# Securities and Exchange Commission v. Xia

> District Court, E.D. New York · December 8, 2022

URL: https://www.frixlaw.com/law-library/cases/10658921

## Case

- **Court:** District Court, E.D. New York
- **Decided:** December 8, 2022
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

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- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10658921

## How later opinions describe it (automated extraction)

- noting that federal courts implicitly reject arguments they refuse to address
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## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------------------------x
SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff, MEMORANDUM & ORDER
21-CV-5350 (PKC) (RER)
- against -

RICHARD XIA, a/k/a YI XIA; and FLEET
NEW YORK METROPOLITAN REGIONAL
CENTER, LLC, f/k/a FEDERAL NEW YORK
METROPOLITAN REGIONAL CENTER,
LLC,
Defendants,

- and -

JULIA YUE, a/k/a JIQING YUE; XI
VERFENSTEIN; and XINMING YU

Relief Defendants.
-------------------------------------------------------x
PAMELA K. CHEN, United States District Judge:
In this action, the Securities and Exchange Commission (“SEC”) charges Defendants
Richard Xia and Fleet New York Metropolitan Regional Center, LLC (collectively, “Defendants”)
with violating 15 U.S.C. §§ 77q(a), 78j(b) and 17 C.F.R. § 240.10b-5, and unjustly enriching Relief
Defendants Julia Yue, Xi Verfenstein, and Xinming Yu (collectively, “Relief Defendants”). The
parties have cross-moved for and against a preliminary injunction that freezes Defendants’ assets
and Relief Defendants’ residential properties. For the reasons stated herein, the Court grants the
SEC’s motion in part and issues an asset-freezing preliminary injunction, for the duration of two
years (subject to continuation as discussed herein), that covers all of Defendants’ assets and Relief
Defendants’ residential properties.

1
BACKGROUND1
On September 27, 2021, the SEC brought this action against Defendant Richard Xia
(“Xia”), Defendant Fleet New York Metropolitan Regional Center, LLC (“Fleet”), and Relief
Defendant Julia Yue (“Yue”) (Dkt. 1), and on April 6, 2022, amended its Complaint to add Relief
Defendants Xi Verfenstein (“Verfenstein”) and Xinming Yu (“X. Yu”). (Am. Compl., Dkt. 98, at

1.) In substance, the SEC alleges that, since 2010, Defendants have defrauded the immigration
authorities and over 450 prospective immigrants to raise more than $229 million in investor funds,
and then diverted or misused these funds for their personal needs. (See generally Dkt. 98.) The
SEC alleges that Defendants’ actions amounted to investor fraud that violated 15 U.S.C. §§ 77q(a),
78j(b) and 17 C.F.R. § 240.10b-5 (“Rule 10b-5”), and unjustly enriched Relief Defendants. (Id.
¶¶ 191–99.)
Together with its Complaint, the SEC moved for an emergency temporary restraining order
(“TRO”) freezing Defendants’ assets and a preliminary injunction freezing the same assets and
lasting throughout the pendency of this suit. (See Dkts. 2, 2-2.) The Court granted the TRO. (Dkt.

11.) Between February 14 and 16, 2022, the Court held a Hearing at which Defendant Xia, court-
appointed monitor M. Scott Peeler,2 and expert witnesses provided sworn testimony. (Dkt. 101-

1 While at this stage of the proceedings the SEC need not meet the exacting preponderance
of the evidence standard as it would on the merits, see, e.g., S.E.C. v. Moran, 922 F. Supp. 867,
891 (S.D.N.Y. 1996) (“To establish [liability under] Section 10(b) of the Exchange Act and Rule
10b–5 thereunder, the SEC must [prove its case] by a preponderance of the evidence[.]”), the Court
finds the facts set forth in the Background section were proved by the applicable standards
discussed herein, based on the parties’ written submissions and the evidence presented at the show-
cause hearing (the “Hearing”).
2 Upon issuing the TRO freezing, among others, Defendant Xia’s assets, the Court
appointed Mr. Peeler, in part, to manage and preserve those assets. (Dkt. 11-1.)
2
37.) The SEC subsequently moved to expand the scope of its requested preliminary injunction to
cover the three mansions that Relief Defendants now own. (Dkt. 99.) Relief Defendants and
Defendants cross-moved to dissolve the asset freeze, or in the alternative, exclude from its scope
assets obtained by Xia prior to the alleged scheme. (Dkt. 178; see also Dkts. 120, 127.)
The evidence in this case is voluminous and complex. First, the Court surveys Defendants’

transactions with their investors. Second, the Court turns to a series of transactions that occurred
after Defendant Xia and Relief Defendant Verfenstein learned of the pending investigation against
them, including the purchase of three mansions in short succession and their transfer to Relief
Defendants.
I. The Eastern Emerald and Eastern Mirage Projects
A. Inception of the Emerald and Mirage Projects
Defendant Xia, an engineer who resides in Queens, married Relief Defendant Yue in 1994
and moved to the United States from China in 1996. (See Test. Richard Xia, Dkt. 6-24, at 14:6–
19.) In 2002, Xia developed his first—and, before soliciting the EB-5 investments,3 only—

independent construction project, a 65-unit building in Queens named the “Shangri-La Tower.”
(Tr. 49:3–19.)4 Xia then met Relief Defendant Verfenstein, who became Shangri-La Tower’s
manager and designer. (Tr. 228:18–23, 290:1–25.) In or about 2008, Xia finished the Shangri-La
Tower and later became the registered owner of fifteen rental properties across New York,

3 See infra footnote [6] regarding the EB-5 investor visa program.
4 Unless otherwise stated, Tr. refers to the consecutively numbered Hearing transcript, filed
as Docket Number 101-37.
3
including several units in the Shangri-La Tower. (Tr. 291:14–20; see also Dkt. 183, at ¶ 6; Dkt.
183-2.)
Seemingly emboldened by the Shangri-La Tower’s success, in 2010, Xia, Verfenstein, and
Yue sought to construct two new buildings in Queens—the Eastern Mirage and Eastern Emerald
(the “Projects”), which far exceeded the Shangri-La Tower in magnitude and complexity.

Together, the Projects promised to include nearly 900 five-star hotel rooms, dozens of residential
apartments, a spa and fitness center, a multimedia conference center, multiple restaurants, retail
stores, a convention center, a performing arts building, and about 650 parking spots. (See Dkts. 6-
1, at ECF5 12; 6-2, at ECF 11; 6-3, at ECF 12; 6-4, at ECF 10; and 6-6, at ECF 11.) Xia sought to
finance the Projects with investments from foreign nationals who wished to immigrate to the
United States through the EB-5 visa program.6 To that end, in 2010, Xia incorporated Defendant
Fleet, a New York entity that Xia controls (see Dkt. 6-17, at ECF 19), and sought to designate it
as a USCIS-approved regional center.

5 Citations to “ECF” refer to the pagination generated by the Court’s CM/ECF docketing
system and not the document’s internal pagination.
6 The EB-5 program allocates permanent resident visas to foreign investors who “invest[]
capital” in a new commercial enterprise (“NCE”) and can prove that the NCE “creat[ed] full-time
employment for not fewer than 10 United States citizens” or foreign nationals authorized to work
in the United States, other than the investor’s immediate family. 8 U.S.C. § 1153(b)(5). Investors
can choose to obtain EB-5 visas through participation in the “Immigrant Investor Regional Center
Program,” where they invest in a regional center that has been approved by the United States
Customs and Immigration Services (“USCIS”), and show that the center “create[d] jobs indirectly
through revenues generated from increased exports resulting from the new commercial enterprise.”
8 C.F.R. § 204.6(j)(4)(iii), (m)(7). Congress renewed the program in March 2022. See generally
USCIS Behring Reg’l Ctr. LLC v. Mayorkas, No. 22-CV-02487 (VC), 2022 WL 2290594, at *1
(N.D. Cal. June 24, 2022) (discussing, and preliminarily enjoining USCIS’s decision to de-
authorize, previously approved regional centers under the new regime).
4
From 2010 until 2017, together with Walter Verfenstein—Verfenstein’s ex-husband—Xia
contacted, mostly, Chinese nationals and attempted to solicit contributions of $550,000 per
investor. (Tr. 168:1–13; see also Dkt. 6-48.) After submitting requests to USCIS to designate
Fleet as an approved regional center for the EB-5 visa program, Xia created five limited
partnerships to finance distinct components of the Projects, and issued offering memoranda

marketing ownership interests in each limited partnership to foreign investors in return for a
$500,000 capital contribution and a $50,000 fee. The respective Partnership Agreements
earmarked investors’ funds for specific purposes. The EB-5 investors wired funds to their
respective limited partnerships, and the partnerships then loaned most of these funds to one of
three Xia-controlled entities called “developers.” The developers then transferred funds to twelve
Xia-controlled entities, called “contractors” and “subcontractors,” allegedly to pay for services
rendered in connection with the Projects.
B. Designating Fleet as a Regional Center
On October 7, 2010, USCIS approved Fleet as an EB-5 regional center. (Dkt. 6-14.)7 At

least twice, Xia sought to amend Fleet’s approval. (Dkts. 6-15, 6-16.) The first time was on
December 24, 2013, when Xia filed a request to add the Emerald Project to Fleet’s approval. (Dkt.
6-15, at 1; Tr. 62:20–23.) USCIS requested that Xia produce additional evidence to substantiate
representations as to his business plan. (Dkts. 6-69, at 1.) In 2014, Xia approved a letter from his
attorney responding to USCIS and stating that “$110 million [of] funds will come from” three non-
EB-5 sources. (Dkt. 6-69, at 5; Tr. 78:13–19.) First, the letter stated that $18 million will come

7 Fleet was originally known as Federal New York Metropolitan Regional Center, LLC.
(Tr. 7:18–22.)
5
from a tax-credit named the “New Market Tax Credit Financing” (“NMTCF”). (Dkt. 6-69, at 5.)
Xia never received such credit. (Tr. 69:9–14.) Second, the letter stated that $72 million will come
from a loan from Hapoalim Securities. (Dkt. 6-69, at 5.) Xia never received such a loan and could
not even remember requesting it. (Tr. 60:16–18, 61:12–18.) Third, the letter stated that $20
million will come from a tax credit named Brownfield. (Dkt. 6-69, at 5.) Seven years after his

attorney submitted the letter to USCIS, Xia obtained about $11 million in Brownfield Tax Credits,
and collateralized it to buy Yue a mansion. (Tr. 87:20–23, 88:1–89:20, 202:11–21.)
Xia filed his second request to add the Emerald Project to Fleet’s approval on November
12, 2015. (Dkt. 6-16, at 1–2.) Again, USCIS requested that Xia provide his business plan for the
Eastern Emerald. In 2017, Xia’s attorney submitted a letter stating that a Xia-controlled entity,
LaGuardia Performance Center, LLC (“LaGuardia”), had obtained a “loan commitment letter in
the amount of approximately $85 million from R. Seelaus & Co.” (“Seelaus”), to develop the
Emerald Project. (Dkt. 6-70, at 3; Tr. 80:20–25, 231:19–22.) The letter included as an exhibit a
letter from a Seelaus employee named Edward Chan (“Chan letter”)8 purportedly representing that

it was Seelaus’s “pleasure” to advise LaGuardia and Xia that it had “approved [their] construction
financing [loan]” in principle. (Dkt. 6-70, at ECF 6.) In a sworn declaration submitted by the
SEC, Annie Seelaus, the CEO of Seelaus since 2015, stated that she was completely “unaware of
the [Chan] [l]etter[.]” (Dkt. 4, ⁋⁋ 3–5.) Ms. Seelaus further stated that she could not find in her
company’s records a copy of the Chan letter or any correspondence with Xia. (Id. ⁋ 5.) Ms.
Seelaus also explained under oath during a deposition that Edward Chan lacked the authority to

8 The Chan letter was printed on stationery bearing Seelaus’s logo and address. (See Dkt.
6-70, at ECF 6.)
6
commit Seelaus to any loan and that Seelaus “doesn’t make loans” and has never made one. (Dkt.
52-3, at 71:6–9, 101:2–7.) Ms. Seelaus concluded that Seelaus “never made—or even considered
making—any loan to Richard Xia or his company,” and was of the view that the letter was “not
authentic or legitimate.” (Dkt. 4, ⁋⁋ 9–10.) At the Hearing, Xia denied knowing that the Chan
letter, which was described as fraudulent, was not authorized when he received it, and by

extension, when his attorney, acting under his direction, sent it. (Tr. 78:13–19, 84:11–25.)
C. The Offering Memoranda
Having obtained Fleet’s designation as a USCIS-approved regional center, Xia produced
offering memoranda marketing the Projects to investors who wished to participate in the EB-5
program. (See Tr. 19:19–25.)
1. The Eastern Mirage Memoranda
The Eastern Mirage is a building located at 42-31 Union Street, Flushing, New York. (See
Dkt. 3 ⁋ 5; Tr: 630:1–8.) From 2010 to 2014, Xia and his affiliates sold ownership stakes in three
limited partnerships—EMMCO, L.P., EMMCO NQMC, L.P., and EMMCO TOWER, L.P.—each

allegedly financing distinct components of the Mirage Project through separate offering
memoranda. (See generally Dkts. 6-1, 6-2, 6-3; see also 6-48, at ECF 9, 12–13, 16; Dkt. 2-1, at
ECF 11.) Following the issuance of the Mirage memoranda, 112 prospective immigrants invested
$500,000 each, and $56,000,000 in total, along with $1,694,272 in fees, as part of the EB-5 visa
program. (See Dkt. 6-48, at ECF 9, ECF 12–13, ECF 16.; see also Dkt. 2-1, ECF 11.) Fleet acted
as the general partner for each of the limited partnerships, and Fleet Financial Group, Inc.
(“FFG”)—which, like Fleet, is controlled by Xia—acted as the developer for each of the
partnerships. (See Dkts. 6-1, 6-2, 6-3, all at ECF 6; see also Tr. 50:1–11; see generally Dkts. 6-
58, 6-59, 6-60, 6-61 (similar loan agreements showing that FFG borrowed funds from the
7
partnerships for the development of the Mirage.).) Each of the offering memoranda for the three
limited partnerships described the Mirage Project as follows:
The Eastern Mirage Project is expected to consist of the North Queens Medical
Center, a medical office building; the Eastern Mirage Tower, including
approximately 61 condominium apartments and approximately 101 hotel suites
(each with its own kitchen); and the Eastern Mirage Center, including a spa and
fitness center (4,500 square feet), a multimedia conference center (5,500 square
feet), a restaurant (3,500 square feet), and below-grade public garage with 256
parking spaces covering 62,400 square feet.

