Securities Exchange Commission v. Kameli et al

Filing 82

MEMORANDUM Opinion and Order Signed by the Honorable Joan B. Gottschall on 9/5/2017. Mailed notice(mjc, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff,

v.

SEYED TAHER KAMELI, et al.,
Defendants,
and
AURORA MEMORY CARE, LLC, et al.,
Relief Defendants.

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) Case No. 17 C 4686
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) Judge Joan B. Gottschall
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MEMORANDUM OPINION AND ORDER
In April 2017, the U.S. Securities and Exchange Commission (“SEC” or “Commission”)
filed this enforcement action against Sayed Taher Kameli (“Kameli”) alleging that he violated
Section 17(a) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77q(a); and section
10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Rule
10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. The SEC’s allegations are based on
investments that Kameli offered through the U.S. Citizenship and Immigration Service’s
(USCIS’s) EB-5 Program, which extends U.S. citizenship to immigrants who invest money in
designated businesses in the U.S. that create a certain number of jobs. Before the court is the
SEC’s motion for a preliminary injunction. The Commission seeks to enjoin Kameli from further
violations of the securities laws and from any further involvement with EB-5 investments. The
Commission also seeks ancillary relief, including appointment of a Receiver to manage several

businesses that Kameli has created with investor funds. For the reasons discussed below, the
motion is denied.
BACKGROUND
A.

The EB-5 Program
Congress created the EB-5 Program with the passage of the Immigration Act of 1990. See

Pub. L. No. 101–649, 104 Stat 4978 (codified at 8 U.S.C. § 1153(b)(5)). In 1991, the
Immigration and Naturalization Service (INS) promulgated regulations for the EB-5 Program’s
administration. Today, the program is administered by USCIS. The program’s chief purpose is to
stimulate the economy by encouraging infusions of new capital and creating jobs. See, e.g.,
Kenkhuis v. I.N.S., No. CIV.A. 301CV2224N, 2003 WL 22124059, at *3 & n.2 (N.D. Tex. Mar.
7, 2003) (citing the EB-5 Program’s legislative history).
The application process begins with the filing of a “Form I-526, Immigrant Petition by
Alien Entrepreneur” with USCIS. 8 C.F.R. § 204.6. The application must be “accompanied by
evidence that the alien has invested or is actively in the process of investing lawfully obtained
capital in a new commercial enterprise in the United States which will create full-time positions
for not fewer than 10 qualifying employees.” 8 C.F.R. § 204.6(j). In support of their petitions,
applicants may submit “[a] copy of a comprehensive business plan showing that, due to the
nature and projected size of the new commercial enterprise, the need for not fewer than ten (10)
qualifying employees will result, including approximate dates, within the next two years, and
when such employees will be hired.” 8 C.F.R. § 204.6(j)(4)(i)(B).
If the I-526 petition is approved, the investor is granted a conditional green card giving
him permanent resident status on a conditional basis. 8 U.S.C. § 1186b(a)(1). To have the
conditions removed, the investor must file (within a specified time period) a “Form I-829,

2

Petition by Entrepreneur to Remove Conditions.” 8 C.F.R. § 216.6. At this stage, the investor
must show that his investment of capital was sustained during his or her period of conditional
residence and that the investment “created or can be expected to create with a reasonable period
of time ten full-time jobs to qualifying employees.” 8 C.F.R. § 216.6(a)(4)(iv). If USCIS grants
the I-829 petition, the conditions are removed from the investor’s green card and he becomes a
lawful permanent resident. If not, the investor loses his conditional permanent residency. 8
C.F.R. § 216.6(d)(1)-(2).
B.

Kameli’s Investment Offerings
Kameli is an attorney who specializes in immigration matters. Beginning in 2008-2009,

he began searching for businesses that could be used for EB-5 investments. Eventually, he
decided to offer investments in funds that lent money for the development and construction of
facilities that provided memory care and/or assisted living services to senior citizens. Kameli
initially planned four such projects in Illinois: Aurora Memory Care, LLC d/b/a Bright Oaks of
Aurora, LLC (the “Aurora Project”); Elgin Memory Care, LLC d/b/a Bright Oaks of Elgin, LLC
(the “Elgin Project”); Golden Memory Care, Inc. d/b/a Bright Oaks of Fox Lake, Inc. (the
“Golden Project”); and Silver Memory Care, Inc. d/b/a Bright Oaks of West Dundee, Inc. (the
“Silver Project”).1 A separate fund was created as an investment vehicle for each project: Aurora
Assisted Living EB-5 Fund, LLC (the “Aurora Fund”); Elgin Assisted Living EB-5 Fund, LLC
(the “Elgin Fund”); Golden Assisted Living EB-5 Fund, LLC (the “Golden Fund”); and Silver
Assisted Living EB-5 Fund, LLC (the “Silver Fund”), respectively.2 Each Fund used investors’
money to make a loan to its associated Project for the development and construction of a
particular senior living facility.
1
2

These Projects are referred to collectively as the “Illinois Projects.”
These Funds are referred to collectively as the “Illinois Funds.”
3

In 2013, Kameli began to offer similar investments in connection with senior living
facilities in Florida. Kameli created four Funds: First American Assisted Living EB-5 Fund, LLC
(the “First American Fund”); Naples Memory Care EB-5 Fund, LLC (the “Naples Fund”); Ft.
Myers EB-5 Fund, LLC (the “Ft. Myers Fund”); and Juniper Assisted Living EB-5 Fund, LLC
(the “Juniper Fund”).3 Each Fund loaned money to a Project for the development of a senior
living center: First American Assisted Living, Inc. (the “First American Project”) for a facility to
be located in Wildwood, Florida; Naples ALF, Inc. (the “Naples Project”) for a facility to be
located in Naples, Florida; Ft. Myers ALF, Inc. (the “Ft. Myers Project”), for a facility to be
located in Ft. Myers, Florida; and Juniper ALF, Inc. (the “Juniper Project”) for a facility to be
located in Sun City, Florida.4
The Illinois Funds were managed by Chicagoland Foreign Investment Group (CFIG), an
entity created and owned by Kameli. The Florida Funds are managed by American Enterprise
Pioneers (AEP), a subsidiary of CFIG. As detailed more fully below, in addition to managing the
Illinois Funds, CFIG provided development services for the various Projects. In 2013, Kameli
created Bright Oaks Group, Inc. and Bright Oaks Development, Inc. (together, “Bright Oaks”) to
provide business and development services to the Projects. Nader Kameli (“Nader”), Kameli’s
brother, served as the president of CFIG and later as the CEO of Bright Oaks. In addition to
Kameli personally, CFIG and AEP are named as defendants in the suit. The individual Funds and
Projects, along with Bright Oaks, are named as relief defendants.5

