On February 8, 2013, Washington time, the U.S. Securities and Exchange Commission (SEC) issued an announcement. Following close cooperation between the SEC and the U.S. Citizenship and Immigration Services (USCIS), and in order to protect the legitimate rights and interests of current and future immigrant investors, the SEC, based on a complaint filed earlier this week and a subsequent emergency court order from the U.S. District Court for the Northern District of Illinois, has frozen the assets of the Chicago Convention Center (ACCC), the Intercontinental Trust Center of Chicago (IRCTC), and Mr. Anshoo R. Sethi (the three parties collectively referred to as the "Project Parties"), and has halted the promotion of this investment immigration project. Meanwhile, USCIS has suspended the adjudication of this project.
The SEC stated that it will continue to conduct an in-depth investigation into this project and is seeking permanent court injunctions and relevant financial penalties/restitution. The $145 million in EB-5 investment funds in the Project Parties' accounts have been fully frozen, and the SEC has demanded that Mr. Sethi return all distributed/remitted issuance fees.
Anshoo R. Sethi established ACCC and IRCTC, and by using false information, has raised $145 million and collected $11 million in issuance fees from over 250 EB-5 immigrant investors, primarily from China, to build a so-called "world's first zero-carbon, LEED Platinum-certified" hotel and convention center near Chicago O'Hare Airport.
Based on the SEC complaint document dated February 6, Worldway Group has learned that the Chicago Convention Center project developers deceived and misled EB-5 immigrant investors and USCIS in the following 7 aspects:
1. There were misrepresentations and fraud regarding cooperation agreements with Starwood Hotels, Intercontinental Hotels, and Hyatt Hotels. The cooperation agreements between Starwood and Intercontinental Hotels and Mr. Sethi were terminated in 2009 and 2010, respectively, and the cooperation agreement with Hyatt Hotels was entirely forged.
2. The project developers falsely claimed to have obtained project construction permits when they had not actually obtained formal construction permits in Chicago.
3. The valuation of the land injected into the project by the developers was severely inflated. The 2.8-acre land, purchased for less than $10 million in 2008, was valued at $177 million as equity investment in the project; for tax avoidance purposes, the plot had previously been valued at $600,000. The SEC document mentions that in 2011, a 20-acre plot of land with basic infrastructure near the convention center site was sold for only $7.7 million.
4. There were misrepresentations regarding the qualifications of Mr. Sethi and the developers. It was falsely claimed that the 29-year-old Mr. Sethi had over 15 years of real estate development and management experience, particularly in the hotel industry, and it was stated that the developer, which was only established in 2010, had 35 years of industry experience.
5. The offering documents falsely fabricated that approximately $340 million in support would be obtained from the Illinois state government, and forged supporting documents were provided to USCIS when a Request for Evidence (RFE) was issued.
6. The offering documents promised to refund the issuance fee if the I-526 was not approved. Mr. Sethi, without the I-526 being approved, unauthorizedly used the vast majority of the $11 million management and issuance fee (of which $2.5 million was directly remitted to Mr. Sethi's private Hong Kong account), leaving less than $1 million in the issuance fee account.
7. The employment estimates were based on inflated capital expenditure budgets and unrealistic revenue projections, making the job creation ultimately difficult to achieve. The Chicago Convention Center estimated the hotel construction cost at $740,000 per room; if land costs are included, the cost per room is nearly $920,000. This far exceeds the U.S. average cost range of $210,000 to $610,000 per room. The hotel revenue forecast was based on the assumption of 100% occupancy for the hotel's 995 rooms throughout the year, with a room rate of nearly $300 per night, which is highly unrealistic.
SEC announcement (including the original complaint) webpage: http://www.sec.gov/news/press/2013/2013-20.htm
As a responsible enterprise, Worldway Group will continue to maintain close contact with the U.S. side, closely monitor the development of the situation, and promptly inform investors of the results from the SEC, USCIS, and the U.S. District Court for the Northern District of Illinois. For detailed information, please call for consultation.
Worldway Group's Statement 2013-02-09
Feb. 8th, 2013 (Washington time), SEC announced the charge and asset freeze against A Chicago Convention Center, LLC ("ACCC"), Anshoo R. Sethi ("Sethi") and Intercontinental Trust Center of Chicago, LLC ("IRCTC") (thereafter as "ACCC Parties"). SEC announcement and complaint can be found in SEC website, http://www.sec.gov/news/press/2013/2013-20.htm.