(Dkt. 6-1, at ECF 12; Dkt. 6-2, at ECF 12; Dkt. 6-3, at ECF 12.) The memoranda stated that the
partnerships anticipated that Phase One of the Mirage Project “will be completed” by the fourth
quarter of 2012 (Dkt. 6-1, at ECF 12), and that Phases Two and Three “will be completed” by the
fourth quarter of 2013. (Dkt. 6-2, at ECF 12; Dkt. 6-3, at ECF 12.) The memoranda provided
descriptions of Xia and the general contractor, and their development experience. Each
memorandum described Xia as follows:
Mr. Xia is a New York City real estate developer and President of the General
Partner. Mr. Xia has been active for ten years in land acquisition, commercial and
residential development, marketing research, value-added strategies, financing,
property management and leasing, and other related activities. His company Fleet
Financial Group, Inc. specializes in “green” projects, and its [sic] recently
completed “Shangri-La Towers[.]”

(Dkt. 6-1, at ECF 14; Dkt. 6-2, at ECF 15; Dkt. 6-3, at ECF 14.) The memoranda did not disclose
to investors that the Shangri-La Tower, a small-scale 65-unit building, was Xia’s only independent
project before starting to work on the Eastern Mirage, and that Xia previously had only worked on
other projects in his capacity as an engineer. (Tr. 49:8–24.) The memoranda also contained the
following text about a company named the “Racanelli Construction Group”:
Based in Hamilton NJ, Racanelli Construction Group is recognized as one of the
region’s leading providers of preconstruction planning, project management,
design/build, and general contracting services. Since its founding, Racanelli has
been responsible for building and renovation across a broad range and variety of
8
market segments, completing projects that include corporate headquarters,
industrial complexes, hospitals, assisted living facilities, university and college
facilities, retail stores, hotels, restaurants, houses of worship, self storage
complexes, condominiums and townhouses.

(Dkt. 6-1, at ECF 14; Dkt. 6-2, at ECF 15; Dkt. 6-3, at ECF 14.) In fact, a business named Racanelli
Construction has been active in Hamilton, New Jersey, since the 1950s (“Racanelli-1”), but Xia
had little to do with it. (Tr. 28:3–16, 31:6–25 (“I didn’t have any relationship with [Racanelli-1]
at all.”).)9 At the Hearing, Xia claimed that he had been negotiating with Racanelli-1 before the
Mirage Project started, but that those negotiations fell through in 2011. (Tr. 29:10–16.) Thus,
unable to work with Racanelli-1, Xia and his affiliates seemingly formed a New York entity and
named it “Racanelli Construction Group, Inc.” (“Racanelli-2”) in 2011. (Dkt. 6-17, at ECF 27–
28; Tr. 25:12–14, 29:10–17, 30:21–23.)10 Xia identified himself as the acting president of
Racanelli-2 in numerous court filings. (Tr. 32:3–5.) Xia admitted that he copied business
descriptions that appeared on Racanelli-1’s website and then provided them to his agents, who
inserted them to the Eastern Mirage and Eastern Emerald offering memoranda. (Tr. 27:2–8,
28:22–29:20.) In April 2015, Racanelli-1 sued Xia and Racanelli-2 for tradename and trademark
infringement in the New York Supreme Court in Suffolk County. (See Tr. 35:10–19; see also Dkt.
6-36; see generally Tr. 25–37.)

9 Courts filings state that the full name of Racanelli-1 is Racanelli Construction Co., Inc.
(See Dkt. 6-36, at ECF 6.) The filings further state that Racanelli Construction Co., Inc. has been
active in the construction industry since the 1950s and incorporated itself in 1992. (Id. at ECF 6–
7.)
10 At the Hearing, Xia stated that Relief Defendant Verfenstein controlled Racanelli-2 and
denied having any control over Racanelli-2. (Tr. 34:2–5, 113:1–4.) The Court concludes that, at
a minimum, Xia controlled Racanelli-2’s bank accounts, as further explained in footnote [16],
infra.
9
The Eastern Mirage offering memoranda—which were issued in December 2010 and
January 2011—also contained various statements about financing, and each contained the
following information:
The Eastern Mirage Project is intended to be funded from a variety of sources
including . . . a $17,000,000 triple tax-exempt bond financing authorized under the
American Recovery and Reinvestment Act of 2009. The program is administered
by the NYCCRC [New York City Capital Resource Corporation] and the NYC
Industrial Development Agency, both of which are staffed by [the] New York City
Economic Development Corporation.
(Dkt. 6-1 at ECF 12; see also Dkt. 6-2 at ECF 12 (similar); Dkt. 6-3, at 12 (similar).) The 2011
memoranda added that the Mirage Project was to be financed by “up to $12,000,000 of double tax-
exempt bond financing” from the NYCCRC. (Dkt. 6-2 at ECF 12; Dkt. 6-3, at ECF 12.) However,
in 2010, FFG decided to forgo the “allocation of $17,000,000” that the NYCCRC had previously
made available to it. (See Dkt. 6-38.) Although FFG asked, in the same letter to NYCCRC, to
preserve at least “$12,280,000” for future use (see id.), the NYCCRC denied that request the next
day and proceeded to terminate all of the bond allocations it had previously made to FFG (Dkt. 6-
39). Thus, by the time the Eastern Mirage offering memoranda issued, the NYCCRC had already
withdrawn all bond allocations to the Mirage Project, but Defendants included representations
about them nonetheless.11

11 At the Hearing, Xia testified that he included the representation in the memoranda
because he understood the NYCCRC’s rejection to apply only to triple tax-bonds, stating that he
still “had a Double Tax Exempt Bond[],” and that he had sent a renewed “application at the end of
2011 [to receive Triple Tax Bonds].” (Tr. 60:1–6, 59:21–25.) However, Xia referred the Court to
no credible evidence that any double tax-exempt bonds existed, let alone that he obtained them.
The Court therefore does not credit Xia’s explanation for why the withdrawn $17,000,000 of
double-tax-exempt-bond financing was referenced in the two Eastern Mirage offering memoranda.
Likewise, the record is devoid of any credible evidence of a renewed 2011 application for the triple
tax-exempt bonds, and the NYCCRC stated in its letter that the program was “due to expire on
December 31, 2010.” (Dkt. 6-39.) In sum, the Court concludes that Xia’s claim about the bonds
10
The EMMCO TOWER, L.P., memoranda, which financed the construction of Phase Three
of the Mirage Project, stated that it “will encompass the development of the Westin Elemnet [sic]
Hotel & Condo Apartment building.” (Dkt. 6-3, at ECF 5–6.) When questioned at the Hearing
about whether he ever signed any agreement with Westin Hotels & Resorts, Xia was evasive and
repeatedly stated that when he issued the memorandum, negotiations to sign such an agreement

were underway.12 (Tr. 89–91.)
2. The Eastern Emerald Memoranda
The Eastern Emerald is a planned building to be constructed at 112-21 Northern Boulevard,
Flushing, New York. (See generally Dkt. 3, ECF 29.) From 2014 to 2017, Xia and his affiliates
sold ownership stakes in two partnerships—EEGH, L.P. and EEGH, II, L.P.—each financing a
distinct phase of the Emerald Project. (See generally Dkts. 6-4, 6-5, 6-6; see also Dkt. 2-1, ECF
11; see Dkt. 6-48, at ECF 18–23, 29–31.) Following the issuance of the Eastern Emerald offering
memoranda, 346 prospective immigrants invested $500,000 each—$173,000,000 in total—along
with $3,416,007.19 in fees in the Emerald. (See Dkt. 6-48, at ECF 18–23, 29–31.) Defendant

Fleet acted as the general partner for each of the limited partnerships, and LaGuardia and Eastern
Emerald Group (“EEG”)—both Xia-controlled entities—acted as developers for each of the
partnerships. (See Dkts. 6-4, 6-5, 6-6; see also Dkts. 6-62, 6-78, 6-79.) The EEGH, L.P., offering
memorandum described the Emerald Project as follows:

is not credible. Indeed, as the Court noted at the conclusion of the Hearing, it finds Xia, and much
of his testimony at the Hearing, lacking in candor and credibility. (Tr. 663–66.)
12 Between 2017 and 2019, Xia corresponded on WeChat regarding the Projects with
various prospective and present investors, who repeatedly referred to the “Westin hotel project”
without Xia ever correcting them. (See generally Dkt. 6-73.)
11
The Eastern Emerald Project is expected to consist [of] a 498-room 5-star luxury
hotel, retail stores (97,180 square feet), an IACC certified international
convention[] center (105,964 square feet), a restaurant (11,300 square feet), and a
parking garage with 400 parking spaces covering 82,490 square feet.

(Dkt. 6-4, at ECF 10; see also Dkt. 6-6, at ECF 11 (similar).) The EEGH, II, L.P., offering
memorandum promised investors all of the above, and further promised that the Emerald Project
would include 294 additional 5-star hotel rooms, a five-story performing art center, retail stores,
multiple restaurants, and additional parking spaces. (Dkt. 6-6, at ECF 11.) Like the Eastern
Mirage offering memoranda, the Eastern Emerald offering memoranda did not disclose to
investors that Xia’s only independent project prior to the Emerald and Mirage Projects was the 65-
unit Shangri-La Tower, and the Eastern Emerald memoranda contained a description of a
“Racanelli Construction Group” that Xia had copied from Racanelli-1’s website. (See Dkt. 6-4 at
ECF 12, Dkt. 6-6, at ECF 12–13.)
The Eastern Emerald memoranda made multiple statements regarding financing. First, the
EEGH, L.P. and EEGH, II, L.P. memoranda stated that the Emerald was expected to be financed
with loans from Hapoalim Securities, in the amount of $40 million and $72 million, respectively.
(Dkt. 6-4 at ECF 11–12, Dkt. 6-6, at ECF 11–12.) In fact, although Xia had obtained a letter of
intent from Hapoalim Securities as to these loans, he never actually received, and does not even
remember applying for, the loans themselves. (Tr. 60:16–18,61:12–18.) Second, the EEGH, L.P.
supplemental offering memoranda stated that the $190-million cost of the Emerald Project “shall
b[e] financed as follows[,]” and listed, among other things, the $18 million NMTC. (Dkt. 6-5, at
ECF 3.) As with the Hapoalim Securities loan, Xia never obtained anything more than a

12
preliminary letter of intent as to the NMTC. (Tr. 69:9–14.)13 Third, the EEGH, L.P. supplemental
offering memoranda also promised that the Emerald Project “shall b[e] financed” by $21 million
in Brownfield Tax Credits (Dkt. 6-5, at 3), which Xia, years later, used to buy his wife a mansion.
D. The Loans
In accordance with provisions in the memoranda and various agreements styled as loans,

Xia treated the funds paid by the EB-5 investors as general “loans” from the respective
Partnerships to three developer entities that Xia controlled: EEG, LaGuardia, and FFG. (See Tr.
230–31, 253–54.) At the Hearing, Xia testified that these loans were earmarked, such that “the
developer is supposed to use those loan proceeds only for that particular project” for which a loan
was made. (Tr. 98:15–20.) Thus, the Mirage Project loans included an exclusive use provision.
(See Dkt. 6-77, at 1 (“Using the loan proceeds, [FFG] . . . will develop [the] []Eastern Mirage
Project[]”); Dkt. 6-61, at 1 (same); Dkt. 6-60, at 1 (same); Dkt. 6-59, at 8 (“Lender shall use the
Loan proceeds only for the payment of hard costs in connection with the Construction Work.”).)
At the Hearing, Xia confirmed the accuracy of a flow chart prepared by the SEC showing
that a total of $17,059,850 of the EB-5 investor funds raised for the Mirage Project,14 and loaned

13 The record includes materials about each of the Projects that third parties had circulated
to potential investors that contained false representations about both projects. (Dkts. 6-8, 6-9, 6-
10.) At the Hearing, Xia admitted that he had provided some information about the Projects to
these third parties, but denied having ultimate control over the statements within them. (Tr. 91–
93.) Considering the totality of the evidence, including the many texts that Xia exchanged with
investors who used terminology mirroring the contents of the materials, the Court finds the third-
party materials at least probative, albeit not determinative, as to the character of the scheme at
issue.
14 This figure is arrived to by adding the total amount of funds, $1.7 million, transferred
during the “June 2013” transfers (Dkt. 7-7, at 1), to the total amount of funds, $15,359,850,
transferred during the “December 2013” transfers. (Id. at 2.)
13
to FFG, ended up financing the purchase of land for the Emerald Project—contrary to the purported
exclusive-use provision of the Mirage Project loans. (Tr. 104:9–21; see also Dkt. 7-7, at 1–2.)15
Xia’s explanations for these transfers shifted throughout the hearing. Initially, Xia reasoned that
after he had performed the work on the Mirage Project at a lower cost than expected, he was
entitled to use any remaining funds for the Emerald Project. (Tr. 108:1–109:3.)16 Xia’s reasoning

then shifted, and he later explained that in his view, once the money was loaned to the developers
it lost its character as “investor money” and turned into “loan proceeds.” (Tr. 164:4‒19.)17 Finally,
Xia maintained that money that had originated in the Mirage Project was used in the Emerald
Project, not after it was loaned, but after it was paid to subcontractors who built the Eastern Mirage.

