SEC Obtains Final Judgment Against N.Y. Real Estate Developer for Perpetrating $229 Million EB-5 Fraud
The U.S. District Court for the Eastern District of New York entered a final judgment against Yi (Richard) Xia, his company Fleet New York Metropolitan Regional Center LLC, and his wife JiQing (Julia) Yue. The U.S. Securities and Exchange Commission had charged Xia and Fleet with perpetrating an offering fraud of more than $229 million related to the EB-5 Immigrant Investor Program and had named Yue as a relief defendant.
The SEC alleged in its complaint that, from 2010 through late 2017, Xia, through Fleet, fraudulently raised more than $229 million from more than 450 investors in the EB-5 Immigrant Investor Program to develop two large real estate projects in Queens, N.Y., named Eastern Mirage and Eastern Emerald.
Xia and Fleet allegedly made material misrepresentations regarding the existence and sources of financing for the projects, the level of experience of the teams developing and constructing the projects, and the numerous conflicts of interests between Xia, Fleet, and Xia-owned and controlled entities that purportedly acted as developers, general contractors, and subcontractors for the projects and received substantial payments of investor funds.
The complaint alleges that Xia controlled and obfuscated the use of investor funds and, among other things, misappropriated approximately $17 million from investors in Eastern Mirage and at least $11.8 million from investors in Eastern Emerald. The SEC subsequently filed an amended complaint naming Xi Verfenstein and Xinming Yu as additional relief defendants.
Without admitting or denying the allegations in the complaint, Xia and Fleet consented to a final judgment permanently enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. The final judgment also permanently enjoins Xia and Fleet from participating in the offer or sale of any security, with limited exceptions for Xia.
The final judgment orders Fleet and Xia to pay $228.5 million in disgorgement plus $25 million in prejudgment interest, for which Fleet and Xia are jointly and severally liable; Xia to pay a civil monetary penalty of approximately $3.1 million; and Fleet to pay a civil monetary penalty of approximately $15.5 million. Under the final judgment, Yue is jointly-and-severally liable for $14 million of the disgorgement amount and $720,000 of the prejudgment interest amount.
Finally, the resolution of the SEC’s claims against Xia, Fleet, and Yue includes the court’s appointment of a distribution administrator who will, to the extent practicable, assist the defrauded investors in maintaining their immigration status in the EB-5 program.
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