3

These Funds are referred to collectively as the “Florida Funds.”
These Projects are referred to collectively as the “Florida Projects.”
5
In the Complaint, the second Bright Oaks entity is identified as “Bright Oaks Group, Inc.” See
Compl. ¶ 7. However, the caption makes no reference to Bright Oaks Group and instead refers to
“Bright Oaks Platinum Portfolio, LLC.” In addition to the other entities listed above, the
complaint also names Platinum Real Estate and Property Investments, Inc. (“PREPI”) as a relief
defendant. PREPI is described more fully below.
4

4

Kameli offered investors, the vast majority of whom are Iranian or Chinese nationals, an
ownership interest in a particular Illinois or Florida Fund. Each of the Funds issued Private
Placement Memorandums (“PPMs”) to prospective investors. These included a Business Plan
containing information about the ways in which the Project would spend the money borrowed
from the Fund. The Business Plan also provided an estimate of the time necessary for the
Project’s completion. The PPMs stated that the Projects would begin repaying the loan once the
senior living facility had become operational. CFIG and AEP were to be compensated for their
management services by a portion of the interest paid by the Projects on these loans.
To invest, individuals executed subscription agreements, which they returned to
defendants along with $500,000. In addition, investors were charged an administrative fee of
between $35,000 and $75,000. Investors’ funds were held in escrow until their I-526 petitions
were adjudicated. Once the petition was granted, the investor’s money was deposited into the
specific Fund for which the investor had applied. If the petition was denied, the money was
returned to the investor. Eventually, each investor would hopefully earn back his or her principal
plus interest. More importantly, each Project was to create enough jobs to support investors’ I829 petitions.
It would be an understatement to say that things did not go as planned. Each of the
Projects is over budget and behind schedule. To date, only the Aurora Project has actually been
completed. However, only 12 of the facility’s 60 units are occupied. The property is also the
subject of a foreclosure suit in Kane County in which a receiver has been appointed. West
Suburban Bank v. Aurora Memory Care LLC et al., No. 17-CH-000662 (Kane Cty. Cir. Ct. filed
July 27, 2017).

5

The other Illinois Projects remain in various stages of development. The foundations
have been poured and structures partially erected for the Elgin and Golden Projects. However,
the general contractor for both Projects has stopped working and has sued the respective Funds
for unpaid amounts of $2.197 million and $1.549 million, respectively. See Global Builders v.
Elgin Memory Care LLC, No. 16 CH 964 (Kane Cty. Cir. Ct. filed Sept. 23, 2016); Global
Builders v. Golden Memory Care Inc., No. 16 CH 1472 (Kane Cty. Cir. Ct. filed Sept. 28, 2016).
In addition, in December 2016, the City of Elgin sent Kameli a Notice of Unsafe Condition and
Demolition Order for the Elgin Project. See Ex. 69, Elgin Community Development Dept. Notice
of Unsafe Condition & Demolition Order, Dec. 22, 2016. Kameli appealed the demolition order,
see Ex. 70, Letter from T. Kameli to Raoul Johnston, City of Elgin Community Development
Department (Jan. 20, 2017), but the City of Elgin denied the appeal in March 2017, see Ex. 71,
email from Christopher Beck, City of Elgin Assistant Corporation Counsel to Eric Phillips, U.S.
Securities Exchange (Mar. 28, 2017). To date, there has been no construction on the Silver
Project or on any of the Florida projects.
Defendants claim that the Projects faced numerous obstacles, including delays due to
bureaucratic requirements of municipal governments; rising construction and labor costs; and
new regulations imposed by the U.S. Department of Treasury’s Office of Foreign Asset Control
(“OFAC”) on investments made by Iranian nationals.6 See, e.g., Kameli Decl. ¶¶ 73, 158. The

6

As a result of these difficulties, Kameli previously filed a lawsuit in this court on behalf of two
of his EB-5 Funds. See Elgin Assisted Living EB-5 Fund, LLC et al v. JP Morgan Chase Bank,
National Association, 12-cv-02193 (filed Mar. 26, 2012). The suit arose because the OFAC
licenses obtained for certain Iranian investors in the Funds were set to expire while their money
was still in escrow. The Funds’ escrow agent, JP Morgan Chase, believed that if the licenses
were to expire, it would be required to return the funds to their source. The court issued an
injunction preventing JP Morgan Chase from expatriating the money. Shortly thereafter, the suit
was voluntarily dismissed.
6

SEC’s investigation of Kameli, which has been underway since at least 2015, has made it
difficult for the Funds to attract additional investments.
Defendants also state that, although the Projects are unfinished, they have in some cases
created a sufficient number of jobs to support many investors’ I-829 petitions. According to
defendants, the Aurora Project has created 362 jobs; the Elgin Project has created 200 jobs; the
Golden Project has created 189 jobs; and the Silver Project has created 14 jobs. See Defs.’ Concl.
Br. ¶ 20. Nevertheless, investors’ green-card applications are in limbo. As of July 2014, USCIS
had approved 12 of the 17 I-526 petitions filed by Aurora investors; 18 of the 24 I-526 petitions
filed by Elgin and Golden Fund investors, respectively; 20 of the 29 I-526 petitions filed by
Silver Fund investors; and approximately 14 I-526 petitions by investors in the First American
Fund. USCIS has yet to act on any of the petitions submitted by investors in the other Florida
Funds. To date, no I-829 petitions have been approved. See Tr. 472:24-473:10. It appears that,
due to a backlog, few I-829 petitions, if any, have been adjudicated.
C.