15 The flow chart shows that on June 27, 2013, Xia and Yue transferred $1.7 million in
Mirage Project funds from FFG to Racanelli-2—the entity that coordinates and pays for services
that subcontractors provide to the Mirage Project—and then to EEG, without EEG having billed
for any services performed for the Mirage Project. (See Dkt. 7-7, at 1.) Similarly, in December
2013, Xia and Yue engaged in an identical pattern of transfers, culminating in Racanelli-2 paying
$15,359,850 to EEG for no apparent reason. (Id. at 2.) Xia admitted that all these payments were
used to purchase the Emerald land. (Tr. 326:8–328:7.)
16 Xia later testified that all final transfers were made from the Racanelli accounts ending
in 1555 and 5028 over which he had no control. (See Tr. 112:17–113:25.) Earlier in the Hearing,
the SEC produced the bank records of all the Racanelli accounts, including those ending with 1555
and 5028, which showed that Yue and Xia were the only authorized signers for all of the accounts.
(See Dkt. 6-19, lines 129, 137.) While Xia denied the accuracy of these listings, the SEC produced
close to 100 transfer records, spanning roughly three-years, each noting that East-West Bank staff
had conferred telephonically with Yue in conjunction with various transactions and withdrawals
from the 5028 account. (See Pl.’s Ex. 172 (physical exhibit).) Given that the 1555 and the 5028
were in the same bank branch—38-05 Union Street, Flushing, New York, (see Dkts.7-17, 7-21)—
the Court does not credit Xia’s testimony, and instead concludes that all transfers from both
Racanelli accounts were made by Xia himself or by Yue, acting at Xia’s direction.
17 Such statements aligned with Xia’s description of the loan structure as “almost like a
bank[;] . . . [an] EB-5 investor . . . put[s] money into that bank . . . and the bank gave a loan to
the developer[.]” (Tr. 231:1–5; see also Tr. 277:23–24 (“It’s almost like the bank gave me the
loan and I guarantee to pay them back for the interest.”).)
14
(See Tr. 165:3–23.) Xia later attempted to explain why, if all payments were meant to pay his
subcontractors for their work, the transfers were made to EEG—the developer of the Emerald
Project—and not to the subcontractors themselves. Xia maintained that two of his controlled
entities—X&Y and JiQing Development—had billed Racanelli-2 for their work, but then had
asked informally for payments to be made to EEG to finance the purchase of the Eastern Emerald

land. (Tr. 327:24–328:12.)18 When presented with evidence that all of the payments made to EEG
were titled “loan,” Xia was largely unresponsive and testified that that was done at the advice of
his accountant. (Tr. 369:11–372:15.)
In his 2019 investigative testimony,19 Xia testified that JiQing Development (“JiQing”)20—
a Xia-owned entity that allegedly had billed Racanelli-2—was a shell entity, without employees,
that did not conduct work or issue bills. (Tr. 124–25; see also Dkt. 6-24, at 66–67.) At the Hearing,
however, Xia testified that after his deposition, he suddenly remembered that JiQing, in fact, had
employees. (Tr. 126–27.) In fact, the SEC’s investigation into Xia’s affairs uncovered that, in
2012, Xia transferred about $819,000 of Mirage Project funds to JiQing to cover a mortgage

relating to property located in 57-35 Lawrence Street—which had no direct connection to the

18 Raymond Dookhie, an accounting expert with 25 years of experience in conducting
forensic examinations of financial records, with specific focus on real-estate and construction
projects (Dkt. 7, ¶¶ 1-3), testified for the SEC at the Hearing. Among other things, Dookhie noted
that such a payment structure where a subcontractor asks the general contractor to pay a third-party
vendor was “very rare” and that he did not recall ever seeing any. (Tr. 474:6–15.) Finally, while
the Hearing’s Transcript refers to the witness’s name as “Dhookie,” the Court notes that this is
merely a typographical error.
19 On May 30, 2019, as part of the SEC’s pre-suit investigative efforts, Xia appeared for a
deposition at the SEC’s Regional Office in New York and gave a sworn testimony. (See Dkt. 6-
24, at 1, 8.)
20 The Court notes that JiQing is one of Yue’s first names. (See Tr. 129:5–8.)
15
development of the Mirage Project. (Tr. 118–20.) At the Hearing, Xia claimed that that payment
was meant to pay JiQing’s employees, but when asked how JiQing had billed such copious
amounts in so little time, Xia responded, “I don’t know how to answer that question.” (Tr. 126:20–
127:19.)21
E. The Developer-Contractor Transactions

At the Hearing, the SEC’s accounting expert witness, Raymond Dookhie, testified that
many of the payments purportedly made for legitimate reasons by and between Xia’s various
entities were, in fact, irregular.22 First, while Defendants transferred approximately $22 million
of investor funds to their various subcontractors, the record is entirely devoid of any invoice or
other information explaining what business purpose, if any, these transfers of substantial sums
served. (Tr. 402.)23 Second, Dookhie noted that the pattern of transactions—where, for nine years,
money circulated in all directions between 95 different bank accounts controlled by, or affiliated,

21 The SEC’s expert suggests that evidence in the record supports the inference that about
$6.5 million in funds loaned to the Emerald Project might have been used to finance the Mirage
Project. (See Dkt. 7, ¶¶ 36–41.) For instance, the SEC’s expert argued that while the Eastern
Emerald is merely a hole in the ground (Dkt. 3, at ECF 29–42.), between 2013 to 2017, Racanelli-
2 used $2.3 million in Emerald Project funds to pay, among others, companies that specialize in
air conditioners, window installation, and furniture. (See Dkt. 7, ¶ 39.) The SEC argues that
because such services are inconsistent with the Eastern Emerald’s primitive state, these monies
had to have been diverted to the Mirage Project. The SEC did not question Xia about this evidence
at the Hearing, and the SEC’s argument is based solely on its expert’s “review” of these
companies’ “names” and an “internet” search he had performed about them. (See Dkt. 7, ⁋ 39.)
While, standing alone, this evidence might appear equivocal, the Court considers the record
holistically and finds that these transfers are indicative of a near-decade-long pattern of suspicious
financial conduct by Defendants.
22 The Court found Dookhie’s entire testimony at the Hearing credible.
23 Defendants’ attempt to minimize this lacuna in the record—where tens of millions of
Project funds are largely unaccounted for—as “lax business and accounting practices” (Def.’s
Mem., Dkt. 124, at 17), borders on frivolous.
16
with Xia and Yue, from and to the contractors, with and without invoices—was irregular. (See
generally Dkt. 7.) For instance, when Xia’s entities did submit invoices, the invoices were
frequently for a series of vague and conclusory round figures. (Dkt. 7, ¶ 16; Tr. 408:15‒25; Tr.
412:16‒20 (noting that in the “good majority of” invoices reviewed, it was “very difficult to
understand what was the value of the work that was being performed.”).) At other times, the

payments made to Xia-controlled entities did not match the invoices that the entities had submitted.
(Tr. 511–12.) Third, the invoices and payments that the general contractors submitted were
inconsistent with industry standards and lacked specification, via a “Form 703,” of the work the
contractors had allegedly performed. (Tr. 405–07.) The irregularity of these payments was
compounded by the fact that Xia controlled all the subcontractors that purportedly worked on the
Projects and therefore their use of transferred funds. (Tr. 231; see also Tr. 252.)24
* * *
After learning of the possibility of SEC prosecution, Xia completed a series of transactions
that dispersed EB-5 investor funds to Relief Defendants. To these transactions, the Court now

turns.

24 At the conclusion of the Hearing, the Court made the following finding on the record:
I found so much of Mr. Xia’s testimony unbelievable and incredible and proven
demonstrably false by records and other testimony. I am concerned, quite frankly,
about his conduct in this case, not only what was reported by the monitor in terms of
candor and cooperation, but even just in the hearing before me . . . . [E]verything that
has been presented to me show[s] that there is only a loose familiarity with the truth
when it comes to what Mr. Xia says to the public and to others and, quite frankly, to
me in court here. Perhaps he is guided by his own sense of what is right, I do not
know, or what he believes is true, but much of what I heard, I reject as incredible.
(Tr. 663–64.)
17
II. Post-Investigation Transactions
In May 2018, Xia first learned of the SEC’s investigation into his affairs. (Tr. 355:1–6.)
By October 2021, at least 36 lawsuits had been filed against Xia and Verfenstein in connection
with the Projects. (Dkt. 53-1.)25 On May 24, 2021, Xia’s lawyer received a phone call, confirmed
by a letter, from the SEC advising “that the staff of the Securities and Exchange Commission has

made a preliminary determination to recommend that the Commission file an enforcement action
against [Xia],” Fleet, and Yue (the “SEC Letter”). (Dkt. 102-19, at ECF 1, 3, 11.) After Xia
received that communication from the SEC, he and Verfenstein engaged in a series of transactions
involving about $26 million of assets—comprised of tax credits that Xia had promised investors
would be used on the Projects, property rights in the Eastern Emerald land, and EB-5 investor
funds—to buy, in quick succession, three mansions in Long Island and to transfer ownership of
them to Relief Defendants Yue, Verfenstein, and X. Yu.26 (See Pl.’s Mem., Dkt. 100, at 10–17.)

25 Additional lawsuits have been filed since the initiation of this action. (See Dkt. 183-6
(listing Molina v. Xia, No. 22-CV-864 (PKC) (RER) (E.D.N.Y. Feb. 16, 2022) (Dkt. 1) (alleging
that Defendants unlawfully overworked and underpaid their construction workers to work on the
Projects))); see also Jin v. Fleet New York Metro. Reg’l Ctr., LLC, No. 22-CV-740 (PKC) (RER)
(E.D.N.Y. Feb. 9, 2022) (Dkt. 1) (alleging that Defendants defrauded their investors).
26 X. Yu is Verfenstein’s mother. The record suggests that X. Yu has little to do with the
underlying transactions in this matter, but currently resides in a 12-bedroom mansion purchased
by Defendants, together with her (X. Yu’s) husband (Verfenstein’s father) and mother. (Dkt. 101-
36, at 42:14-18, 62–63.)
18
In January 2021, Xia took $10.97 million that he had received as part of the Brownfield
Tax Credit, which the Eastern Emerald offering memorandum had promised investors would be
used to finance the Emerald Project, deposited it into an empty certificate of deposit (“CD”) bank
account, and used the account to secure a loan for “business operations” allegedly for the Emerald
Project. (Id. at 7-8.) Xia repeated the same process in June 2021, this time using $4.59 million
of investor funds. (/d. at 8-9.) In August 2021, Xia caused one of his entities, X&Y, to mortgage
the Eastern Emerald land for “business purposes” in return for a $15 million loan. (/d. at 9, 17.)
A circuitous series of transactions followed, and about $26 million of the funds and other investor
funds were funneled through multiple accounts to finance the purchase of the three Long Island
mansions. (See Dkts. 102-31, 102-32, 102-33.) On May 25, 2021, X. Yu became the owner of a
12-bedroom mansion on Vanderbilt Drive in North Hempstead (Dkt. 101-23, at 3-4); on August
13, 2021, Yue became the owner of a 20-room mansion on Kings Point Road in North Hempstead,
where Xia now resides:

a
f □ y : pe
ee i Alt PA
a ieee ee

| Ree ee

(Dkt. 102-28 (exhibit cropped by the Court); see a/so Dkt. 101-10, at 2); and, on August 30, 2021,
Verfenstein became the owner of a 29-room mansion on Middle Neck Road in North Hempstead,

19

which she subsequently transferred to an entity she owns—named Yume Sansai, LLC—and
mortgaged:

oH ne

(Dkts. 102-29 (exhibit cropped by the Court); 101-15, at 2; see also Dkt. 100, at 13, 18.)
In their depositions, Xia and Verfenstein denied any impropriety and stated, as Verfenstein
repeats in her filings in this matter, that these residential purchases were made for legitimate
business purposes only. Among other reasons, they claim that the work on the Emerald Project
generated a lot of dirt, making it necessary to buy X. Yu a mansion with a large tennis court that
serves as a “perfect dumping site.” (Dkt. 101-35, at 59:19; 60:5—11 (“Q. Okay. You’re going to
dump dirt from the Eastern Emerald site at Vanderbilt Drive?, A. That’s right. Q. Where? A. Huh?
Q. Like, where? Where the tennis court is? A. Yes.”); 102:21—25 (“It is not a mansion. This is...
the dumping site.”); Dkt. 101-36, at 59-60 (same).) In similar fashion, Xia claims that Yue’s 20-
room mansion, where Xia now resides with Yue and their family, was a necessary business
expense because Xia needed a “home office.” (Dkt. 101-35, at 39-40.)
LEGAL STANDARD
Under the Securities Act of 1933 and Exchange Act of 1934, the SEC may “bring an action
in any district court of the United States” and ask to “enjoin [illegal] acts or practices, and upon a
proper showing, a permanent or temporary injunction or restraining order shall be granted without
20

bond.” 15 U.S.C. §§ 77t(b), 78u(d)(1). Generally, to obtain a preliminary injunction, the SEC
need only show “a substantial showing of likelihood of success as to both a current violation and
the risk of repetition.” Smith v. S.E.C., 653 F.3d 121, 127–28 (2d Cir. 2011); S.E.C. v. Cavanagh,
155 F.3d 129, 132 (2d Cir. 1998) (“A preliminary injunction enjoining violations of the securities
laws is appropriate if the SEC makes a substantial showing of likelihood of success as to both a

current violation and the risk of repetition.”). However, “because an asset freeze is a provisional
remedy that [merely] serves to preserve the status quo,” S.E.C. v. Ahmed, 123 F. Supp. 3d 301,
307–08 (D. Conn. 2015) (citations omitted), aff’d sub nom. S.E.C. v. I-Cubed Domains, LLC, 664
F. App’x 53 (2d Cir. 2016); accord S.E.C. v. Infinity Grp. Co., 212 F.3d 180, 197 (3d Cir. 2000)
(“A freeze of assets is designed to preserve the status quo[.]”) (emphasis added), the SEC need
only “show either a likelihood of success on the merits, or that an inference can be drawn that the
party has violated the federal securities laws.” Smith, 653 F.3d at 128 (citation omitted); S.E.C. v.
Unifund SAL, 910 F.2d 1028, 1041 (2d Cir. 1990) (“Unifund-1”) (finding “evidence suffic[ient] to
warrant some form of freeze order [because] [t]here [was] a basis to infer” that a violation of

securities laws had occurred); see also S.E.C. v. Montle, 65 F. App’x 749, 753 (2d Cir. 2003) (“A
preliminary injunction the subject of which is an asset freeze requires a lesser showing[.]”).27

