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Real Estate Securities Fraud Targeting Immigrant Investors (Part 2)

On Behalf of | Oct 3, 2015 | Avoiding Investment Scams, Securities Laws, Uncategorized

SEC v. Path America, LLC.

In SEC v. Path America, LLC, the SEC alleged that Dargey, the individual defendant, set up a series of entities in Everett, Washington, purportedly to offer limited partnership interests priced at $500,000 each, plus an administrative fee of $45,000 per investor.[1] The SEC says that the private placement memoranda (“PPMs”) for the offerings contained statements that an investment in the project was intended to qualify under the EB-5 program and that the proceeds of the offerings were to be used for the construction of a 40-story tower in Seattle and for a real estate development project in Everett.[2] The defendants also provided subscription agreements, the SEC says, which directed investors to wire $500,000 to an escrow account in the United States, which the defendants represented would be released upon confirmation of filing with and approval by the USCIS, and an additional $45,000 administrative fee to an account in Hong Kong.[3] The SEC says that the funds from the investors were originally deposited into accounts under the control of an escrow agent in California.[4] According to the SEC, however, the escrow agent followed the instructions provided in the escrow agreements signed by, or at the direction of, the defendants, to release the funds to the defendants, which were subsequently transferred to an account held by Dargey and his wife through a series of transactions involving the entities controlled by Dargey.[5] The SEC alleges that Dargey withdrew and used some of the investor funds (a total of approximately $7.5 million) to purchase real property unrelated to the projects described in the PPMs and for personal use at a dozen casinos.[6]

The SEC claims that the defendants made false and misleading statements in the offering documents, knowingly or recklessly, because at the time they made the statements acknowledging the importance of adhering to the project plans, the defendants had transferred or were then transferring millions of dollars of investor funds for purposes contrary to those set forth in the business plan provided to USCIS.[7]  The SEC alleged that the defendants’ fraud is ongoing and requested the court to enter an order: (i) enjoining the defendants, temporarily, preliminarily, and permanently from, directly or indirectly, soliciting anyone to purchase or sell any security; (ii) freezing the assets of the defendants; (iii) requiring the defendants to return any investors’ funds; (iv) requiring the defendants to disgorge the ill-gotten gains received as a result of the alleged violations, plus prejudgment interest thereon; and (v) requiring the defendants to pay civil monetary penalties, among other things.[8]  On August 25, the SEC announced that the court granted its request for an asset freeze and issued an order restraining the defendants from soliciting additional investors.[9]  The SEC was also granted an order expediting discovery, prohibiting the destruction of documents, and requiring the defendants to repatriate funds transferred to overseas bank accounts.[10]  A hearing was scheduled for September 14, 2015, on the SEC’s motion for a preliminary injunction extending the asset freeze and other relief.

This post was a part of a blog series on real estate securities fraud in connection with the EB-5 program.  You can find the other post by searching our blogs.  If you have any questions about the content of this blog series or other issues not discussed here, please contact us.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

About the Author

Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: 407-517-0064.

[1] Complaint at 4–6, SEC v. Path America, LLC, Civil Action No. 2:15-cv-01350 JRL (W.D. Wash. Aug. 24, 2015).

[2] Id. at 6–7.

[3] Id. at 7.

[4] Id. at 8.

[5] Id. at 8–9.

[6] Id. at 10.

[7] Id. at 10–11.

[8] Id. at 11–17.

[9] SEC, Litigation Release No. 23326: SEC Announces Asset Freeze Against Alleged EB-5 Fraudster in Seattle Area (Aug. 25, 2015),

[10] Id.