The SEC’s Allegations
According to the SEC, defendants committed numerous violations of the securities laws

in their handling of the EB-5 Funds and Projects. Specifically, the SEC alleges that defendants
(1) charged several of the Funds and Projects over $4 million in undisclosed fees; (2) used
approximately $16 million of investors’ funds to engage in securities trading; (3) used money of
Silver Fund investors as collateral for a line of credit, which they then used for their own benefit
and the benefit of Funds and Projects other than the Silver Fund; and (4) made an undisclosed
profit of roughly $1 million by acquiring parcels of land through a separate entity and selling
them at a higher price to several of the Florida Projects. The SEC’s complaint alleges that these
constituted violations of section 17(a) of the Securities Act, and section 10(b) of the Exchange

7

Act. The Commission seeks disgorgement of ill-gotten gains and the imposition of civil penalties
pursuant to Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3), and Section 20(d) of
the Securities Act, 15 U.S.C. § 77t(d).
Contemporaneously with the filing of its complaint, the SEC moved for a temporary
restraining order (TRO) and a preliminary injunction, seeking to enjoin defendants from further
violations of the securities laws, and to enjoin Kameli from participating in any further EB-5
Program offerings. The motion also seeks ancillary relief, including: (1) an asset freeze; (2)
appointment of a Receiver; (3) an accounting; and (4) a document preservation directive.
After a hearing on the TRO, the parties entered into an agreement pending the court’s
decision on the SEC’s preliminary injunction motion. Order ¶ I.A, ECF No. 40. The agreement
freezes all the defendants’ and relief defendants’ accounts, except for Kameli’s personal
accounts and those of the Aurora Fund (which must have funds available to pay for the Aurora
facility’s operation). The order also forbids Kameli, Nader, and other individuals from using the
entities’ assets. Id.
A preliminary injunction hearing was subsequently held over a period of five days,
during which the court heard testimony from more than fifteen witnesses. The parties also
submitted post-hearing briefs with proposed findings of fact and conclusions of law.
LEGAL STANDARD
Section 20(b) of the Securities Act and Section 21(d) of the Exchange Act both authorize
the SEC, “upon a proper showing,” to obtain a permanent or temporary injunction against
violators of the securities. See 15 U.S.C. § 77t(b); 15 U.S.C. § 78u(d). Because the SEC seeks a
preliminary injunction pursuant to these statutory provisions, the traditional preliminary
injunction standard does not apply. See, e.g., United States v. Dove, No. 1:10-CV-0060, 2010

8

WL 11426136, at *2 (N.D. Ill. Apr. 16, 2010) (“‘When an injunction is expressly authorized by
statute, the standard preliminary injunction test is not applied.’”) (quoting S.E.C. v. Mgmt.
Dynamics, Inc., 515 F.2d 801, 808 (2d Cir. 1975)).
Although the Seventh Circuit has not addressed how the applicable standard is to be
understood, there is general agreement that “[t]he SEC may obtain a temporary injunction
against further violations of the securities laws upon a substantial showing of likelihood of
success as to (a) current violations and (b) a risk of repetition.” U.S. S.E.C. v. Hollnagel, 503 F.
Supp. 2d 1054, 1058 (N.D. Ill. 2007); see also 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.”); S.E.C. v. Trabulse, 526 F. Supp. 2d 1008, 1012 (N.D. Cal. 2007) (“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.”).7

7

In its briefing, the SEC recites this formulation of the standard along with various alternative
formulations. In its opening brief, in addition to the “substantial showing” formulation, the SEC
states that the standard for obtaining a preliminary injunction is “low,” requiring “a ‘justifiable
basis for believing, derived from reasonable inquiry and other credible information, that such a
state of facts probably existed as reasonably would lead the SEC to believe that the defendants
were engaged in violations of the statutes involved.’” SEC Opening Br. at 22 (citing SEC. v.
Householder, No. 02 C 4128, 2002 WL 1466812 at *5 (N.D. Ill. July 8, 2002) (Brown, Mag. J).
In its closing brief, after citing the “substantial showing” formulation, the SEC states that it is
entitled to a preliminary injunction where it “presents a prima facie case that the defendant has
violated the law.” SEC Concl. Br. ¶ 84. The Householder articulation of the standard, which is
based on what the SEC believes rather than what a court decides, has little case authority to
support it. The only case cited by Householder is SEC v. General Refractories Co., 400 F. Supp.
1248, 1254 (D.D.C. 1975). The “prima facie” formulation is often cited by courts, though it is
rarely defined. See, e.g., S.E.C. v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004) (“The SEC is
entitled to injunctive relief when it establishes (1) a prima facie case of previous violations of
federal securities laws, and (2) a reasonable likelihood that the wrong will be repeated.”); Sec. &
Exch. Comm’n v. San Francisco Reg’l Ctr. LLC, No. 17-CV-00223-RS, 2017 WL 1092315, at
9

There is also general agreement that, unlike a private litigant, the SEC may be granted a
preliminary injunction without showing a risk of irreparable injury or the unavailability of
alternative remedies. See, e.g., Smith v. S.E.C., 653 F.3d 121, 127–28 (2d Cir. 2011) (“In this
jurisdiction, injunctions sought by the SEC do not require a showing of irreparable harm or the
unavailability of remedies at law.”); Sec. & Exch. Comm’n v. San Francisco Reg’l Ctr. LLC, No.
17-CV-00223-RS, 2017 WL 1092315, at *2 (N.D. Cal. Mar. 23, 2017); Sec. & Exch. ComM’n v.
Texas Int’l Co., 498 F. Supp. 1231, 1253 (N.D. Ill. 1980) (“Under this standard, the SEC need
not show irreparable harm but need only show that the statutory conditions have been
satisfied.”).
The defendants argue that the SEC is seeking two types of injunctive relief: a statutory
injunction prohibiting Kameli from committing future violations of the securities laws; and a
conduct-based injunction prohibiting him from participating in any EB-5 offering. Defs.’ Concl.
Br. at 2 n.1. Defendants agree that the standard articulated above applies in the case of the
former, but they argue that the traditional standard (requiring a showing of irreparable harm and
a balancing of the hardships) applies where the SEC seeks a conduct-based injunction. The court
has found no authority for this proposition.8 Nevertheless, a preliminary injunction against future