27 The Court rejects Defendants’ and Relief Defendant Yue’s arguments that the standard
governing freezes of a defendant’s assets is unclear. (See Dkt. 43, at 8–15.) Despite reciting the
applicable standard without difficulty (Dkt. 124, at 6 (citing Smith, 653 F.3d at 128)), Defendants
and Yue argue that the standard is unclear because in some cases the Second Circuit asked the
SEC to show “likelihood of success on the merits,” and not merely a “reasonable basis to infer”
illegality, for an asset freeze to issue. (See Dkt. 43, at 8–9.) However, the cases cited by
Defendants and Yue, without exception, all involve orders freezing the assets of relief defendants,
not defendants in the SEC action. See I-Cubed, 664 F. App’x at 54 (“Relief Defendants . . . appeal
from a preliminary injunction freezing their assets”); S.E.C. v. Miller, 808 F.3d 623, 629–30 (2d
Cir. 2015) (“This appeal was [] taken by . . . Relief Defendants . . . [who] challenge the freeze of
their assets”); Montle, 65 F. App’x at 753–54 (2d Cir. 2003) (affirming an injunction freezing a
21
Furthermore, “[t]he plenary powers of a federal court to order an asset freeze are not limited
to assets held solely by an alleged wrongdoer, who is sued as a defendant in an enforcement
action.” I-Cubed, 664 F. App’x at 55 (citing Smith, 653 F.3d at 128). The Court may freeze assets
that a relief defendant owns, “where that person: (1) has received ill-gotten funds; and (2) does not
have a legitimate claim to those funds.” Cavanagh, 155 F.3d at 136. “The standard of review for

an injunction freezing assets of a relief defendant is whether the SEC has shown that it is likely to
succeed on the merits.” Id.; see also I-Cubed, 664 F. App’x at 55 (noting that “[t]he receipt of
property as a gift without payment of consideration does not create a legitimate claim under the
Cavanagh test.” (citation omitted)); S.E.C. v. Rosenthal, 426 F. App’x 1, 3 (2d Cir. 2011) (finding
that disgorgement may be ordered “against a person who is not accused of wrongdoing in a
securities enforcement action” if the Cavanagh standard is met).
DISCUSSION
Defendants and Relief Defendants raise four principal arguments in opposition to the
SEC’s motion: (1) the Court lacks the power to issue an asset freeze; (2) the statute of limitations

bars the SEC’s action; (3) the SEC fails to meet the relevant standard for an asset freeze; and (4)

yacht which relief defendants owned (discussing S.E.C. v. Martino, 255 F. Supp. 2d 268, 271
(S.D.N.Y. 2003) (“[The] luxury yacht . . . [was] held in the name of [one relief defendant], an
offshore company wholly owned and controlled by [another relief defendant].”))). As discussed
next, it is well-established that the applicable standard for freezing a relief defendant’s assets is, in
fact, “whether the SEC has shown that it is likely to succeed on the merits.” Cavanagh, 155 F.3d
at 136. But this does not alter, or muddy the waters as to, the standard for freezing the assets of a
defendant in an SEC action, which can be satisfied by “an inference . . . that the [defendant] has
violated the federal securities laws.” Smith, 653 F.3d at 128; cf. Smith, 653 F.3d at 128 (applying
the basis-to-infer standard when reviewing an order freezing a vacation home which relief
defendant and defendant owned jointly); Unifund-1, 910 F.2d at 1041 (same).
22
the asset freeze is overbroad and should be limited according to the expected recovery of the SEC.
The Court addresses each of these arguments in turn.
I. The Court has the Power to Issue an Asset-Freezing Injunction
The Court rejects Defendants’ and Yue’s argument that it lacks the power to issue a
statutory asset freeze because that remedy was unknown in 1789 England. In support of their

argument, Defendants and Yue cite Grupo Mexicano de Desarrollo S.A. v. All. Bond Fund, Inc.,
527 U.S. 308 (1999), in which “the Supreme Court held that a preliminary injunction issued under
Fed. R. Civ. P. 65 had to be within the district court’s equitable authority under the Judiciary Act
of 1789[.]” Adelphia Bus. Sols., Inc. v. Abnos, 482 F.3d 602, 606–07 (2d Cir. 2007); (see also
Dkt. 43, at 2–4.) Grupo is irrelevant to this matter.
First, “Grupo [only] addressed . . . an action for money damages,” S.E.C. v. ETS
Payphones, Inc., 408 F.3d 727, 734 (11th Cir. 2005), and did not disturb the well-established
principle that an asset freeze may be issued “in an action for equitable remedies,” Tiffany (NJ) LLC
v. China Merchs. Bank, 589 F. App’x 550, 552 (2d Cir. 2014) (allowing an asset freeze to issue

under the Lanham Act because the complaint asked for the equitable remedy of disgorgement);
see also S.E.C. v. Collector’s Coffee Inc., --- F. Supp. 3d ----, No. 19 Civ. 04355 (VM), 2022 WL
1448432, at *3 (S.D.N.Y. May 8, 2022) (explaining that Grupo “held that a court does not have
authority to freeze assets to preserve them for potential money damages, but distinguished actions
seeking money damages from actions seeking equitable relief”); accord Johnson v. Couturier, 572
F.3d 1067, 1084 (9th Cir. 2009). Here, the SEC seeks the equitable remedy of disgorgement, thus
making Grupo irrelevant.
Second, “[u]nlike private actions, which are rooted wholly in the equity jurisdiction of the
federal court, SEC suits for injunctions are creatures of statute.” S.E.C. v. Mgmt. Dynamics, Inc.,
23
515 F.2d 801, 808 (2d Cir. 1975). Grupo, which involved a private action, is therefore irrelevant
for the additional reason that it addressed the issuance of a preliminary injunction pursuant to the
Court’s general equitable powers and not pursuant to a statute for the benefit of a public authority.
See Grupo, 527 U.S. at 325–26 (discussing an asset freeze issued pursuant to the tax-code for a
public authority’s benefit, highlighting the distinction between the federal court’s general equitable

powers and statutory authority, and noting that “courts of equity will go much farther both to give
and withhold relief in furtherance of the public interest than they are accustomed to go when only
private interests are involved.” (cleaned up)); Mgmt. Dynamics, Inc., 515 F.2d at 808 (“[T]he SEC
appears in these proceedings not as an ordinary litigant, but as a statutory guardian charged with
safeguarding the public interest in enforcing the securities laws.”). The Court, therefore, rejects
the facial challenge to its authority to issue the statutory asset freeze requested by the SEC.
Defendants and Yue argue that notwithstanding the fact that the Second Circuit has
repeatedly affirmed the Court’s power to issue such asset freezes under the relevant statutes, the
Supreme Court effectively prohibited courts from doing so in Liu v. S.E.C., 140 S. Ct. 1936 (2020).

However, the growing consensus is that Liu merely clarified the scope of disgorgement as a
remedy, and said nothing about, let alone eliminated, asset-freezing injunctions. See S.E.C. v.
Bronson, No. 12-CV-6421 (KMK), 2022 WL 1287937, at *13 (S.D.N.Y. Apr. 29, 2022) (“Liu did
not disturb courts’ authority to impose § 5 injunctions under 15 U.S.C. § 78u(d)(1)[.]” (collecting
cases)), aff’d, 2022 WL 5237474 (2d Cir. Oct. 6, 2022); Collectors Coffee Inc., 2022 WL 1448432,
at *3 (freezing assets in a decision that was issued after Liu); S.E.C. v. Voight, No. H-15-2218,
2021 WL 5181062, at *4 (S.D. Tex. June 28, 2021) (noting that in Liu “[t]he Supreme Court did
not address, much less prohibit, asset freezes[.]”); S.E.C. v. Good, No. 22-CV-60-D, 2022 WL
1485177, at *2 (E.D.N.C. Apr. 20, 2022) (freezing assets post Liu pursuant to 15 U.S.C. §§ 77t(b),
24
78u(d)); S.E.C. v. Sripetch, No. 20-CV-01864, 2020 WL 6396927, at *8 (S.D. Cal. Nov. 2, 2020)
(same); S.E.C. v. SiliconSage Builders, LLC, No. 20-CV-09247, 2021 WL 1041618, at *2 (N.D.
Cal. Feb. 10, 2021) (same); S.E.C. v. MCC Int’l Corp., No. 22-CV-14129, 2022 WL 2760279, at
*8 (S.D. Fla. May 18, 2022) (same), report and recommendation adopted via docket entry (June
17, 2022). Indeed, on remand in Liu itself, the Ninth Circuit affirmed the district court’s grant of

a pre-judgment asset-freezing injunction. See S.E.C. v. Liu, 851 F. App’x 665, 668 (9th Cir. 2021).
The Court therefore rejects Defendants’ and Yue’s argument that after Liu, the Court is
prohibited from issuing the requested statutory asset freeze.28
II. Statute of Limitations
Defendants and Relief Defendants argue that most of the SEC’s claims—for disgorgement,
civil penalties, and pre-judgment interest based on violations of §10(b) of the Exchange Act, Rule
10b-5, and §17(a) of the Securities Act—relate to offerings made before 2016 and are therefore
barred by the five-year statute of limitations under 28 U.S.C. § 2462. (See Dkt. 43, at 33–35; Dkt.

28 Even if the Court were to entertain Defendants’ and Yue’s argument that bygone
precedents somehow govern its powers, it would not find that Defendants’ and Relief Defendants’
cursory reference to a single English Court of Appeals decision from 1890—Lister & Co. v. Stubbs
[1890] 45 Ch. D. 1 (EWCA)—shows that asset-freezing injunctions were unknown in English law
at the time of the United States’ founding. See, e.g., John Mitford, A Treatise on the Pleadings in
Suits in the Court of Chancery by English Bill 46 (2d ed. 1787) (“For the purpose of preserving
property in dispute, pending a suit, or to prevent evasion of justice the [Court of Chancery] . . .
issues a provisional writ [such] as . . . injunction to refrain the defendant . . . from committing
waste, or doing any injurious act[.]”); The Great Western Railway Co. v. Birmingham & Oxford
Junction Railway Co., 41 Eng. Rep. 1074, 1076 (1848) (Cottenham, Lord Chancellor) (“It is
certain that the Court [of Chancery] will in many cases interfere and preserve property in statu quo
during the pendency of a suit, in which the rights to it are to be decided, and that without
expressing, and often without having the means of forming, any opinion as to such rights.”
(collecting Court of Chancery cases)); Echliff v. Baldwin, 16 Ves. 267 (1809) (same) (Court of
Chancery); accord 2 Joseph Story, Commentaries on Equity Jurisprudence: As Administered in
England and America §§ 906–08, 955–58 (9th ed. 1866) (discussing cases where the courts of
equity enjoined the transfer of property pending suit).
25
124, at 12–16; Dkt. 179, at 17–24.) Because the offerings in themselves did not trigger the running
of § 2462’s statute of limitations and because the extended ten-year period of § 6501(a)(3) of the
National Defense Authorization Act applies to this case, the Court finds that most of the SEC’s
claims for civil penalties, disgorgement, and pre-judgment interest are timely.29
A. SEC’s Claims for Civil Penalty

As an initial matter, it is true that the SEC may only pursue civil penalties relating to
investor payments made within the five-year period before the SEC filed this action. In relevant
part, 28 U.S.C. § 2462 provides that “[e]xcept as otherwise provided by Act of Congress, an action,
suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or
otherwise, shall not be entertained unless commenced within five years from the date when the
claim first accrued[.]” Id. The Second Circuit recently opined that, notwithstanding the recent
amendment to § 2462, “civil penalties [claims] remain[] subject to § 2462’s five-year statute of
limitations.” See S.E.C. v. Fowler, 6 F.4th 255, 260 n.5 (2d Cir. 2021).
Because “a claim accrues [in an SEC action for civil penalties] when the plaintiff has a

complete and present cause of action,” Gabelli v. S.E.C., 568 U.S. 442, 448 (2013) (citations and
quotation marks omitted),30 Defendants’ and Relief Defendants’ argument that the SEC’s claims

29 The Court notes that “the statute of limitations is ordinarily an affirmative defense that
must be raised in the answer, . . . [and] may be decided on” a motion to dismiss for failure to state
a claim pursuant to Rule 12(b)(6). See Connecticut Gen. Life Ins. Co. v. BioHealth Lab’ys, Inc.,
988 F.3d 127, 132 (2d Cir. 2021); see also Katz v. Goodyear Tire & Rubber Co., 737 F.2d 238,
243 n.2 (2d Cir. 1984) (“[W]here the statute of limitations operates as an affirmative defense[,] . .
. issues of fact as to the application of that defense must be submitted to the jury.”). Thus,
Defendants’ and Relief Defendants’ attempt to litigate this defense at this juncture is likely
premature, but because the Court finds it meritless, it resolves it at this stage.
30 See also Smith v. Campbell, 782 F.3d 93, 100 (2d Cir. 2015) (noting that a claim accrues
when a claimant has a “complete and present cause of action,” even if “the full extent of the injury
is not then known or predictable.”); accord William A. Graham Co. v. Haughey, 646 F.3d 138,
26
accrued when the Eastern Emerald and Eastern Mirage offering memoranda were issued fails. The
SEC brings this action under Rule 10b-5 and § 17(a), which require a showing of “purchase or
sale” or “offer or sale” of a security, respectively. The Second Circuit has made clear that the time
of “a purchase or sale” of a security is not the same as when the alleged misstatement is made. See
Grondahl v. Merritt & Harris, Inc., 964 F.2d 1290, 1294 (2d Cir. 1992) (“[t]he time of a ‘purchase

or sale’ of securities within the meaning of Rule 10b–5 is to be determined as the time when the
parties to the transaction are committed to one another.”); S.E.C. v. Leffers, 289 F. App’x 449, 451
(2d Cir. 2008) (“[Under] [t]he language of Section 17(a) . . . [t]he operative act, triggering the
limitations period, . . . occurs [at] the earliest on the effective date of the offer and arguably
continues through the time of the actual sales.”); see also City of Pontiac Gen. Emps. Ret. Sys. v.
MBIA, Inc., 637 F.3d 169, 176 (2d Cir. 2011) (“A securities fraud claim does not accrue until after
the plaintiff actually purchases (or sells) the relevant security” (emphasis added)). This means
that Section 2462’s five-year statute of limitations did not begin to run on the SEC’s civil penalty
claim until the EB-5 investments were made in each of the Projects.31

Furthermore, although the SEC does not make this argument, the Court notes the possibility
that the SEC’s civil penalty claims are still timely, because they were all part of an allegedly
fraudulent scheme that began in 2010 and continued into 2017. “Rule 10b-5 and Section 17(a) []
impose . . . ‘scheme liability’ for those who, with scienter, engage in deceitful conduct.” S.E.C. v.

