Promoter of a failed visa-for-sales program, Anshoo Sethi, has been charged by a federal grand jury with 10 federal counts of fraud and false statements, while using Chinese investors’ money to run a cosmetic surgery business.
According to reports, Sethi, a 30-year-old Chicago man, had plans to build a giant hotel and a Chicago convention center funded with $160 million that he raised from Chinese investors. These plans of his were subject to a recent Fortune investigation.
Sethi has been charged with eight counts of wire fraud and two counts of making false statements. He can face a maximum sentence of 20 years on each fraud count and 10 years or more on the false-statement charges, if he is convicted.
Sethi had earlier reached an agreement with the Securities and Exchange Commission without acknowledging or denying culpability. He then raised funds from Chinese investors who had been seeking US residency, using the popular EB-5 visa program, which allows applicants who invest at least $500,000 in an American business to qualify for residency.
Sethi had signed up almost 300 wealthy Chinese investors claiming that he was going to build a $912-million, “Zero-Carbon Platinum LEED-certified” complex that would have five name-brand hotels on a 2.8-acre tract near the O’Hare Airport. However the money was raised, as charged in the indictment, through means of forged documents and outlandish lies about the project’s financing and permits, the commitments he had from the hotel chains, and his own experience in this business. As per Fortune’s investigations, Sethi’s only experience in the lodging business had been running his own family’s shabby motel.
In February 2013, a civil fraud action was filed by the SEC which brought the scheme to a halt. About $147 million in investor funds were recovered, which had so far been held in escrow. In March last year, Sethi and his business entities were fined $3.9 million. Sethi was also barred from any association with the sale of securities for the next 20 years.
The recent indictment in addition to fines and prison time, also seeks recovery of an $11 million used as administrative fees, about $41,500 per investor, which was collected by Sethi. Sethi had told the investors that this money was fully refundable in case their visas were not approved and was to be used only for project expenses.
As per the indictment, Sethi used “nearly all” the money and “misappropriated” at least $320,000 of the total fees “for the purchase of luxury goods for himself, family, and friends”, to pay for an unrelated lawsuit settlement, and “to fund a cosmetic surgery business.”
The investigation on Sethi by SEC investigation had started when a tip was filed on the agency’s website that generated a record $14.7-million whistle-blower award.
A written statement was provided by Sethi’s lawyers which said that their client “worked nearly ten years” on the convention center project and that his family had invested “millions of dollars in it”. The lawyers also state that “the indictment ignores the key fact that, from the beginning, Mr. Sethi ensured that every penny of the wealthy foreign investors’ principal was always safely secured in an escrow account, and that each investor already has received 100% of their principal investment back. What remains to be returned to investors are the administrative fees that were paid with the understanding that they would be used to pay expenses associated with the investment. In his resolution of the SEC action in March 2014, Mr. Sethi already committed to repaying all those fees and is making substantial strides to accomplish that goal.”
The lawyers’ statement asserts that “the evidence will show that this project was real and that, while Mr. Sethi made serious mistakes in judgment, he was grossly ill-served by certain of the so-called ‘EB-5 experts’ and advisors that he engaged” and that “there were individuals who used the project to pursue their own private interests to the detriment of Mr. Sethi and the investors. Unfortunately, today’s indictment has oversimplified the story of what transpired. Mr. Sethi now looks forward to his opportunity to present the complete picture.”