*2 (N.D. Cal. Mar. 23, 2017) (“The SEC proposes that it is entitled to a preliminary injunction if
it can establish (1) a prima facie case of previous violations of the securities laws (2) and a
reasonable likelihood that the wrong will be repeated.”) (citations omitted). The fact that the SEC
cites both alternative formulations in tandem with the “substantial showing” language suggests
that it believes these various characterizations are interchangeable. In any case, since the SEC
cites the “substantial showing” formulation in both its opening and closing briefs, the court will
use this characterization of the standard for the sake of consistency.
8

The defendants cite S.E.C. v. Cherif, 933 F.2d 403 (7th Cir. 1991); but Cherif says nothing
about a difference between conduct-based and other injunctions. On the contrary, the parties
there agreed that the traditional preliminary injunction standard applied, and the court
consequently stated that it would not address the question of whether a different standard applied
to injunctions sought by the SEC. Id. at 408.
10

violations of securities laws is a grave remedy. See, e.g., S.E.C. v. Compania Internacional
Financiera S.A., No. 11 CIV 4904 DLC, 2011 WL 3251813, at *10 (S.D.N.Y. July 29, 2011)
(“An injunction against future securities violations has grave consequences, especially for
individuals who are regularly involved in the securities industry, because the injunction places
them in danger of contempt charges in all future securities transactions. The reputational and
economic harm of suffering a preliminary injunction, especially on charges of fraud, can also be
severe.”) (citation, quotation marks, and alteration omitted). And courts have observed that,
“[l]ike any litigant, the Commission should be obliged to make a more persuasive showing of its
entitlement to a preliminary injunction the more onerous are the burdens of the injunction it
seeks.” See, e.g., S.E.C. v. Unifund SAL, 910 F.2d 1028, 1039 (2d Cir. 1990).
DISCUSSION
As noted above, the SEC alleges violations of 10(b) of the Exchange Act and 17(a) of the
Securities Act. The elements of a claim under sections § 10(b) and § 17(a)(1) are essentially the
same. “The principal difference is that § 10(b) and Rule 10b–5 apply to acts committed in
connection with a purchase or sale of securities while § 17(a) applies to acts committed in
connection with an offer or sale of securities.” S.E.C. v. Maio, 51 F.3d 623, 631 (7th Cir. 1995).9
To prove a violation of either statute, the SEC must show that defendants “(1) made a material
misrepresentation or a material omission as to which [they] 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. Bauer, 723 F.3d 758, 768–69 (7th Cir. 2013) (quotation marks and brackets omitted).
The elements of claims under § 17(a)(2) and § 17(a)(3) are the same as those for § 17(a)(1),
9

Courts have specifically held that investments in EB-5 enterprises like those at issue here
constitute “securities” within the meaning of the securities laws. See, e.g., Sec. & Exch. Comm’n
v. Liu, No. SACV1600974CJCAGRX, 2016 WL 9086941, at *3 (C.D. Cal. Aug. 17, 2016).
Defendants do not contest this point.
11

except they require a showing of negligence instead of scienter. Id. at 768 n.2 (Ҥ 10(b), Rule
10b–5 and § 17(a)(1) have a scienter requirement, while § 17(a)(2) and (a)(3) … do not.”). “An
omission or misstatement is material if a substantial likelihood exists that a reasonable investor
would find the omitted or misstated fact significant in deciding whether to buy or sell a security,
and on what terms to buy or sell.” Rowe v. Maremont Corp., 850 F.2d 1226, 1233 (7th Cir.
1988). Scienter is a mental state that “embraces an intent to deceive, manipulate, or defraud, as
well as reckless disregard of the truth.” Bauer, 723 F.3d at 775 (quotation marks and citations
omitted).
A.

Likelihood of Success in Showing Current or Past Violations of Securities Laws
As noted above, the SEC alleges that defendants have violated the securities laws in

several different ways. The court examines each of these in turn.
1.

Compensation & Conflicts Relating to CFIG & Bright Oaks
The SEC alleges that between 2010 and 2016, CFIG and AEP received undisclosed

compensation from various Projects totaling roughly $4 million. Specifically, the SEC points out
that: (1) between October 2010 and October 2012, the Elgin Fund paid CFIG a total of $840,000;
(2) between 2011 and 2016, the Aurora Project made three payments to CFIG amounting to
$950,000; (3) in November 2012, the Golden Project paid CFIG $120,000; (4) in December
2013, the Silver Project paid CFIG $1.155 million; and (5) in 2016, the First American Project
paid AEP $910,000. See Aguilar Decl. ¶ 33 & Ex. 14. The SEC makes a parallel argument
regarding undisclosed payments by the Projects to Bright Oaks. See SEC Concl. Br. ¶ 43.10

10

Specifically, the SEC alleges that the Golden and Silver Projects made payments to Bright
Oaks pursuant to undisclosed agreements. See SEC Concl. Br. ¶ 43. According to the SEC, these
payments actually constituted loans because at the time they were made, Bright Oaks had not
fully performed its duties under the agreements. Id. Additionally, the SEC alleges that Bright
Oaks used some of the money from the Golden and Silver Projects to pay for the expenses of
12

According to the Commission, these payments show that the PPMs’ representations
regarding defendants’ compensation were misleading. The SEC does not maintain that CFIG (or
AEP or Bright Oaks) provided no actual services in exchange for the payments they received.
Rather, the Commission contends that payment of these fees was contrary to statements in the
PPMs indicating that CFIG’s compensation would come from a portion of the loan interest paid
by the Projects to the Funds once their senior living facilities became operational. See, e.g., Ex.
18 Elgin Assisted Living EB-5 Fund, LLC Private Placement Memorandum at 12 (Aug. 2011),
ECF No. 8-18. The SEC correctly points out that the payments above did not come from loan
interest and were paid before the facilities became operational.
Defendants argue that the PPM provisions cited by the SEC pertain only to CFIG’s and
AEP’s compensation for management services. According to defendants, these provisions are
inapplicable because the payments in question were for development services, not management
services. The paper record at this point bears this out. The language in the PPMs regarding
compensation via loan interest makes specific reference to CFIG’s duties as manager of the
Funds. See, e.g., Ex. 36A, Aurora Assisted Living EB-5 Fund, LLC Private Placement
Memorandum at 12 (Aug. 2011) (stating that the loan interest “will represent the Manager’s sole
compensation for the Manager’s duties during the term of the loan.”) (emphasis added).
Moreover, defendants cite specific agreements between CFIG/AEP and the Projects indicating
that the payments identified by the SEC were for development services.11 See Ex. 59, Elgin

other Projects. Id. Ultimately, the court’s analysis of the SEC’s allegations vis-à-vis the
undisclosed compensation to CFIG and AEP apply mutatis mutandis to its allegations vis-à-vis
Bright Oaks. Accordingly, the court does not discuss the SEC’s arguments regarding Bright
Oaks in detail.
11