150 (3d Cir. 2011) (“‘[A]ccrual’ of a cause of action occurs at the moment at which each of its
component elements has come into being as a matter of objective reality[.]”).
31 It is uncontested that the Parties signed a tolling agreement that extends the SEC’s time
limit, for all claims, by six months. (See Dkt. 179 at 20–21; Dkt. 182, at 19 n.12.) The Court
discusses the asset freeze’s scope infra on pages [62] to [69].
27
CKB168 Holdings, Ltd., 210 F. Supp. 3d 421, 445 (E.D.N.Y. 2016). Whereas other parts of
securities laws make it unlawful simply to utter or spread falsehoods, scheme liability “hinges on
the performance of an inherently deceptive act that is distinct from an alleged misstatement.”
S.E.C. v. Kelly, 817 F.Supp.2d 340, 344 (S.D.N.Y. 2011) (emphasis added); see also CKB168, 210
F. Supp. 3d at 445 (“[T]he Second, Eighth, and Ninth Circuits require deceptive conduct in

addition to misrepresentations that go beyond mere assistance with making the misrepresentation.”
(cleaned up)); United States v. Stirling, 571 F.2d 708, 725 (2d Cir. 1978) (“A scheme to defraud
may consist of numerous elements . . . and the alleged false statements [are] merely means for
carrying it into effect.”). Here, because the SEC made allegations of an integrated fraudulent
scheme that included all of the EB-5 investments, whether made before or after September 27,
2016, the Court would have found, in the alternative, that § 2462’s five-year statute of limitations
did not begin to run after the scheme was completed—when the final sale of the EB-5 investments
occurred, in December 2017—thereby making the SEC’s entire civil penalty claim timely.
B. SEC’s Disgorgement Claim

1. National Defense Authorization Act for Fiscal Year 2021
On January 1, 2021, Congress enacted the National Defense Authorization Act for Fiscal
Year 2021 (“NDAA”), Pub. L. No. 116-283, § 6501, 134 Stat. 3388, 4625–26 (2021). In relevant
part, § 6501(a) of the NDAA, now codified at 15 U.S.C. § 78u(d)(8)(A)–(B), provides that:
The [SEC] may bring a claim for disgorgement . . . (ii) not later than 10 years after
the latest date of the violation that gives rise to the action or proceeding in which
the Commission seeks the claim if the violation involves conduct that violates – (I)

28
section 78j(b) of this title; (II) section 77q(a)(1) of this title; . . . or (IV) any other
provision of the securities laws for which scienter must be established.32
§ 6501(b) of the NDAA also provides that: “the amendments made by subsection (a) shall apply
with respect to any action or proceeding that is pending on, or commenced on or after, the date of
enactment of this Act.”
Regarding Section 6501(b)’s retroactivity, the Court need not write on a blank slate. “The
retroactivity of the NDAA has been addressed by a number of courts, including in this [Circuit].”
See S.E.C. v. Stubos, No. 22-CV-04674 (LJL), 2022 WL 6776741, at *11 (S.D.N.Y. Oct. 11, 2022)
(collecting cases). Relying on the plain text of the NDAA, courts have uniformly concluded that
the NDAA is retroactive in its application and revives some previously time-barred claims filed
after January 2021. See id. at *12 (finding that NDAA applied retroactively, and that “[t]he words

‘pending on’ clearly envision—as other courts have held—that the statute of limitations contained
in the NDAA has some retroactive effect and, in turn, revives some previously time-barred
claims.”); Fowler, 6 F.4th at 260 n.5 (2d Cir. 2021) (“A recent amendment to the Exchange Act
took the SEC’s claims for disgorgement and injunctive relief outside of the ambit of § 2462 and
retroactively imposed a new, ten-year statute of limitations for those claims.”); S.E.C. v. Hallam,
42 F.4th 316, 335 (5th Cir. 2022) (finding that the NDAA had a retroactive application, even to a
case on appeal); S.E.C. v. Gallison, 588 F. Supp. 3d 509, 519 (S.D.N.Y. 2022) (finding that
“changes are applicable to any action pending at the date of the NDAA’s enactment.”).

32 It is clear that this provision of the NDAA extends the statute of limitations period for
SEC enforcement actions that ordinarily would be governed by § 2462, which, as discussed,
provides for a five-year limitations period “[e]xcept as otherwise provided by Act of Congress[.]”
29
The Court rejects Defendants’ and Relief Defendants’ argument that the Second Circuit’s
decision in Enter. Mortg. Acceptance Co., LLC, Secs. Litig. v. Enter. Mortg. Acceptance Co.
(“Enterprise Mortgage”), 391 F.3d 401 (2d Cir. 2004), dealing with a different statute, makes such
retroactivity impermissible. Retroactivity of previously extinguished or lapsed claims is not
unknown in the law. See id. at 405 (“The Supreme Court has recognized that . . . Congress is

empowered to enact retroactive legislation.”); Int’l Union of Elec., Radio & Mach. Workers, AFL-
CIO, Loc. 790 v. Robbins & Myers, Inc., 429 U.S. 229, 243–44 (1976) (“[C]ertainly it cannot be
said that lifting the bar of a statute of limitation so as to restore a remedy lost through mere lapse
of time is per se an offense against the Fourteenth Amendment.” (citation omitted)); accord
Lieberman v. Cambridge Partners, L.L.C., 432 F.3d 482, 490 (3d Cir. 2005) (“Congress
undoubtedly possesses the powers to resurrect claims extinguished by a statute of repose, no less
than claims barred by a statute of limitations, but it must manifest those powers in the clearest
possible terms.”). Furthermore, the Supreme Court has long cautioned against adopting
categorical rules of interpretation as to the meaning of statutes. See Crown Coat Front Co. v.

United States, 386 U.S. 503, 517 (1967) (“The Court has pointed out before [] the hazards inherent
in attempting to define for all purposes when a cause of action first accrues.” (cleaned up)). In
Enterprise Mortgage, the Second Circuit decided whether provisions of the Sarbanes-Oxley Act
of 2002 (“SOX”), extended the statute of limitations for private civil actions retroactively, such
that claims that previously lapsed were revived. See 391 F.3d at 403. In relevant part, that statute
provided that it “shall apply to all proceedings addressed by this section that are commenced on
or after the . . . date of enactment of this Act,” and in a different portion, that “[n]othing in this
section shall create a new, private right of action.” Id. at 406 (citation omitted). The Second

30
Circuit concluded that this language was too ambiguous to create a retroactive right of action. See
id. at 407.
However, courts have not applied the reasoning of Enterprise Mortgage to the NDAA. In
Stubos, the district court distinguished the NDAA from SOX:
The NDAA has none of the features that the court in Enterprise Mortgage relied on
to conclude that the retroactive effect of SOX was ambiguous. In passing the
NDAA, Congress did not just provide that the extended statute of limitations would
apply to proceedings “commenced on or after” the date of its enactment. It stated
that the limitations period would apply to proceedings “pending on, or commenced
on or after,” the date of its enactment. NDAA § 6501(a)(3). The law also does not
contain the language that the court concluded in Enterprise Mortgage created
ambiguity, specifically that the limitations period was not intended to create a new
cause of action. . . . [Furthermore] in deciding Enterprise Mortgage, the Second
Circuit itself referred to the “pending on, or commenced on or after” language that
Congress used in the NDAA as an “unambiguous” grant of retroactivity. Enter.
Mortg. Acceptance Co., 391 F.3d at 407. . . . It follows from Enterprise Mortgage
that the NDAA—which uses the language that both [the Supreme Court] and the
Second Circuit have stated conveys an explicit retroactivity command—should be
given retroactive effect.

Stubos, 2022 WL 6776741, at *14.
Indeed, twelve years after the Second Circuit’s decision in Enterprise Mortgage, the
Supreme Court, in Bank Markazi v. Peterson, 578 U.S. 212 (2016), in effect, held that the NDAA
applies retroactively to claims commenced after its passage and rendered them timely. In so doing,
the Supreme Court affirmed the principle that “Congress may indeed direct courts to apply newly
enacted, outcome-altering legislation in pending civil cases,” 578 U.S. at 230 (citation omitted);
see also S.E.C. v. Sharp, ---F. Supp. 3d----, No. CV 21-11276 (WGY), 2022 WL 4085676, at *9
(D. Mass. Sept. 6, 2022) (same); see also S.E.C. v. Kellen, No. CV 20-3861(RSWL)(AGR), 2021
WL 4907238, at *4 (C.D. Cal. Sept. 14, 2021) (“While courts generally disfavor retroactive
legislation, the Court cannot ignore plain congressional intent.”); see generally Landgraf v. USI
Film Prod., 511 U.S. 244, 273 (1994) (“[A] court should apply the law in effect at the time it
31
renders its decision, even though that law was enacted after the events that gave rise to the suit.”
(cleaned up)). Thus, Defendants and Relief Defendants’ argument that Enterprise Mortgage
precludes the retroactive application of the NDAA’s extended ten-year statute of limitations to the
SEC’s disgorgement claim in this case is plainly meritless.
The Court also rejects Defendants’ and Relief Defendants’ argument that retroactive

application of the NDAA’s ten-year statute of limitations is barred by the Ex Post Facto Clause.
This argument, too, is plainly meritless. “The ex post facto clause forbids retroactive application
of penal legislation, not civil legislation,” Domond v. I.N.S., 244 F.3d 81, 87 (2d Cir. 2001), and
the “disgorgement remedy [] has not been considered a criminal sanction,” S.E.C. v. Palmisano,
135 F.3d 860, 865–66 (2d Cir. 1998); see Stubos, 2022 WL 6776741, at *14 (noting that “[t]he ex
post facto clause forbids retroactive application of penal legislation, not civil legislation” and
concluding that disgorgement was not a criminal penalty); Kellen, 2021 WL 4907238, at *4
(“[D]isgorgement remains beyond the constraints of the Ex Post Facto Clause”).
Thus, the Court finds that the NDAA’s ten-year statute to limitations may be applied

retroactively to the SEC’s disgorgement claim, which was pending at the time of the NDAA’s
enactment on January 1, 2021.
2. Application of the NDAA’s Statute of Limitations to the SEC’s
Disgorgement and Prejudgment Interest Claims

Next, the Court determines when the ten-year limitations period begins to run under the
NDAA and whether the SEC’s disgorgement claim—and by extension, its prejudgment interest
claim—are timely. The NDAA provides that the SEC may bring its claim “10 years” from the
“latest date of the violation.” See 15 U.S.C. § 78u(d). Here, the parties dispute, assuming the
statute does apply, at what point it begins to run. As before, Defendants and Relief Defendants
32
argue that the limitations period begins to run when the Eastern Emerald and Eastern Mirage
offering memoranda were issued. (Dkt. 124, at 12; Dkt. 179, at 18.) By contrast, the SEC argues
that statute of limitations begins to run: (1) on the date(s) when each investor purchased his or her
security, and Defendant “received the ill-gotten gains,” (2) when the last solicitation occurred in
2017, or (3) when Defendants stopped using any “ill-gotten gains” in 2021. (Dkt. 132, at ECF 11–

12.)
Several principles guide the Court in interpreting § 6501(a)(3). In general, statutes of
limitations “promote justice by preventing surprises through plaintiffs’ revival of claims that have
been allowed to slumber until evidence has been lost, memories have faded, and witnesses have
disappeared.” CTS Corp. v. Waldburger, 573 U.S. 1, 8 (2014). Nonetheless, when “a statute of
limitations is sought to be applied to bar rights of the Government, it must receive a strict
construction in favor of the Government.” See United States v. Domino Sugar Corp., 349 F.3d 84,
88 (2d Cir. 2003) (citing E. I. Du Pont De Nemours & Co. v. Davis, 264 U.S. 456, 462 (1924))
(cleaned up). Furthermore, “amendment is presumed not to work a change in the underlying

substantive law unless an intent to make such a change is clearly expressed.” See Fowler, 6 F.4th
at 261 (cleaned up).
The Court finds that the new law, 15 U.S.C. § 78u(d), worked a substantive change in the
previously enacted § 2462 with respect to when the period of limitations starts to run. As explained
above, § 2462 measures the timeliness of a claim from the date it “accrues,” and the “standard rule
[is] that accrual occurs when the plaintiff has a complete and present cause of action[,] that is,
when the plaintiff can file suit and obtain relief.” See Wallace v. Kato, 549 U.S. 384, 388 (2007)
(cleaned up); Gabelli, 568 U.S. at 448 (2013) (same); California Pub. Employees’ Ret. Sys. v. ANZ
SEC., Inc., 137 S. Ct. 2042, 2049 (2017) (same). By contrast, Section 78u(d) provides that the
33
ten-year limitations period begins to run at the “latest date of the violation,” that is, when the illegal
conduct comes to an end. 15 U.S.C. § 78u(d).
Section 78u(d) finds its origin in 28 U.S.C. § 2462, dating back to 19th century. While,
prior to 1839, that statute of limitations had undergone multiple amendments, in 1839, Congress
first added the word “accrued” to the statute. 3M Co. v. Browner, 17 F.3d 1453, 1462 (D.C. Cir.

1994) (discussing the history of § 2462). The word “accrued” was “carried over” to “the 1874
version,” “the 1948 revision,” and all other versions of this statute since. Id. With the word
“accrued” in place, the circuits have reached a consensus that the statute of limitations for a 2462
claim begins to run when “a suit may be maintained thereon.” See S.E.C. v. Mohn, 465 F.3d 647,
654 (6th Cir. 2006); United States v. Meyer, 808 F.2d 912, 914 (1st Cir. 1987) (same); see
generally United States v. Worldwide Indus. Enter., Inc., 220 F. Supp. 3d 335, 342 (E.D.N.Y.
2016) (discussing authorities). As the Second Circuit recently recognized, the “recent amendment
to the Exchange Act [takes] the SEC’s claims for disgorgement and injunctive relief outside of the
ambit of § 2462.” See Fowler, 6 F.4th at 260 n.5 (emphasis added).