The charge shocked the EB-5 industry around the World. As one of leading investment immigration organization in China, Worldway Group soon received many enquiries from media, EB-5 investors and people in the EB-5 industry. In order to better respond the enquiries, Worldway Group issues following statement:
1. Worldway Group has ceased the cooperation with ACCC Parties since Oct., 2011
In August, 2011, Worldway Group was given the title, by ACCC Parties, of the Premier Agent in China to promote the ACCC project in China; in September Worldway was invited to participate in ACCC project's kick-off ceremony in China, and initiated the ceremony together with state governor of Illinois and Mr. Sethi. During the follow-up review of Worldway Group's EB5 project team, however, Worldway found many questionable issues in the project, which were quite different from the five advantages that ACCC Parties claimed. As a result of ACCC Parties' failure to provide convincing evidence to resolve the suspicions, in October, 2011 Worldway called a meeting with Mr. Sethi to terminate the cooperation agreement as the Premier Agent and cease to promote ACCC project in China.
2. The decision to cease cooperation with ACCC Parties was based on Worldway's independent research and was responsible to Worldway's clients involved
After ACCC project's kick-off event in September, 2011, Worldway Group EB-5 project team continued the follow-up review process. It resulted in raising five questionable issues as follows:
a. ACCC Parties' claimed equity investment was overstated. As ACCC Parties claimed to inject 3.2 acre land (it is actually 2.8 acre as we see right now) worth $177 million as the equity investment for the project. The price to a challenge to common sense and ACCC Parties couldn't provide any formal appraisal report regarding land's value when Worldway asked it for review.
b. The claimed land's title hadn't transferred to the EB-5 project company ACCC. Worldway Group found out that the land was owned by Mr. Sethi and another company of his father. At the beginning Mr. Sethi made a promise to Worldway Group to transfer title to ACCC as equity investment, but later he refused to act so with the excuse that his father didn't agree to do so unless all EB-5 proceeds in escrow account.
c. ACCC Parties couldn't provide any official document to prove the government financial support. ACCC Parties claimed that government would invest 50% of ACCC project budgeted cost, however, they couldn't provide the official document from government till the end.
d. The ability and experience of Mr. Sethi and his father in hotel operation were questionable. Worldway found out, Mr. Sethi and his father had a hotel in the land and operated poorly. It was a huge different to their boasted ability to develop and operate the world's First Zero Carbon Emission Platinum LEED certified conference center with 5 luxury hotels totaling 995 guest rooms.
e. Construction cost budget was overstated. Based on the cost budget and room number in offering documents, Worldway Group found out as the same to SEC's charge: average building cost per guest room was about $740,000, counting the land value, it would be more than $900,000 per guest room. To Worldway's knowledge, It was the upmost expensive hotel (but not the most luxury and at the best location) among all EB-5 hotel projects. Worldway believed that economic report was based on overstated data and there would be a potential problem achieving the job creation 1.73 times EB-5 legislation required as economic report indicated.
These five questionable issues raised by Worldway Group in Oct., 2011 are proved to be real problems according to SEC's charge on Feb. 6, 2013 which has much more detailed allegation in above issues and others.
3. NO WORLDWAY'S CLIENT HAS BEEN IN ACCC PROJECT SINCE LATE 2011
After calling off the cooperation with ACCC Parties in Oct., 2011, Worldway' subsidiary companies communicated the Worldway's clients who invested in the ACCC project and recommended them to withdraw from the project. Worldway's communication won the understanding and support of involved clients, and all of them withdrew their investment capital and admin fee out of ACCC project. There has been no client from Worldway in ACCC project since late 2011.
4. EB-5 program will have better future
SEC's action, with USCIS' substantial support, is to protect EB-5 investor's best interest. It is good for the long-term development of EB-5 program, so it is welcomed by the China's EB-5 industry and Worldway Group.
SEC's charge demonstrates that EB-5 program is well regulated in US, EB-5 investors' interests are protected by the US law; any fraud committed to investors will be caught and punished by law and enforcement.
This legal action is a wake-up call to prevent misconducts trying to take advantage of foreign EB-5 investors. Worldway Group believes there will be more good quality investment projects coming to EB-5 program.
5. Worldway Group will continue to follow up the progress of SEC's legal action
On Feb. 8, 2013, Illinois District Court issued the emergent restraining order and asset freeze order to protect $145 million EB-5 investment capital; Since Mr. Sethi used or transferred vast majority of $11million refundable admin fee of investors, leaving less than $ 1 million in the account while there has been no I-526 approval granted from USCIS yet, In complaint filed with Illinois District Court SEC is requesting court order to demanding ACCC Parties to return all the transferred assets back to US domestic bank. USCIS has already put a halt to ACCC project's adjudication. Among about 250 duped investors, most are Chinese investors. Worldway Group will continue to follow up the progress of the case.
About Worldway Group
Worldway Group, established in 1998, is a leading investment immigration organization in China. It has long been promoting investment immigration program to USA, Hong Kong, Macau, Singapore and European countries. For more information, please visit Worldway's website http://www.worldwayhk.com/en/aboutworldway.html