Matters are slightly more complicated in the case of the payment from the Aurora Project.
Although the SEC claims that the amount of the payment was $950,000, the amount listed in the
13

Development Services Agreement art. II (Sept. 29, 2011), ECF. No. 12-9 (agreement by the
Elgin Project to pay CFIC a development services fee of $840,000); Ex. 58, Aurora
Development Services Agreement art. II (Sept. 28, 2011), ECF No. 12-8 (agreement by the
Aurora Project to pay CFIG $595,000 for development services); Ex. 60, Site Selection & PreDevelopment Services Agreement § 5(a) (Nov. 2013), ECF No. 12-10 (agreement by the Golden
Project to pay CFIG $250,000 for site selection and pre-development services, acknowledging
that a payment of $120,000 already had been made); Ex. 56, Business Development & Advisory
Services Agreement art. 2 (Apr. 2, 2012), ECF No. 12-6 (agreement by the Silver Project to pay
CFIG $1.15 million for business development and advisory services); Ex. 62, Business
Development and Advisory Services Agreement art. 2 (Jan. 7, 2013), ECF No. 12-12 (agreement
by First American Assisted Living to pay AEP $910,000 for business development and advisory
services).
The SEC responds that even if these payments are not regarded as compensation for
management services, they still were not adequately disclosed in the offering documents. For at
least two reasons, this argument is unpersuasive. First, at least in the case of the Elgin, Aurora,
and First American Funds, the expenses were disclosed in the PPMs’ Business Plans. See Ex.
21C, Elgin Memory Care Senior Living Facility Business Plan at 5 (Sept. 2015), ECF No. 8-23
(listing “Development Svcs/Advisory Fees” in the amount of $840,000); Ex. 38B, Aurora

Aurora Development Services Agreement is $595,000. Defendants claim that only $595,000 of
the $950,000 represented payment for development services. They assert that the remainder
constituted repayment of a loan from CFIG. See Kameli Decl. ¶ 56. Given that the $950,000
amount was comprised of several different payments over the period from 2011 to 2016, there is
no reason to think that all of these were made for the same purpose. Some portion of the
$950,000 could have been for development services while another portion could have been
repayment of a loan. In any case, the SEC does not address this point. For present purposes, the
precise amount in question is not critical; rather, the issue is whether the payment was disclosed
and if not, whether it should have been.
14

Memory Care Senior Living Facility Business Plan at 4 (Oct. 2013), ECF No. 9-14 (listing
“Development Svcs./Advisory Scvs. Fee” in the amount of $595,000); Ex. 41, First American
Assisted Living-Wildwood Senior Living Facility Business Plan at 4 (Mar. 2013), ECF No. 11-2
(listing $910,000 for “Development Svcs/Advisory Svcs Fees).12
The more basic question, however, is why defendants should have been required to
disclose these payments and agreements in the first place. The SEC has not presented any actual
argument or evidence on this point. For example, the Commission has not suggested that the
offering documents disclosed the Projects’ agreements with other service providers and
selectively omitted information about the services provided by CFIG, AEP, and Bright Oaks. On
the contrary, it appears that few service providers, if any, were mentioned in the PPMs and
Business Plans. Nor has the SEC offered any evidence to suggest that such information was
customarily disclosed in offering documents for investments of this type.
The SEC also has not offered sufficient evidence to show that information regarding
these payments was material to investors. The Commission cites the declaration of Chaohua
Huang, an investor in the Elgin Fund, who avers: “I later learned that in late 2015, Kameli
asserted for the first time in a supplement to the Fund’s private placement memorandum that
Kameli’s companies ‘have been entitled’ to receive $840,000 in additional fees. It would have
been important to my investment decision if I had learned that Kameli, or companies he
controlled, were going to obtain additional compensation beyond what was disclosed to me in
12

In its opening brief, the SEC additionally argued that the offering documents’ representations
regarding development and management fees were misleading because they state that such fees
are deferrable until the Projects become operational. See SEC Opening Br. at 18, 21. In point of
fact, the Commission notes, the fees were paid before the Projects became operational. Since this
argument was not mentioned in its concluding brief, the SEC appears to have abandoned it. In
any case, the court does not find the argument convincing. The language cited by the SEC does
not state definitively that the development fees will be deferred until the beginning of operations.
It says only that the payments “may be” deferrable.
15

the documents I was provided before I invested.” Ex. ECF. 83, Chaohua Huang Decl. ¶ 26, ECF
No. 13-13. At issue here, however, is whether the information would have been important to a
reasonable investor. The fact that the information may have been important to a particular
investor such as Mr. Huang may be relevant to that issue, but it does not settle the matter. See,
e.g., U.S. S.E.C. v. Trujillo, No. 09-CV-00403-MSK-KMT, 2010 WL 3790817, at *4 (D. Colo.
Sept. 22, 2010) (“To demonstrate that the statements were material, the SEC provides
declarations from various investors attesting that they, in fact, relied on the Mr. Trujillo’s
statements in making their decisions to invest in the Funds. However, whether or not these
particular investors relied on Mr. Trujillo’s statements is not dispositive as the question is
whether a reasonable investor would find the statements material. However, the actual reliance is
relevant with regard to whether a reasonable investor would consider the statements material.”).
Reliance on the SEC’s declaration is particularly problematic in this instance because defendants
have submitted multiple declarations from investors who aver that information regarding such
payments was not important to them. See, e.g., Ex. F.32, Decl. of Elgin Investor #2 at ¶ 13
(“Before sending my money to the escrow account of EALEF, I knew that Mr. Kameli or
companies associated with him were performing services for EMC and for that they would
receive payments from EMC. I also knew that there was a fee that EMC had to pay to CFIG for
start-up services. My investment was with the investment fund, and how EMC used the money
for its business purposes did not matter to me.”), ECF 62-3; Ex. F.31, Decl. of Elgin Investor #1
¶, ECF 62-2; Defs.’ Concl. Br. ¶ 60.
In any case, Huang’s declaration does not support the SEC’s position. Huang states only
that it would have been important to his investment decision to know that “Kameli, or companies
he controlled, were going to obtain additional compensation.” Ex. 83, Huang Decl. ¶ 26. This