In the Section 78u(d), Congress omitted the word “accrued,” and instead referred the Court
to the “latest date” where the “violation . . . occur[s]” to measure the timeliness of each claim.
Violation, as opposed to a legal claim, is commonly defined as “[t]he act of breaking or
dishonoring the law.” See Violation, Black’s Law Dictionary (11th ed. 2019); see also Conn.
Nat’l Bank v. Germain, 503 U.S. 249, 253–54 (1992) (“We have stated time and again that courts
must presume that a legislature says in a statute what it means and means in a statute what it says
there.”). The term is often used in “statute[s] of repose,” where a “limit is measured not from the
date on which the claim accrues but instead from the date of the last culpable act or omission of
the defendant.” CTS Corp., 573 U.S. at 8; see also P. Stolz Fam. P’ship L.P. v. Daum, 355 F.3d
34
92, 102 (2d Cir. 2004) (“[I]n general, a statute of repose acts to define temporally the right to
initiate suit against a defendant after a legislatively determined time period.”).33 The Court finds
that the plain language of Section 78u(d) calls for the same construction, and finds that the
limitation period begins to run at the latest point the underlying wrong occurs.
In its Complaint, the SEC alleges, inter alia, that there existed an integrated scheme to

defraud that was perpetrated collectively by Defendants. (Dkt. 98, ¶¶ 13, 78–190.); S.E.C. v. Kelly,
663 F. Supp. 2d 276, 288 (S.D.N.Y. 2009) (discussing “a continuous, integrated scheme.”) While
Defendants and Relief Defendants ask the Court to view the multiple EB-5 investment and other
Project-related transactions as disparate infractions, the Court views them as interconnected
attempts to propel their alleged scheme forward. Here, the last culpable act—as opposed to the
wrongful consequences of that act, including wrongfully obtaining funds and then misusing
them—is the last misrepresentation, and payment, that occurred in late 2017 in connection with
the Emerald Project. (Dkt. 4-68, at ECF 31.) Thus, the scheme ended then, making all the SEC’s
claims, in principle, timely.34

33 While Section 78u(d) uses the violation itself as the touchstone for timeliness, the Court
still considers it to be a statute of limitations and not one of repose. In P. Stolz, the Second Circuit
explained that the main difference is that a statute of repose “is not a limitation of a plaintiff’s
remedy, but rather defines the right involved in terms of the time allowed to bring suit.” 355 F.3d
at 102. The statute in question here only limits the availability of remedies, namely disgorgement,
and has no bearing on other modes of recovery the SEC may have for the same underlying wrong.
See S.E.C. v. Wyly, 788 F. Supp. 2d 92, 112–13 (S.D.N.Y. 2011) (finding that filing statutes were
not imposing a statutory repose limitation because they only applied to specific remedies).
34 The Court notes that even if the accrual rule were applied, the result would be the same,
given the ten-year statute of limitations under Section 78u(d). Defendants and Relief Defendants
hardly contest that all, but seven, EB-5 investor payments were made after March 27, 2011. (See
Dkt. 6-48, at ECF 9, 12–13, 16, 18–23, 29–31.) Thus, because each violation accrued at the first
point the SEC could have brought its claim, that is, when payments were made as opposed to when
the misstatements were uttered under the scheme liability, the Court finds that almost all of the
35
III. The SEC Has Met Its Burden to Obtain an Asset-Freezing Preliminary Injunction
Contrary to Defendants’ and Relief Defendants’ arguments, the Court finds that the SEC
has met its burden to obtain the asset-freezing preliminary injunction. As discussed, to obtain such
an injunction as to Defendants’ assets, the SEC need only “show either a likelihood of success on
the merits, or that an inference can be drawn that the party has violated the federal securities laws.”

Smith, 653 F.3d at 128 (cleaned up). Here, the Court finds that the SEC has shown a substantial
likelihood of success on the merits.
A. SEC’s Causes of Action
The SEC brings claims against Defendants under Section 10(b) of the Exchange Act, Rule
10b-5, and Section 17(a) of the Securities Act. Courts have long recognized that Congress passed
the securities law to serve an extensive remedial purpose, and therefore have construed them
broadly. See S.E.C. v. Edwards, 540 U.S. 389, 393 (2004) (“Congress’ purpose in enacting the
securities laws was to regulate investments, in whatever form they are made and by whatever name
they are called.” (citations omitted)); Lorenzo v. S.E.C., 139 S. Ct. 1094, 1103 (2019) (noting that

securities laws’ purpose was to “meet the countless and variable schemes devised by those who
seek the use of the money of others on the promise of profits.” (citations omitted)); S.E.C. v.
Zanford, 535 U.S. 813, 819 (2002) (“[W]e have explained that the [securities] statute should be
construed . . . flexibly to effectuate its remedial purposes.” (cleaned up)).
Section 10(b) provides, in relevant part:

SEC’s disgorgement claims (broken down by individual investor) are timely, and the scope of the
injunction would remain the same.

36
It shall be unlawful for any person, directly or indirectly, by the use of any means
or instrumentality of interstate commerce or of the mails, or of any facility of any
national securities exchange . . . To use or employ, in connection with the purchase
or sale of any security registered on a national securities exchange or any security
not so registered, or any securities-based swap agreement any manipulative or
deceptive device or contrivance in contravention of such rules and regulations as
the Commission may prescribe as necessary or appropriate in the public interest or
for the protection of investors.

15 U.S.C. 78j(b). Rule 10b-5 similarly provides:
It shall be unlawful for any person, directly or indirectly, by the use of any means
or instrumentality of interstate commerce, or of the mails or of any facility of any
national securities exchange . . . [t]o employ any device, scheme, or artifice to
defraud . . . [or to] make any untrue statement of a material fact or to omit to state
a material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, [or to] engage in any
act, practice, or course of business which operates or would operate as a fraud or
deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5. The SEC has alleged both misrepresentation liability and scheme liability
under Section 10(b), Rule 10b-5, and Section 17(a). (Dkt. 98, ¶¶ 191–99.) To prevail on Section
10(b) and Rule 10b-5 misrepresentation claims, the SEC must show that each defendant: “(1) made
a material misrepresentation or a material omission as to which he had a duty to speak, or used a
fraudulent device; (2) with scienter; (3) in connection with the purchase or sale of securities.”
S.E.C. v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir. 1999).
Section 17(a) provides, in relevant part:
It shall be unlawful for any person in the offer or sale of any securities . . . by the
use of any means or instruments of transportation or communication in interstate
commerce or by use of the mails, directly or indirectly . . . to employ any device,
scheme, or artifice to defraud[.]

15 U.S.C. § 77q(a). To prevail on a Section 17(a) claim, the SEC must set forth “[e]ssentially the
same elements [as a Section 10(b) claim]. . . though no showing of scienter is required for the SEC
37
to obtain an injunction under subsections [17](a)(2) or (a)(3).” CKB168, 210 F. Supp. 3d at 441
(citing Monarch, 192 F.3d at 308)).
To prevail on a scheme liability claim under Section 10(b), Rule 10b-5, and Section 17(a),
the SEC must show that the defendants “(1) committed a deceptive or manipulative act; (2) in
furtherance of the alleged scheme to defraud; (3) with scienter.” Id. at 445. “To prove [scheme]

liability under Securities Act Section 17(a)(3), however, the SEC only has to prove negligence
rather than scienter.” Id. (citation omitted).
Finally, the SEC contends that Defendants’ alleged fraud unjustly enriched Relief
Defendant. To obtain disgorgement from relief defendants, SEC must show that each relief
defendant “(1) has received ill-gotten funds; and (2) does not have a legitimate claim to those
funds.” S.E.C. v. Bronson, 14 F. Supp. 3d 402, 417 (S.D.N.Y. 2014) (ultimately citing Cavanagh,
155 F.3d at 136).
B. The Transactions Between Defendants and EB-5 Investors Involved
a Security

For securities laws to apply, a “security” within the meaning of Section 2(a)(1) of the
Securities Act of 1933 must be present. In line with securities laws’ overarching remedial purpose,
courts interpret the statutory “definition of [a] security” to be “quite broad.” Marine Bank v.
Weaver, 455 U.S. 551, 555 (1982); see also Caiola v. Citibank, N.A., New York, 295 F.3d 312, 325
(2d Cir. 2002) (“The definition of security is construed in a flexible manner[.]” (cleaned up));
accord S.E.C. v. Shields, 744 F.3d 633, 641 (10th Cir. 2014) (“Congress painted with a broad brush
in defining a ‘security’ in recognition of the virtually limitless scope of human ingenuity[.]”
(citations and quotation marks omitted)).

38
The statutory definition of a “security” includes an “investment contract.” 15 U.S.C. §
77b(a)(1). Although the securities laws liberally define a security, none explicitly define an
“investment contract.” The Supreme Court has done so in S.E.C. v. W.J. Howey Co., 328 U.S. 293
(1946), and the Second Circuit found the Howey test applicable when interests in limited liability
companies are at issue. See Mayer v. Oil Field Sys. Corp., 721 F.2d 59, 65 (2d Cir. 1983) (applying

the Howey test and finding that a “limited partnership interest generally is a security[.]”). An
investment contract is a “scheme whereby a person [1] invests his money [2] in a common
enterprise and [3] is led to expect profits [4] solely from the efforts of the promoter or a third
party.” Howey, 328 U.S. at 298–99. Importantly, in applying the Howey test, “form should be
disregarded for substance and the emphasis should be on economic reality.” Tcherepnin v. Knight,
389 U.S. 332, 336 (1967). The Court examines the Howey prongs with respect to this case in turn.
1. Investment of Money

The first Howey prong examines whether “an investor chose to give up a specific
consideration in return for a separable financial interest with the characteristics of a security.” Int’l
Bhd. of Teamsters. v. Daniel, 439 U.S. 551, 559 (1979). With respect to this prong, courts merely
ask whether such investment “was part of the relevant transaction.” S.E.C. v. Telegram Grp. Inc.,
448 F. Supp. 3d 352, 368 (S.D.N.Y. 2020); see also Top of Iowa Co-op. v. Schewe, 6 F. Supp. 2d
843, 851 (N.D. Iowa 1998) (“Courts rarely tarry over the ‘investment of money’ prong of the
Howey test[.]” (citation omitted)). Because it is undisputed that the EB-5 investors paid at least
$229 million to Defendants for interests in Defendants’ limited liability companies and in fees (see
generally Dkt. 6-48), the first prong of the Howey test is satisfied.
2. Common Enterprise

39
The second Howey prong requires proof of a common enterprise. “A common enterprise
within the meaning of Howey can be established by a showing of ‘horizontal commonality’[.]”
Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir. 1994). In such an enterprise, “‘the fortunes of
each investor in a pool of investors’ are tied to one another and to the ‘success of the overall
venture.’” Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340, 353 (S.D.N.Y. 2019) (citing Revak,

18 F.3d at 87)). Thus, in effect, a “finding of horizontal commonality requires a sharing or pooling
of funds.” In re Energy Sys. Equip. Leasing Sec. Litig., 642 F. Supp. 718, 735 (E.D.N.Y. 1986)
(collecting cases). Here, the offering memoranda and records of transactions show that EB-5
investor funds were pooled and that the enterprise—consisting of Fleet, additional LLPs, and Xia-
controlled entities—offered investors the opportunity to share profits pro-rata. (See Dkt. 6-1, at
ECF 7 (“Distributions will be made. . . pro rata[.]”); Dkt. 6-2, at ECF 7 (similar); Dkt. 6-3, at ECF
7 (similar); 6-4, at ECF 47–48 (similar); Dkt. 6-6, at ECF 47–48 (similar); see also Dkt. 6-48
(evidencing pooling).) Thus, the second prong of Howey is easily satisfied.
3. Expectation of Profit

Third, the Court finds that investors in the Emerald and Mirage Projects had a reasonable
expectation of profit. All of the offering memoranda promised investors the opportunity to share
in the profits of the Projects. (Dkt. 6-1, at ECF 7 (“100% [of the profits from investments will be
distributed] to the Limited Partners until each Limited Partner has received US$500,000 in
distributions. Thereafter, such amounts will be allocated and distributed 99% to the Limited
Partners and 1% to the General Partner.”); Dkt. 6-2, at ECF 7 (similar); Dkt. 6-3, at ECF 7
(similar); Dkt. 6-4, at ECF 7 (“90% [of investment profits] to the Limited Partners and 10% to the
General Partner.”); Dkt. 6-5, at ECF 6 (same); Dkt. 6-6, at ECF 7 (same).) The Eastern Emerald

40
offering memoranda also promised investors interest on their loans. (Dkt. 6-5, at ECF 24 (“The
interest rate is 2% per annum[.]”); Dkt. 6-6, at ECF 14 (similar).)
Defendants and Relief Defendants make two arguments in response. First, they argue that
investors had no expectation of profit because, in fact, the investors’ subjective aspirations were
only to obtain an EB-5 visa and immigrate to the United States. Second, they argue that, at least

in the context of the Mirage Project, even if investors expected profit, such expectation was
unreasonable because profit was not guaranteed. The Court addresses these arguments in turn.
a) Defendants’ Offering Materials Created an Objective Expectation of Profit

The Court rejects the argument that the interests in the partnerships sold to EB-5 investors
were not securities because the investors’ primary, subjective motivation was not to profit, but to
obtain green cards and immigrate to the United States. The inquiry under Howey is objective, and
the investors’ subjective motivations are categorically immaterial. See S.E.C. v. Aqua-Sonic
Prods. Corp., 687 F.2d 577, 584 (2d Cir. 1982) (“[I]n determining whether the offering is an
investment contract courts are to examine the offering from an objective perspective[.]”); S.E.C.
v. Kik Interactive Inc., 492 F. Supp. 3d 169, 183 (S.D.N.Y. 2020) (“Howey is an objective test that
provides the flexibility necessary for the assessment of a wide range of investment vehicles.”);
accord Warfield v. Alaniz, 569 F.3d 1015, 1021 (9th Cir. 2009) (“Under Howey, courts conduct an
objective inquiry into the character of the instrument or transaction offered based on what the
purchasers were led to expect.” (cleaned up) (emphasis added)). For instance, in United Hous.
Found., Inc. v. Forman, the Supreme Court concluded that investors lacked the required
expectation of profit based, not on the individual statements of investors, but on promotional
materials that “emphasize[d] the ‘nonprofit’ nature of the endeavor.” 421 U.S. 837, 854 (1975).
Accordingly, courts focus on the objective circumstances of transactions and not on the
41
idiosyncratic motivations of purchasers. See Teague v. Bakker, 35 F.3d 978, 988 (4th Cir. 1994)
(finding a security, despite investor testimony that “they [had] purchased [the products] with
personal use, not profit, as the central motivation,” based on “evidence that the promoter of the
scheme in question marketed the scheme by emphasizing the potential for profit”); Warfield, 569
F.3d at 1021 (rejecting the argument that a security cannot be present when purchasers were

allegedly “motivated solely to make a charitable donation”).
Here, as explained above, the offering memoranda circulated to prospective EB-5 investors
included explicit representations that emphasized the possibility of financial return on the
investment. (See supra at [40].) These materials, therefore, created an objective expectation that
purchasers would profit by investing in the Projects. Thus, the “expectation” of profits test—
which endorses a “commonsense understanding of profits” that “simply [means] financial returns
on [] investments,” Edwards, 540 U.S. at 396 (citations omitted)—is easily met in this case.
Defendants, unwilling to relent, further argue that even when taking an objective look at
the scheme, because profit was expected to be small—perhaps less than 0.5% on the investments—

