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Judge Grants Asset|Freeze in Fraud Case

(CN) - A federal judge on Wednesday granted a Securities and Exchange Commission request to freeze the assets of a Florida real estate developer accused of bilking investors of $8.5 million in a phony green card scam.

In a complaint filed in Miami Federal Court on Nov. 3, the agency claims Lily Zhong and her company U.S EB-5 Investment LLC, defrauded at least 17 investors, and used their funds to buy a luxury cars, a boat, a $2.5 million home and to cover the cost of her daughter's education.

The SEC says that most of the investors were Chinese citizens, and Zhong promised them that their investments would qualify under the EB-5 Visa Program.

"Under the EB-5 Program, foreign nationals may obtain United States residency by making qualified investments of $500,000 or more in a project that creates or preserves at least 10 jobs for United States workers," the complaint says.

Zhong, a New Zealand citizen, allured the investors by promising them that their funds would be used in construction projects, that their funds would be held in escrow until their Form I-526 immigrant petitions were approved, and that they would be able to receive financial statements and to participate in management meetings to satisfy the USCIS requirements among other things.

The SEC says that her representations were all false, and instead she used the investors' monies to engage in luxury living.

According to the complaint, Zhong solicited $500,000 from each investor plus an administrative fee ranging from $55,000 to $76,500 to process their EB-5 visas.

The SEC claims that from March 2011 till August 2014 Zhong raised approximately $8.5 million from the investments of 17 individuals in her company EB-5 Investments, and an additional $1.2 million in administrative fees.

The investment transactions were finalized in the United States while their funds were kept at a Bank of America account, and some investors were even asked to come to the United States to finalize the deal.

Zhong falsely told investors that in exchange for their monies, they would obtain membership interests in EB-5 Investments, the SEC says.

"Defendants solicited investors through offering materials, including an EB-5 Investments Private Placement Memorandum ("PPM"), EB-5 Investments' operating agreement, a subscription agreement, and in some instances, an escrow agreement ("Offering Materials")," the SEC says.

Zhong participated in the creation and drafting of all the "PPM" and business plans given to investors, the complaint states.

The SEC alleges that Zhong used her own attorney, and he submitted a package of "offering materials" and a business plan to the USCIS to support the investors' EB-5 visa petitions.

On August 26 after Zhong found out that she was being investigated by the Securities Exchange Commission, she assigned a security interest of some of EB-5 Investments' assets to a new entity called "Relief Defendant Investor Asset Protection LLC," the complaint says.

The SEC alleges that Zhong named her accountant as the sole manager of Relief Defendant Investor to avoid any suspicion, while she stayed with exclusive control of the bank accounts.

On September 14, the SEC claims Zhong notified the investors that her company EB-5 Investments was no longer able to process their pending visa petitions, and that they "will likely be unsuccessful" in getting their EB-5 visas.

Under the terms of Zhong's agreement with the investors if their visas couldn't be processed they were entitled to a refund of their investment, but the SEC says that Zhong failed to do so.

"Unless the assets of defendants' and Relief Defendants' are frozen and a receiver is appointed over Asset Manager and the Relief Defendants, Zhong will retain ultimate responsibility for ensuring the return of investors' funds, a role she has show herself utterly unfit to fulfill," the SEC says.

The complaint claims that Zhong failed to disclose to the investors that she was being subjected to bankruptcy proceedings in New Zealand, and that her role as a director and shareholder of a real estate development company in New Zealand had been placed into voluntary liquidation.

The SEC seeks damages for violations to the Securities Act and the Exchange Act.

It is represented by Alejandro Soto of Miami, Fla.

Zhong's attorney, David Chase from Ft. Lauderdale, Fla. did not respond to emailed and telephone requests for comments on the lawsuit.

The order issued on Wednesday by U.S. District Judge Joan Lenard, freezes the assets of Zhong and her companies for 30 days.

In doing so the court released $3,300 to Zhong to cover her living expenses during this period. It also founded that Zhong's attorney was lawfully paid $30,000 to date to wage her defense of the charges, and that he is entitled to another $7,500 for work he will perform between Nov. 19 and a pending show cause hearing scheduled for Dec. 14.

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