16

indicates that what was important to Huang was not the payments themselves but the fact that
they were being made to entities owned by Kameli. The fact that Kameli owned the entities being
paid by the Projects is relevant to the materiality of the PPMs’ conflict-of-interest disclosures,
which is discussed below. However, investors’ concern over Kameli’s ownership of the entities
does not suggest that information regarding the payments themselves was material to investors.
Finally, the SEC has not made a sufficient showing that defendants acted with scienter.
Indeed, the SEC makes no argument at all that defendants acted with scienter in not disclosing
the payments they received for development services. The Commission’s argument for scienter
is based on the defendants’ failure to disclose Nader Kameli’s role in the Funds and Projects. See
SEC Concl. Br. ¶ 121 (“Defendants knew, or were reckless in not knowing, that their
representations about their conflicts of interest and compensation were inaccurate, incomplete,
and misleading. At the time the Defendants disseminated the PPMs to investors, Kameli already
had caused his brother to become involved with the Funds and the Projects. At the time the
Defendants disseminated the PPMs to investors, Kameli already had caused his brother to
become involved with the Funds and the Projects.”). Once again, defendants’ disclosures
regarding the involvement of Kameli and his relatives in the Projects is relevant to the adequacy
of the PPMs’ representations regarding conflicts of interest; but they do not support an inference
of scienter with respect to defendants’ failure to disclose the payments themselves.13 As
discussed above, the SEC has failed to establish satisfactorily at this juncture that the Projects’
payments of development fees should have been disclosed to investors. On this record, no

13

A separate question is whether the record evidence is sufficient to show that defendants were
negligent in failing adequately to disclose the payments for purposes of § 17(a)(2) and §
17(a)(3). Because the SEC has not addressed this issue, the court likewise does not address it.
17

inference of an intent to deceive or defraud can readily be drawn from defendants’ failure to
disclose the payments.
For these reasons, the SEC has failed to make a substantial showing that it is likely to
succeed on the merits of its claims insofar as they are based on defendants’ alleged
misrepresentations regarding their compensation.
(b) Conflict of Interest Disclosures
The court now considers whether defendants’ disclosures regarding conflicts of interest
were misleading. The PPMs include a “Conflicts of Interest” section that informs investors that
“CFIG and or CFIG’s subsidiaries may be reimbursed by [the Project] for start-up expenses and
services rendered prior to funding.” Ex. 18, Elgin Assisted Living EB-5 Fund, LLC Private
Placement Memorandum at 11 (Aug. 2011). It also notes that “Kameli serves as counsel to the
[Fund] and [CFIG] in connection with the formation of the [Fund] and the offering of interests in
the [Fund] as well as other matters which [sic] the Company may engage Kameli from time to
time pursuant to a written engagement letter.” Id. Finally, the Conflicts section contains a clause
stating that “[c]ertain transactions and agreements included herein and entered into by the
individuals listed above, as well as companies affiliated with those individuals, will not be made
in an arm’s length [sic] and may not be as good as those obtained in an arm’s length transaction.”
Id.
The SEC argues that the “PPMs’ discussion of conflicts of interest was inaccurate,
incomplete, and misleading by discussing various purported conflicts of interest but omitting to
disclose that … Kameli caused the Projects to hire CFIG, AEP, and Bright Oaks Development to
serve as the Projects’ developers and caused the Projects to pay these companies millions of
dollars in undisclosed fees based on undisclosed agreements between the Projects and these

18

entities.” SEC Concl. Br. ¶ 112. According to the Commission, defendants “did not have an
affirmative duty to speak about” conflicts of interest, but “once they chose to speak about [the]
topic[], Defendants had a duty to be accurate, complete, and not misleading.” SEC Concl. Br. ¶
111. Stated in the abstract, this proposition is unexceptionable; but it also begs the question of
how much specificity is needed in any particular case to ensure that conflicts disclosures are
“accurate, complete, and not misleading.” The SEC has not addressed this question fully and
squarely. Its treatment of the matter is limited to two case citations, SEC v. Syron, 934 F. Supp.
2d 609 (S.D.N.Y. 2013), and S.E.C. v. Gorsek, 222 F. Supp. 2d 1099 (C.D. Ill. 2001). The
Commission offers no discussion of either decision, much less any argument concerning how
they apply under the circumstances of this case. Nor does the SEC develop this argument in its
opening brief. Indeed, the Conflicts provision receives no mention at all in the Commission’s
opening brief. The SEC’s argument regarding the PPMs’ conflicts disclosures was raised for the
first time only at the conclusion of the preliminary injunction hearing—and then only after the
court asked the Commission to explain its basic legal theory. See Tr. at 811:21-24; 818:15816:19.
The only other place in which the conflicts disclosures are mentioned is in the SEC’s
complaint. Specifically, the Commission states that the Conflicts section of the Golden Fund’s
July 2011 PPM “purported to describe all of Kameli’s potential or actual conflicts of interest but
omitted to state that Bright Oaks Development or his brother would be involved with the Project
or would receive any payments from it.” Compl. ¶ 158.14 The court disagrees. This is not a case
in which multiple conflicts of interest were identified with specificity and where the putative
14

Given that Bright Oaks had not been created until 2013, it would presumably have been
impossible to disclose the company’s involvement in a PPM issued in 2011. It is unclear whether
this was an oversight, or whether the SEC has some theory according to which Bright Oaks’s
disclosure could have been made at that point.
19

conflict with Bright Oaks and Nader Kameli were selectively omitted. The Conflicts section
informs investors that CFIG might be entitled to reimbursement for start-up and pre-funding
expenses, and then goes on to note potential conflicts stemming from Kameli’s role as an
attorney. The section ends by expressly informing investors that there may be other conflicts that
have not been or will not be disclosed in detail.
For these reasons, the court concludes that the SEC has not made a substantial showing
that it is likely to prevail on its claims insofar as they allege that the PPMs’ conflict-of-interest
disclosures were misleading.15
2.