no investor would have chosen to purchase them solely and exclusively for profit. (Dkt. 43, at
ECF 26 (“Here, the EB-5 investors’ overriding expectation of a green card trumps any residual
possibility of profit.”); Dkt. 124, at ECF 11–13 (similar).) The Court declines to accept such a
quixotic and narrow interpretation of the case law. Nothing in Howey stands for the impractical
proposition that the expectation of profit must be an investor’s only or overriding motivation, but
only that such expectation in the form of “financial returns on [the] investment” must be present
as part of the scheme. See Edwards, 540 U.S. at 396; see also S.E.C. v. Hui Feng, 935 F.3d 721,
727 (9th Cir. 2019) (finding that USCIS-approved regional centers that “promised investors a
fixed, annual return on investment, which ranged across projects from 0.5 to 5 percent of the capital
42
contribution” sold securities to EB-5 investors). In short, courts need not attempt to resolve the
kind of sorites paradox that Defendants posit and decide at what point investors’ expectations, or
expected returns, form a substantial heap. See Fredrick Schauser, Slippery Slopes, 99 Harv. L.
Rev. 361, 378 (1985) (“If the removal of one grain of salt from a heap still leaves a heap, the
paradox goes, and so too with the removal of the next grain, and the next, and the one after that,

and so on, then it must follow that the removal of all the grains still leaves a heap.”).
Defendants’ reliance on Forman on this issue is misplaced. 421 U.S. 837 (1975); (see also
Dkt. 124, at ECF 14–16.) In Forman, the Supreme Court held that shares in a subsidized, low-
income housing co-operative sold to its tenants were not securities because the promotional
materials never mentioned the possibility of profit. See id. at 856. Specifically, the Court found
that the possibility that business leases, which the co-operative granted to several entities on the
premises, would have generated profit did not meet the third prong of the Howey test because,
among other things, the promotional materials were entirely devoid of any mention of profit. Id.
at 857.35 Instead, the Court held that “there [could] be no doubt that investors were attracted solely

by [other reasons], and not by financial returns[.]” Id. at 853 (emphasis added).
Here, the opposite is true: there is considerable doubt that the EB-5 investors, each of whom
paid Defendants $500,000 plus substantial fees for an interest in the partnerships, were “attracted
solely by” the prospect of a green card. First, as explained above, in stark contrast to Forman, all
of the offerings made to the EB-5 investors included representations concerning the possibility of
profit. Second, Defendants apparently sought to make their investment offers appear more

35 In fact, the Forman Court left open the question of where promotional materials do
include a profit inducement, whether that inducement must be a primary, or even an important,
motive. Id. at 853 n.17 (“[Such] questions that are not present in this case.”).
43
lucrative to investors over time, and elevated interest rates and shares of profits in their later
Eastern Emerald offerings, seemingly in lockstep with their attempts to reach a wider audience of
investors. (Compare Dkt. 6-1, at ECF 15 (offering a loan “accruing at a rate of 0% per annum”)
(2010 memoranda) with Dkt. 6-6, at ECF 14 (offering a loan “accruing at a rate of 2% per annum”)
(2015 memoranda); see also Dkt. 6-48 at ECF 9, 29–31 (showing that 16 individuals invested in

the 2010 offering and 126 individuals invested in the 2015 offering.).) Such marketing efforts
prevent this Court from concluding that the investors’ profit motive was non-existent. Third, as
other courts have observed, the success of any investor’s visa application hinged on the ability of
the EB-5-funded Projects to turn a profit, be sustainable, and create jobs. See, e.g., Hui Feng, 935
F.3d at 731 (“An EB-5 investor’s interest in a visa is inextricably tied to the financial success of
the regional center’s project.”). A reasonable EB-5 investor, therefore, would have placed great
weight on the representation that the Projects would be profitable because absent profitability, and
the enterprise’s ability to generate new jobs, the EB-5 investor’s visa application would be
doomed. Id.

Thus, because the Howey inquiry is objective, the Court finds that the Projects’ offering
memoranda created an expectation of profit.
b) The Investors’ Expectation of Profit Was Reasonable.
The Court rejects Defendants’ and Yue’s companion argument that the EB-5 investors’
expectation of profit was unreasonable because any actual profit was uncertain and, in any event,
not guaranteed. (Dkt. 124, at ECF 13–16.) Profits were not guaranteed in Howey either. There,
investors bought stakes in citrus groves based on a representation that “a 10% annual return was
to be expected over a 10-year period.” See Howey, 328 U.S. at 296 (emphasis added). Nothing
guaranteed that market conditions, or forces of nature, would not have ruined the crops and
44
deprived investors of any profit. Thus, the Supreme Court merely required an “expectation” of
profit, and further emphasized that when the Howey “test [is] satisfied, it is immaterial whether
the enterprise is speculative or non-speculative[.]” Id. Accordingly, other courts have rejected the
argument that an absolute entitlement to, or guarantee of, profit is required. See, e.g., S.E.C. v.
Int’l Loan Network, Inc., 968 F.2d 1304, 1308 (D.C. Cir. 1992) (“Very few investments

‘guarantee’ a return—all that Howey requires is a ‘reasonable expectation of profits.’”); S.E.C. v.
Scoville, 913 F.3d 1204, 1222 (10th Cir. 2019) (rejecting an argument that a security requires a
guarantee of profits). Indeed, as the Eleventh Circuit noted in the related context of commodities,
such requirement would “thrust the door of deception wide open” and effectively immunize from
liability those who target vulnerable victims who lack the knowledge to appreciate the risks
inherent in the transactions in which they engage. See C.F.T.C. v. R.J. Fitzgerald & Co., 310 F.3d
1321, 1330 (11th Cir. 2002) (rejecting a “bright-line requirement” of “a clear guarantee of profits
before liability is triggered”) (internal quotation marks omitted); see also Howey, 328 U.S. at 301
(“The statutory policy of affording broad protection to investors is not to be thwarted by unrealistic

and irrelevant formulae.”).
Defendants also place undue emphasis on individual disclaimers in the offering
memoranda that stated that their enterprise might not be profitable. (Dkt. 43, at ECF 24–26.) The
Court considers Defendants’ representations in context, objectively, and from the perspective of a
reasonable potential investor. As explained above, Defendants’ offering memoranda included
multiple misstatements that bolstered Defendants’ credentials and experience, as well as untruths
about financial sources that Defendants did not, in truth, obtain or had a reasonable expectation to
obtain. (See supra at [7]‒[13].) These materials also touted collaboration with a well-known
construction company with which Defendants had no working relationship. (See, e.g., Dkt. 6-1,
45
at ECF 14 (discussing the “Racanelli Construction Group.”).) The Court concludes that these
misstatements, taken as a whole, were meant to portray Defendants as well-equipped and well-
positioned to build the Projects, and to create and bolster an unrealistic image that the (outsized)
Projects would succeed and earn a profit. Thus, by the time a reasonable investor read any
disclaimer, she would have already been tricked into believing that—given Defendants’

experience, connections, and the abundance of financing—the possibility that the enterprise might
never be profitable was so remote as to be negligible. In line with their overall scheme, Defendants
also affirmatively stated, or strongly implied, that their Projects would be profitable. (See, e.g.,
Dkt. 6-9, at ECF 20 (“Project [sic] operating income will see 50% returns at a minimum”); Dkt.
6-8, at ECF 3 (“After five years, each investor will receive $500,000 in returns.”); Dkt. 6-1, at ECF
12 (“The Partnership anticipates that the [Project] will be . . . generating income[.]”).) In the face
of these representations and the “economic reality” of the transactions between Defendants and
the EB-5 investors, Defendants cannot rely on boilerplate disclaimers as a contractual escape hatch
or to avoid liability under the securities laws. See, e.g., Telegram Grp. Inc., 448 F. Supp. 3d at

365 (noting that “[d]isclaimers, if contrary to the apparent economic reality of a transaction, may
be considered by the Court but are not dispositive”).
Defendants also argue that because they had the discretion to withhold distributions to the
investors, the EB-5 investors could not reasonably have expected to make a profit. (Dkt. 43, at
ECF 24–26.) The Court rejects the notion that simply because Defendants had the authority to
withhold distributions, they arbitrarily could issue none. As Defendant Xia admitted at the Hearing
(Tr. 8), all of Defendants’ offerings explained that they were “fiduciar[ies]” who were required to
“exercise good-faith and integrity” in their dealings with the investors. (See generally Dkts. 6-1,
6-2, 6-3, 6-4, 6-5, 6-6.) Under New York law, therefore, Defendants’ discretion to withhold profits
46
is bounded and circumscribed. See Riviera Cong. Assocs. v. Yassky, 223 N.E.2d 876, 879 (N.Y.
1966) (“There can be no question that a managing or general partner of a limited partnership is
bound in a fiduciary relationship with the limited partners[.]” (cleaned up)); AFBT-II, LLC. v.
Country Vill. on Mooney Pond, Inc., 759 N.Y.S.2d 149, 151 (N.Y. App. Div. 2003) (“Where the
contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily

or irrationally in exercising that discretion.” (citation omitted)).
In sum, the Court finds that Defendants led the EB-5 investors to expect profits from their
Projects and that, therefore, the third Howey prong is satisfied.
4. Profits Determined Solely by Efforts of Promoter or Third Party

The fourth Howey prong is that the profits the investors expected to receive were “solely
from the efforts of the promoter or a third party.” Howey, 328 U.S. at 298–99. The fourth prong
of Howey narrows the universe of transactions that securities laws reach and ensures that the
allegedly defrauded “purchasers were mere passive investors[,] and the sale of the investment
contracts gave rise to ‘all the evils inherent in the securities transactions which it was the aim of
the Securities Acts to end.’” Wieboldt v. Metz, 355 F. Supp. 255, 257 (S.D.N.Y. 1973) (quoting
S.E.C. v. C.M. Joiner Leasing Co., 320 U.S. 344, 349 (1943)). Thus, the Circuit held that this
prong is satisfied when “as a result of the investment agreement itself or the factual circumstances
that surround it, [the investor] is left unable to exercise meaningful control over his investment.”
See United States v. Leonard, 529 F.3d 83, 91 (2d Cir. 2008) (cleaned up); accord Hocking v.
Dubois, 885 F.2d 1449, 1460 (9th Cir. 1989) (en banc) (“[T]he question of an investor’s control
over his investment is decided in terms of practical as well as legal ability to control.”). It is
undisputed that the EB-5 investors—limited partners residing abroad—had no right to control the
partnerships and lacked any legal or practical ability to influence their operation. See Leonard,
47
529 F.3d at 90 (finding that the “number and geographic dispersion left investors particularly
dependent on centralized management[.]”); see also S.E.C. v. Arcturus Corp., 928 F.3d 400, 409
(5th Cir. 2019) (“[L]imited partners . . . cannot ordinarily dissolve the partnership or bind other
partners, and [] have little or no authority to take an active part in the management of the
partnership.” (cleaned up)). The fourth Howey prong is therefore met.

* * *
Because all of the Howey prongs are satisfied, the Court finds that the SEC has shown that
the transactions in this case involved securities.
C. The SEC has Proven a Likelihood of Success on the Merits Section
10(b), Section 17(a), and Rule 10b-5 Claims

As discussed, to prevail on Section 10(b) and Rule 10b-5 misrepresentation claims, the
SEC must show that each defendant: “(1) made a material misrepresentation or a material omission
as to which he had a duty to speak, or used a fraudulent device; (2) with scienter; (3) in connection
with the purchase or sale of securities.” Monarch Funding Corp., 192 F.3d at 308. The Court
finds that the SEC has made a strong showing of likelihood of success on the merits as to these
claims.
First, the Court agrees with the SEC that all of the misrepresentations and omissions made
by Defendants in the Projects’ offering memoranda were material. An affirmative falsehood is
material where there “is a substantial likelihood that a reasonable investor would find the . . .
misrepresentation important in making an investment decision.” United States v. Litvak, 808 F.3d
160, 175 (2d Cir. 2015) (citation omitted). An omission is material when there is a “substantial
likelihood that the disclosure of the omitted fact would have been viewed by the reasonable
investor as having significantly altered the ‘total mix’ of information made available.” Matrixx
48
Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011) (quoting Basic Inc. v. Levinson, 485 U.S.
224, 231–32 (1988)); see also S.E.C. v. Nutra Pharma Corp., 450 F. Supp. 3d 278, 286 (E.D.N.Y.
2020) (“The touchstone of the materiality inquiry is . . . whether the defendants’ representations
or omissions, considered together and in context, would affect the total mix of information[.]”
(cleaned up)). Here, as explained above, the SEC has presented sufficient evidence that, in the

offering memoranda sent to potential EB-5 investors, Defendants omitted and misrepresented, on
numerous instances, information about the availability of funding sources, their experience in the
construction and project development industry, and their association with the Westin Hotel chain.
(See, e.g., Dkt. 6-1, at ECF 14 (discussing Xia’s purported experience and collaboration with the
“Racanelli Construction Group.”); Dkt. 6-3, at ECF 5–6 (touting a purported collaboration with
the “Westin Elemnet [sic] Hotel” group); Dkt. 6-5, at ECF 3 (stating that the Emerald “shall b[e]
financed” with $18 million, from the NMTC, that Xia never obtained.).)
The SEC also adduced evidence indicating that Defendants flatly falsified information
about Racanelli-2. (See, e.g., Tr. 31:6–25 (“I didn’t have any relationship with [Racanelli-1] at

all.”).) Independently and combined, these misleading or false representations and omissions
about the Projects created the illusion that Defendants were well-qualified to execute their scheme.
Defendant Xia, who controlled Fleet, oversaw the preparation of the information in the memoranda
and admitted that he knew that investors would find various pieces of the allegedly misleading
information material. (See, e.g., Tr. 56:10–13 (“Q: [Y]ou knew that an investor would find it
important that there was [] government backing behind the project, right? A: That’s right.”).

