SEC Freezes Assets of South Florida Woman Named in Alleged EB-5 Fraud Case

March 30, 2017 by Kevin S. Kim, Esq.

A court order obtained by the Securities and Exchange Commission put a freeze on the assets of a South Florida woman and her company for alleged EB-5 fraud. Lin Zhong, the operator of EB5 Asset Manager LLC, is accused of buying personal luxury items with money raised from investors looking to obtain U.S. residency via the EB-5 Immigrant Investor Pilot Program.

The EB-5 program affords foreign citizens the opportunity to become eligible for U.S. residency by making a minimal qualified investment of $500,000 toward a particular project that originates or sustains jobs for American workers. The complaint filed by the SEC alleges that Zhong and her company collected at least $8.5 million from investors to be used by EB-5 Investments LLC for planned real estate projects; however, she purportedly siphoned off $1 million to use towards the purchase of a Mercedes, a BMW, a boat and other personal items.

The SEC’s complaint was filed in early November in U.S. District Court for the Southern District of Florida. The list of claims made by the SEC against Lin Zhong, who also goes by Lily Zhong, includes:

  • Zhong and EB5 Asset Manager failed to provide information necessary to disclose conflicts of interest, and created inaccurate reports about the whereabouts of real estate development projects.
  • Zhong and EB5 Asset Manager wrongfully claimed funds from specific investors would be held in escrow until the prospective EB-5 investors’ petition to the U.S. Citizenship and Immigration Services (USCIS) for immigration standing received approval from the agency.
  • Investors were incorrectly informed that U.S. EB-5 Investments would originate and supply unaudited monetary documents to investors.
  • Zhong and EB5 Asset Manager made fraudulent claims about how U.S. EB-5 Investments funds would be used, as well as omitting information related to Zhong’s previous failures in real estate.
  • Zhong and EB5 Asset Manager rerouted roughly $900,000 of investor funds for unjustified personal use, such as paying her personal real estate taxes and funding the education costs for family members.
  • Investors were informed that funds they invested in U.S. EB-5 Investments LLC would go toward real estate development projects that included a multi-use commercial development planned for the City Center of Port St. Lucie, Fla.

To protect investors, a second court order obtained by the SEC put a receiver in place to administer and oversee the company’s business activity and assets, as well as its all of its subsidiaries.

According to the complaint, Zhong and EB5 Asset Manager LLC acted against the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, according to the SEC’s complaint.

After a lengthy hearing on the SEC’s motions, Zhong agreed to have her assets frozen when the court granted a separate order calling for speedy discovery, disallowing documents to be ruined, and mandating Zhong, EB5 Asset Manager LLC, and relief defendants to supply the SEC and the court with a sworn detailed report of all assets.

The case will continue being investigated from the SEC’s Miami Office, with assistance from the USCIS.