Securities Trading
Next, the SEC argues that from April 2013 to September 2015, Kameli transferred into

brokerage accounts a total of $15.8 million that had been invested in the Illinois Projects.
According to the SEC, Kameli used the funds to invest in stocks, bonds, and other securities.
Aguilar Decl. ¶ 34; Compl. ¶ 170. The SEC claims that the Aurora and Elgin Projects lost
approximately $16,000 and $18,000, respectively; and that the Golden and Silver Projects had
gains of approximately $464,000 and $27,000, respectively. The SEC further alleges that
defendants transferred a portion of the gains from the Golden Project’s brokerage account to
Platinum Real Estate and Property Investments, Inc. (“PREPI”), a Kameli-owned company,
which used the funds to purchase land that it later sold to the First American Project in Florida.
SEC Concl. Br. ¶ 17; Aguilar Decl. ¶ 34. As a result, the Commission maintains, the PPMs for
the Illinois Funds misled investors by telling them that their money would be used only for the

15

For this reason, the court need not consider the elements of materiality or scienter in
connection with the SEC’s allegations regarding undisclosed compensation or conflicts of
interest.
20

development and construction of particular senior living facilities, when in fact the money was
also used to invest in securities.
Defendants do not dispute that investors’ funds were transferred into securities brokerage
accounts. See Kameli Decl. ¶ 104. However, they maintain that they were authorized to do so,
and they have offered evidence that places the events described by the SEC in a very different
light. According to the declaration submitted by Kameli, changes in banking practices and
regulations occurring in 2011-2012 left defendants with little choice but to place investor funds
in brokerage accounts. Specifically, Kameli states that in 2011, banks began to close the
accounts in which investors’ funds had been held because of OFAC regulations pertaining to
investments from Iran. Kameli Decl. ¶ 105. In addition, Kameli claims that “at the end of 2012,
the FDIC was placing a limit on FDIC insurance for $250,000.00,” and that, as a result, “we had
to limit the funds [sic] exposure to smaller banks who could go out of business since the FDIC
would not protect the majority of the money if the bank failed.” Id. According to Kameli,
Morgan Stanley and UBS agreed to keep the funds, but they required that the money be placed in
brokerage accounts. Id. Kameli states that the accounts were managed by professional financial
advisors and invested in low-risk securities. Id. Further, Kameli insists that the funds were
available to the Projects at all times. Id. ¶ 111 (“The money that was in the operating account of
the Projects was always available to the project and it was used based on the Sources and Uses of
the Projects to develop, construct, and operate an assisted living facility. While the money was
sitting dormant in the account, it was kept in securities due to reasons mentioned before.”). It is
not entirely clear whether Kameli means to say that the money could have been used for the
Projects even while in the brokerage accounts, or that the money was simply never needed for
the Projects while it was being held in the brokerage accounts.

21

More importantly, defendants contend that transferring the funds to brokerage accounts
was authorized by the Funds’ Operating Agreements, which take effect once investors’ money is
transferred out of escrow. For example, the Operating Agreements state: “Subject to the terms of
this Agreement and the terms of the Act, the Manager shall have the unrestricted power and
exclusive authority to (a) carry on the activities of the Company and to do and to perform any
and all things necessary for, incidental to, or connected with carrying on the activities of the
Company and (b) represent and bind the Company.” Ex. A.1, Elgin Assisted Living EB-5 Fund,
LLC Limited Liability Company Operating Agreement ¶ 5.1. The Operating Agreements
additionally state that “[a]ll operational decisions made by the Manager hereby have the express
consent, approval, and affirmative vote of the Members.” Id. On their face, these provisions
appear broad enough to permit the transfer of investors’ funds into brokerage accounts,
particularly if, as defendants maintain, the investments were kept in low-risk portfolios. And if
the Operating Agreements authorized defendants’ actions, it is not clear that investors were
misled regarding how their funds would be used.
The SEC has not addressed defendants’ argument based on the Operating Agreements.
Nor has the Commission addressed defendants’ claims regarding why investors’ funds were
placed in brokerage accounts, how the accounts were managed, and the sorts of securities in
which the funds were invested. Without argument or evidence from the SEC on these issues, it is
difficult for the court, even at this preliminary stage, to address them meaningfully. Presumably,
the Commission maintains that, regardless of the circumstances, placing the funds in a brokerage
account was contrary to the PPMs’ representation that investors’ money would be used only for
the purpose of constructing a senior living center. But the picture here is more complicated. Even
putting aside the question of whether the Operating Agreements authorized defendants to place

22

the funds in brokerage accounts, it is unclear in light of Kameli’s testimony to what extent
defendants’ actions were contrary to the PPMs’ representations. If it is true, as Kameli has
averred, that the money was available to the Projects at all times, then transfer of the funds to
brokerage accounts would not have conflicted with the purpose of constructing the senior living
facilities. Indeed, if Kameli’s testimony is true, the ultimate purpose of transferring the funds to
brokerage accounts was not to trade securities for profit but to protect individuals’ investments,
and their citizenship petitions, by preventing the expatriation of their funds.
Of course, at this stage, it is unclear whether Kameli’s account will ultimately prove true
(though his account of his reasons for placing the funds in brokerage accounts appears to be
corroborated to some degree by his 2012 lawsuit against JP Morgan Chase. See n.6, supra).
There may also be sound reasons for rejecting defendants’ contention that their investment of the
funds was authorized by the Operating Agreements. But given that the SEC has not addressed
these issues, the court cannot conclude that the Commission has sufficiently shown that the
PPMs’ representations regarding the use of investors’ funds were misleading.16
Nor has the SEC sufficiently shown a violation of § 10(b) or § 17(a) based on defendants’
transfer of the profit from the Golden Fund’s brokerage account to PREPI. The PPM for the
Golden Fund states that investors’ capital contributions would be used for the Golden Project. At
issue here, however, is not investors’ capital contributions, but additional money derived from
their contributions. At this point, the SEC has not addressed defendants’ fundamental contention
that their investment of investors’ money was authorized by the Operating Agreements. Thus,