49
Second, the Court finds that the SEC has adduced sufficient evidence to show a substantial
likelihood of success in proving scienter.36 Under Rule 10b-5, scienter is “a mental state
embracing intent to deceive, manipulate, or defraud.” Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 319 (2007). “Circumstantial evidence can support an inference of scienter in a
variety of ways, including where defendants ‘(1) benefitted in a concrete and personal way from

the purported fraud; (2) engaged in deliberately illegal behavior; (3) knew facts or had access to
information suggesting that their public statements were not accurate; or (4) failed to check
information they had a duty to monitor.” S.E.C. v. Fiore, 416 F. Supp. 3d 306, 323–24 (S.D.N.Y.
2019) (citation omitted). Here, there is ample evidence of scienter. The evidence shows that
Defendant Xia directly benefited from the alleged fraud by singlehandedly controlling millions of
dollars of investor funds, which Xia transferred, without oversight or documentation, between the
more than 90 bank accounts he and/or Yue controlled. (See supra at [16]‒[17].) As explained
before, there remains a void in the record as to where $22 million in investor funds went or how
they were spent. (See, e.g., Tr. 402.) The Court finds that this record shows a stunning lack of

accounting as to how investor funds were spent or used. (See, e.g., Tr. 412:16‒20 (SEC’s expert
noting that it was “very difficult to understand what was the value of the work that was being
performed” in the “good majority of [the] invoices [of the Projects]” he had reviewed); Tr. 412:24‒
25, 413:1‒3 (“I thought it was highly unusual to see that . . . in some cases, there were four invoices
that were being submitted in a given month by one of [the entities] in very large round dollar sums
. . .with very little backup.”).) Further, as described above, after learning about the SEC
investigation against him, Xia used investor funds to purchase three mansions for his wife Yue

36 As stated supra, the SEC need not show scienter to prove § 17(a) liability.
50
and the other two Relief Defendants. Evidence likewise suggests that Defendants had access to
information the public did not. Specifically, it appears that Xia repeatedly failed to disclose to
investors information about his experience in the project development and construction industry,
his funding sources, and his companies. Xia also failed to disclose to investors that he was
misusing and misdirecting their funds on a daily, ad-hoc basis. The Court finds that all of the

evidence, viewed as a whole, makes it abundantly clear that Defendants acted with scienter.
Defendants and Yue argue that some of their alleged misstatements were not material,
because cautionary language in the memoranda “bespoke caution.” (Dkt. 43, at ECF 27–30.) The
Court disagrees. The “bespeaks caution” doctrine makes “[c]ertain alleged misrepresentations in
a stock offering . . . immaterial as a matter of law because it cannot be said that any reasonable
investor could consider them important in light of adequate cautionary language set out in the same
offering.” Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002). The doctrine
does not apply when “the cautionary language [does] not expressly warn of or did not directly
relate to the risk that brought about [the] loss.” Id. at 359; see also Hunt v. All. N. Am. Gov’t

Income Tr., Inc., 159 F.3d 723, 729 (2d Cir. 1998) (“The cautionary language . . . must relate
directly to that by which plaintiffs claim to have been misled.”). Furthermore, the “doctrine applies
only to statements [and omissions] that are forward-looking,” not to “omission[s] of present
fact[s].” See Iowa Pub. Emps.’ Ret. Sys. v. MF Glob., Ltd., 620 F.3d 137, 142 (2d Cir. 2010)
(finding that the doctrine did not apply to the omission of information about the then-existing
failure to enforce security protocols to a company’s employees); Hunt, 159 F.3d at 729 (finding
the doctrine inapplicable when a fund stated that it “intended to use hedging techniques to reduce
currency risk,” but failed to disclose that the “defendants knew (or recklessly disregarded) that, as
a practical matter” such devices were unavailable.).
51
Here, Defendants rely on the following language in their offering memoranda in support
of their “bespoke caution” argument:
This memorandum contains certain “forward-looking statements” (as such term is
defined in the Private Securities Litigation Reform Act of 1995), which can be
identified by the use of forward-looking terminology such as “believes,” “expects,”
“may,” “will,” “should,” or “anticipates” or the negative thereof, or other variations
thereon or comparable terminology, or by discussions of strategy that involve risk
and uncertainties. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results, performance,
or achievements of the partnership to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include the timing, costs, and scope of any investment by
the partnership, the revenue and profitability levels of the partnership, real estate
valuations in the geographic areas in which the partnership invests and numerous
other factors. Certain of these factors are discussed in more detail elsewhere in this
memorandum. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. These forward-looking
statements are based on current expectations, and the partnership assumes no
obligations to update this information. Future results are impossible to predict, and
no representation of any kind is made respecting the future accuracy or the
completeness of any forward-looking statements herein.

(See, e.g., Dkt. 6-1, at 2–3.)37
This boilerplate disclaimer, however, is insufficient to support Defendants’ and
Yue’s “bespeaks caution” argument. First, this language neither neutralizes nor negates
the knowing and calculated misrepresentations, and omissions as to then-existing facts,
that Defendants made in the Projects’ offering memoranda. See In re Prudential SEC. Inc.

37 Prior to the Hearing, and in the Amended Complaint, the SEC alleged that other future-
looking statements were allegedly misleading or erroneous, specifically as to the anticipated square
footage of the buildings. (See Dkt. 98, ¶¶ 149–50.) Xia testified at the Hearing that he did not
misrepresent the anticipated size of his buildings, because the New York City Building
Department’s authorizations contemplate that the actual, built square footage of the buildings
would exceed their land size and orally calculated the relevant square footage. (Tr. 129–32.) Post-
hearing, the SEC has not argued that the evidence is sufficient to show that these statements were
misleading. The Court therefore does not consider them in its analysis.
52
Ltd. Partnerships Litig., 930 F. Supp. 68, 72 (S.D.N.Y. 1996) (“[C]autionary language does not
protect material misrepresentations or omissions when defendants knew they were false when
made.”). For example, as argued by the SEC and established by the evidence, Xia and Fleet “had
no factual basis for the statements in the Offering Memoranda regarding third-party funding” or
for failing to disclose as much. (Dkt. 132, at ECF 9–10.) While the offering memoranda stated

that Defendants “intended” or “anticipated” obtaining tens of millions in funding, these materials
failed to disclose the then-existing reality that Defendants had already been denied funding by
these sources and that Defendants’ expectations for funding rested on non-binding exchanges of
intent letters. (See, e.g., Dkts. 6-1, 6-2, 6-3 all at ECF 12 (stating, in 2010 and 2011 and thereafter,
that the Mirage Project is “expected to be financed” by $17,000,000 in NYCCRC bonds, when, in
fact, the agency had terminated the bonds in 2010); Dkt. 6-4, at ECF 11 (stating that the Emerald
Project was “expected to be financed” by a $72 million loan from Hapoalim Securities, when, in
fact, no loan application to Hapoalim Securities had ever been filed); Dkt. 6-6, at ECF 12 (same,
with respect to a $40 million loan from Hapoalim Securities); Dkt. 6-5, at ECF 3 (stating that the

Emerald Project “shall [be] financed” with $18 million in NMTC tax credits and $21.2 million in
Brownfield tax credits, without disclosing that the sole basis for Xia’s expectation was the
exchange of preliminary intent letters); Dkt. 6-3, at ECF 5–6 (stating that the Mirage “will
encompass the development of the Westin Elemnet [sic] Hotel & Condo Apartment building,”
without disclosing that the basis for Xia’s expectation was the exchange of preliminary intent
letters.).)
Second, the “bespoke caution” doctrine does not apply because the above cautionary
language in the offering memoranda was not tailored to the risk. In substance, Defendants warned
investors that the future could not be predicted, but did not tell them that the then-existing reality
53
rendered their expectations dubious. (See, e.g., Dkt. 6-1, at ECF 1–2 (“[Our] forward-looking
statements are based on current expectations . . . . Future results are impossible to predict, and no
representation of any kind is made respecting the future accuracy or the completeness of any
forward-looking statements herein (emphasis added)); In re Prudential, 930 F. Supp. at 72
(“Cautionary language cited to justify application of the doctrine must precisely address the

substance of the specific statement or omission that is challenged.” (citation omitted)).
The SEC has also made a sufficient showing as to its scheme liability claims. As discussed,
to prevail on a scheme liability claim under Section 10(b), Rule 10b-5, or Section 17(a), the SEC
must show that the defendants “(1) committed a deceptive or manipulative act; (2) in furtherance
of the alleged scheme to defraud; (3) with scienter.” CKB168, 210 F. Supp. 3d at 445.38 For the
reasons previously discussed, the Court finds that the evidence is sufficient to show that
Defendants acted with scienter. The Court further finds that the rampant, undisclosed diversions
of EB-5 investor funds by Defendants for uses unrelated to the Projects constituted deceptive acts,
that furthered the scheme, when combined with the alleged misstatements and omissions made by

Defendants in the offering memoranda. Xia admitted, as all the offering memoranda stated, that
he was a fiduciary of the limited partners that received the EB-5 investor funds. (Tr. 8:1–11.) The
Supreme Court long held that when a fiduciary “has exercised his power of disposition for his own
benefit,” that this is fraud “without more.” See S.E.C. v. Zandford, 535 U.S. 813, 821 (2002)
(citing United States v. Dunn, 268 U.S. 121, 131 (1925)). Thus, because the record strongly

38 As stated supra, “[t]o prove [scheme] liability under Securities Act Section 17(a)(3),
however, the SEC only has to prove negligence rather than scienter.” Id. (citation omitted).
54
suggests that Xia exercised his disposition power for his own benefit, the SEC has exceeded its
burden to show that scheme liability is likely.
The rest of Defendants’ arguments are meritless and warrant only a short discussion. First,
Second Circuit precedent belies Defendants’ argument that fraud is actionable only if it is
perpetrated on an investor. See A. T. Brod & Co. v. Perlow, 375 F.2d 393, 396–97 (2d Cir. 1967)

(“Neither § 10(b) nor Rule 10b-5, it appears, speaks in terms of limiting the nature of the violation
to one involving fraud of ‘investors’; nor is there any justification for reading such an additional
requirement into the Act.”). Second, Supreme Court precedent forecloses the argument that
misappropriations of funds that follow the sale of a security are not actionable because they,
themselves, are not made “in connection” with the purchase or sale of securities. See S.E.C. v.
Zandford, 535 U.S. at 820–21 (finding that a scheme involving sales of securities and “subsequent
misappropriation of the proceeds” had the “requisite connection with the sales” of securities
because the complaint alleged a “scheme to defraud” and the “the securities sales and [the]
fraudulent practices were not independent events”); see also Romano v. Kazacos, 609 F.3d 512,

522–23 (2d Cir. 2010) (finding that the “in connection” requirement “does not pivot on temporal
limitations” and merely involves claims that “necessarily allege, necessarily involve, or rest on the
purchase or sale of securities” (cleaned up)). The district court cases that Defendants cite as
authority for their arguments are distinguishable because they did not include any allegations of a
cohesive scheme to defraud of the kind at issue in this case. Third, the Court rejects the argument
that Defendants held all of their opinions reasonably and in good faith because, at a minimum, the
SEC adduced sufficient evidence that Defendants acted negligently. (Dkt. 43, at ECF 29–32.); see
also S.E.C. v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1096 (2d Cir. 1972) (rejecting a “good

55
faith” defense because in “enforcement proceeding[s]. . .we have held that mere negligence is a
sufficient basis for liability[.]”).
D. The SEC Has Made a Strong Showing that Relief Defendants Have No
Legitimate Claim to The Assets

The SEC has exceeded its burden to show a likelihood of success on its unjust enrichment
claim that Relief Defendants X. Yu and Verfenstein received ill-gotten gains for which they had
no legitimate claim.39 As an initial matter, the Court rejects Relief Defendants’ bare assertion,
without any reference to case-law and only a cursory discussion of the record, that the SEC has
not shown a likelihood of success in showing that the funds they received were “ill-gotten.” See,
e.g., Rosenthal, 426 F. App’x at 3 (finding that funds that were the gains from insider trading were
ill-gotten); S.E.C. v. Boock, No. 09 Civ. 8261 (DLC), 2013 WL 4828571, at *1–2 (S.D.N.Y. Sept.
9, 2013) (finding that funds that originated in the receipt of unlawfully issued, unregistered shares
were ill-gotten funds). To start, Verfenstein appears to accept, at least in principle, that “funds
used to purchase the home came from Perini or the [P]roject[s]” (Dkt. 120, at ECF 5), and, as the
Court already has concluded, the evidence shows that Defendants likely obtained the EB-5 investor

39 Defendant Yue did not respond to the SEC’s argument that she received ill-gotten monies
for which she lacks any legitimate claim. (See generally Dkt. 127.) The Court accordingly deems
her as having waived her defenses on this argument. See Jackson v. Fed. Express, 766 F.3d 189,
198 (2d Cir. 2014) (“[I]n the case of a counseled party, a court may, when appropriate, infer from
a party’s partial opposition that relevant claims or defenses that are not defended have been
abandoned.”); Williams v. Romarm, 751 F. App’x 20, 23 (2d Cir. 2018) (“[The] argument was not
raised by the plaintiffs below in their opposition to [defendant’s] motion to dismiss and therefore
was waived.” (citation omitted)). The Court rejects Yue’s argument that the injunction reaches
too broadly and fails to calculate her reasonable business expenses infra. Regardless, the Court
finds that SEC has met its burden to show that the investor funds were ill-gotten—as potential
proceeds of investor fraud—and the record is devoid of any evidence that Yue had any legitimate
claim for them. See Cavanagh, 155 F.3d at 137 (finding that spouse had no legitimate claim to
shares for which he “gave no consideration”).
56
funds for both Projects through fraud. (See supra at [48]‒[55].) Next, while Relief Defendant X.
Yu’s residence was purchased through more circuitous means than the other two mansions,
namely, using the Brownfield clean-up tax funds as collateral, the Court still finds that these funds
have sufficient connection to the alleged fraud to be “ill-gotten.” In relevant part, the Eastern
Emerald offering memorandum says that the “Eastern Emerald . . . shall b[e] finance[d] . . . [with]

$ 21,200,000” of Brownfield Tax Credit. (Dkt. 6-5, at ECF 3.) The SEC argues that this
representation in the memorandum effectively earmarked the $21.2 million to the Emerald Project,
as no reasonable investor would have understood the memorandum to mean that the money could
have been arbitrarily diverted for Xia’s and his associates’ “personal use[s],” such as purchasing
mansions for Xia, Yue, and X. Yu to live in. (See Dkt. 128, at ECF 11; see also Dkt. 6-5, at ECF
3.) Relief Defendants respond that the Eastern Emerald offering memorandum merely promised
that some amount of funds would be used in the Emerald Project, without earmarking any specific
portion of the funds for that purpose. (Dkt. 120, at ECF 11–12.)
The Court agrees with the SEC. “When analyzing offering materials for compliance with

the se

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10658921. Public record. Not legal advice.