A CLOSER LOOK AT THE LAW
SEC Flexes Its
Enforcement
Muscle In EB-5
Enforcement
Action
Why Rule 206(4)-8 provides the
SEC the power to prosecute ongoing
activities of NCEs and not just
statements and omissions made in
connection with offerings and sales.
By Mariza McKee and Robert Ahrenholz
T
he Securities and Exchange Commission (SEC) recently
filed an action 1 against Serofim Muroff (Muroff) and
related persons (collectively, the defendants) relating to
two EB-5 financings in the State of Idaho, which raised
more than $140.5 million from over 280 EB-5 investors.
While some of the funds raised were used as described in
the respective offering materials, the defendants allegedly
misappropriated and misused a substantial amount of
investor funds in both offerings while the offerings were
ongoing and subsequent to the completion of the offerings.
Not surprisingly in the Idaho complaint, as it has done in
prior EB-5 enforcement cases, the SEC alleged anti-fraud
violations under both Rule 10b-5 of the Securities Exchange
Act of 1934, as amended in the Exchange Act, 2 and Sections
17(a)(1) and 17(a)(3) of the Securities Act of 1933, as
amended in the Securities Act. 3
However, what was novel and unique in the Idaho Complaint
were the allegations brought against the defendants under
Sections 206(a), 206(2) and 206(4) of the Investment
Advisers Act of 1940, as amended in the Advisers Act 4 and
Rule 206(4)-8 thereunder. 5 As a result of these Advisers Act
allegations, stakeholders in EB-5 programs should be aware
that the SEC is now also focusing on ongoing fraudulent
investment adviser actions and activities relating to new
commercial enterprises (NCEs) where  fraudulent activities
are defined more broadly than under Section 17 of the
Securities Act or Section 10 of the Exchange Act, and also
115 EB5 INVESTORS M AGAZINE