- May 8th: All defendants – Release funds belonging to Ravinder Sethi’s pharmacy business because they have no relation to the dispute. (GRANTED)
- June 6th: All defendants – Unfreeze the land so that defendants can sell or refinance and ultimately return funds to investors.(GRANTED)
- June 24th: Intervenor TD Ameritrade – A TD Ameritrade brokerage account was subject to the asset freeze order and the assets of the account needed to be sold to cover the margin deficiency. (GRANTED)
- August 22nd: All defendants – Funds belonged to Sethi family daycare and were not in dispute; Anshoo Sethi was listed as a signatory on the account in the event that his parents became incapacitated. (GRANTED)
- September 20th: All defendants – Funds in a frozen account were needed to pay real estate taxes. (GRANTED)
Defendant Sethi answered the SEC’s complaint on April 1, 2013. That same day, defendants ACCC and ICRCTC (the “Corporate Defendants”) asked the court for more time to file their answer.
A sole intervenor and investor, Teng Yanlun, appeared on April 16, 2013. His counsel was permitted to intervene, but only for the purpose of acting as settlement counsel.
On April 29, 2013 the Corporate Defendants filed a motion to dismiss based on an alleged failure by the SEC to set forth a claim that provides a basis for relief. The arguments on this issue focused on the proper application of Morrison v. Nat’l Australia Bank, Ltd., 130 S.Ct. 2869 (2010) and the Dodd-Frank Act. On August 5, the judge ruled in favor of the SEC on this issue.
As the legal battle over whether to dismiss the case was being fought, a second battle over disclosure of documents was waged as well. On June 7, 2013 the defendants asked the court for a protective order. The SEC responded with two requests for production, and a motion to compel the defendants to turn over the requested documents. The defendants were ordered to turn over the documents on August 5, 2013.
A cohort of new intervenors appeared on July 18, 2013, asserting an interest in the administrative fees collected. The SEC filed a brief in opposition on August 16, 2013. After several briefs supporting or opposing the intervention, the judge rejected the intervenor’s argument.
The Corporate Defendants filed an answer to the SEC’s complaint on August 28, 2013. Approximately two weeks later, the SEC and the defendants reached an agreement on all material matters. The terms of the settlement are under seal, so we do not know if the agreement will impact any potential criminal fraud charges that could be coming from the U.S. Department of Justice after the civil matters that make up the current proceedings are dealt with in full.
A status hearing has been scheduled for October 21, 2013, however, on October 7, 2013 due to the government shutdown, the court sua sponte ordered the case suspended for 14 days. This order appears to apply to all civil cases in the Northern District of Illinois in which the United States is a party. So, while the parties could still meet onOctober 21, they are not obligated to and the ultimate resolution of this case could be delayed while the court attempts to clear backlogs caused by the stay.
IIUSA will continue to monitor this case very closely and keep members apprised of noteworthy information.