Securities Exchange Commission v. Kameli
1:17-cv-04686
N.D. Ill.Sep 5, 2017Background
- SEC sued immigration attorney Sayed Taher Kameli and related entities alleging securities fraud in connection with EB-5 investment funds that financed senior living projects in Illinois and Florida. The SEC sought a preliminary injunction, asset freeze, receiver appointment, accounting, and document preservation.
- Kameli created multiple Funds (Illinois Funds and Florida Funds) that pooled $500,000 EB-5 investments and charged administrative fees; funds were to be loaned to specific development Projects and used to support investors’ immigration petitions (I-526/I-829).
- Many Projects were behind schedule or unfinished; only the Aurora Project was completed (with low occupancy) and several Projects faced contractor suits, foreclosure, or no construction. USCIS approvals for investor petitions were mixed and I-829s remained largely unadjudicated.
- SEC alleged several misuses and nondisclosures: undisclosed payments (~$4M) to manager/developer entities (CFIG/AEP/Bright Oaks), investment of roughly $15.8M of project funds in brokerage accounts, misuse of Silver Fund–collateralized line of credit for other purposes (including alleged personal charges), and undisclosed profit (~$1M) from land sales via PREPI.
- After a five-day hearing with voluminous evidence and testimony, the court denied the SEC’s motion for a preliminary injunction, finding the SEC had made a substantial showing only as to misuse of the Silver Fund line of credit for personal expenses, but had not established likelihood of success or sufficient risk of repetition for most claims.
Issues
| Issue | Plaintiff's Argument (SEC) | Defendant's Argument (Kameli) | Held |
|---|---|---|---|
| Undisclosed compensation/payments to CFIG/AEP/Bright Oaks | PPMs misled by omitting millions paid to affiliated entities; payments conflicted with stated compensation scheme | Payments were for development (not management) services and were disclosed in Business Plans; no proof such payments customarily required separate disclosure or were material; no scienter shown | SEC failed to make substantial showing of likelihood of success on this claim |
| Conflicts-of-interest disclosures in PPMs | Disclosures were inaccurate/incomplete by failing to state that Kameli caused affiliated entities (and his brother) to be hired and paid | PPMs warned of potential affiliated transactions and non-arm’s-length deals; affiliates and Kameli’s roles were disclosed sufficiently | Court found disclosures adequate on record; SEC did not substantially show likely success |
| Investment of Fund monies in brokerage accounts/securities trading | Funds were represented as dedicated to project development but were placed in brokerage accounts and traded (≈$15.8M), producing gains/losses and transfers to affiliated entities | Bank/OFAC/FDIC constraints and escrow mechanics required placing funds in brokerage accounts; Operating Agreements gave Manager broad authority; funds remained available for projects | SEC did not present sufficient evidence or argument to overcome defendants’ justifications and operating-authority defense; claim not shown likely to succeed |
| Silver Fund line-of-credit and use of collateralized funds | Investors’ funds were used as collateral; draws paid other projects and personal expenses (cruise, tuition) — misleading and misapplied | Investor Holdings Agreement permitted use of Investor Holdings as collateral and authorized Manager to use line for any expenses; some expenditures arguably benefitted other projects indirectly | Court held SEC made a substantial showing as to misuse for personal expenses and scienter for that misuse; but overall risk of future violation was limited and line largely repaid; relief denied |
| Land transactions (PREPI land flips and profit) | PREPI bought land cheap and sold to Projects at ~ $1M, yielding undisclosed ~$1.06M profit — undisclosed compensation/conflict | PREPI purchased land pre-Fund formation; later appraisals valued land ≥ $1M; sales to Projects were at or below market/appraisal and consistent with Business Plan land cost estimates | Court found SEC failed to show proceeds constituted undisclosed compensation or that nondisclosure rendered PPMs misleading; no substantial showing of likelihood of success |
| Need for preliminary injunction/receiver | SEC: ongoing mismanagement, dissipation risk, and likelihood of repeated violations justify injunction and receiver | Defendants: have cooperated, froze assets per agreement, many factual defenses, and limited ongoing solicitation; SEC failed both prongs for statutory injunction | Court denied the preliminary injunction and ancillary relief — SEC did not satisfy both likelihood of success and risk-of-repetition standards |
Key Cases Cited
- Maio v. SEC, 51 F.3d 623 (7th Cir.) (distinguishing offer/sale vs. purchase/sale scope of §17(a) and §10(b))
- Bauer v. SEC, 723 F.3d 758 (7th Cir.) (elements of securities fraud: material misrepresentation/omission, scienter, connection to purchase/sale)
- Rowe v. Maremont Corp., 850 F.2d 1226 (7th Cir.) (definition of materiality for securities disclosures)
- Yang v. SEC, 795 F.3d 674 (7th Cir.) (once past violation shown, SEC must show reasonable likelihood of future violations for injunctive relief)