16

Having failed to show that defendants made a misleading representation, it is unnecessary to
address the issues of materiality and scienter. However, the court notes that Kameli’s testimony
regarding his reasons for transferring the funds to brokerage accounts militates significantly
against a finding of scienter.
23

the court is not prepared simply to assume that any proceeds from such investments should also
be considered investors funds.
Similarly, the SEC has failed to show that the PPMs’ disclosures were misleading based
on the losses incurred by the brokerage accounts for the Aurora and Elgin Funds. Defendants
initially challenge the SEC’s allegation that the accounts sustained losses, claiming that the
Commission’s calculations failed to take account of dividend and interest income of $113,451.42
earned by the Elgin Fund. Since the combined losses of the Aurora and Elgin funds amounted to
roughly $34,000, defendants claim that there was no actual loss to the accounts. See Defs.’
Concl. Br. ¶ 26(viii). However, defendants cite no record evidence in support of their claims
regarding the Elgin account’s dividend and interest income; and even assuming that the Elgin
account earned this additional amount, it would not address the separate losses incurred by the
Aurora account. But whether the Funds suffered losses as a result of the securities trading is not
relevant to whether the offering documents misled investors by informing them that their money
would be used only for the construction of a senior living center. The fact that the accounts
incurred losses might be helpful in establishing the magnitude of the harm resulting from
defendants’ violations of the securities laws. However, absent further explanation by the SEC,
this evidence does not help establish that defendants violated the laws to begin with.
It may well be that, for many reasons, defendants should have informed investors that
money had been transferred from the Projects’ accounts to brokerage accounts, and should have
informed investors of the profits and losses to those accounts. Based on the particular legal
theory advanced by the SEC, however, the question here is whether the PPMs’ statements
regarding the use of investors’ funds were misleading. Based on the argument and evidence
presented by the SEC, the court is unable to answer that question affirmatively. Accordingly, the

24

court concludes that the SEC has failed to make a substantial showing that it is likely to prevail
on its § 10(b) and § 17(a) claims insofar as they are based on defendants’ investment of the
Illinois Projects’ funds in securities.
3.

The Silver Line of Credit
The SEC alleges that defendants violated the securities laws by using the money of

certain investors in the Silver Fund to establish a Line of Credit, which they then used for a
variety of purposes other than the benefit of Silver Fund investors. For example, CFIG used
some of the money to purchase land for the First American Project. SEC Concl. Br. ¶ 27; Tr.
427:2-9. In addition, CFIG used about $2 million to open a brokerage account to trade securities.
See Aguilar Decl. ¶ 21; Tr. at 428:5-14; Tr. at 25. Some of the money was used to pay for
CFIG’s expenses. Tr. at 428:15-17. In addition, the SEC has presented evidence indicating that
CFIG’s credit card was used to pay for Kameli’s and others’ personal expenses. See SEC Concl.
Br. ¶¶ 28-29; Tr. at 429:16-17. For example, CFIG’s American Express card was used to pay a
$699.48 charge to Carnival Cruise Lines on August 10, 2014. See Tr. at 431:9-17. 28. It was also
used to make college tuition payments. See SEC Ex. 3 (December 2014 charge of $10,406 for
tuition at Loyola University). The SEC claims that defendants misled Silver Fund investors by
representing that their money would be used only for the purpose of loaning money to the Silver
Project and the construction of a senior living facility.
Defendants do not dispute that they took out the line of credit; and while they appear to
dispute the SEC’s allegations regarding certain expenses, they do not dispute that funds from the
Silver Line of Credit were frequently used for expenses unrelated to the Silver Project.
Defendants argue, however, that they were expressly permitted to establish the line of credit
based on the Investor Holdings Account Agreement, which provides, in bold type: “The Parties

25

hereto consent to and agree that the Fund Manager [CFIG] has the right to use the funds held in
the Investor Holdings Fund as collateral for the Fund Manager to secure a line of credit to be
used for any expense the Fund Manager deems proper.” Ex. D.8, Investor Holdings Account
Agreement Between Silver Assisted Living EB-5 Fund LLC and Jiugang Yao ¶ 11(d) (Aug. 23,
2012), ECF No. 61-60. This provision is followed by two blank boxes. By placing a check mark
in one of the boxes, investors indicated whether or not they consented to have their funds used
for a line of credit. Id. Nine investors checked the box granting defendants authorization to use
their funds for a line of credit. Since each investor had invested $500,000, this authorized a line
of credit with a limit of $4.5 million.17
Although the Investor Holdings Account Agreement permits the line of credit “to be used
for any expense [CFIG] deems proper,” the Commission insists that it should be understood as
requiring that the funds be used for the benefit of Silver Fund investors. According to the SEC,
this is because “investors made this authorization in the context of an Investor Holdings Account
Agreement that required CFIG to hold investor funds ‘for the benefit of the [Silver Fund] and
[the] Investor’ and in the context of a Silver Fund PPM that represented that the Fund would use
investor assets to loan money to develop and construct the Silver Fund [sic].” SEC Concl. Br. ¶
104 (quoting the Silver Fund PPM). The court is not persuaded that the provision authorizing the
line of credit can be construed in such a limited fashion. The SEC’s argument simply cannot be
squared with section 11(d)’s plain language. Moreover, some payments, while nominally for
expenses incurred by other Projects, can nonetheless be regarded as having benefitted the Silver
Fund indirectly. For example, defendants note that in some instances, the subcontractors they

17

The SEC does not allege that this amount was ever exceeded. At its highest, the Silver Line of
Credit reached $3.9 million ($4.1 million when finance charges were included). See Tr. at 295:24.
26

hired worked on multiple Projects; and that, as a result, a subcontractor who was not paid by one
Project might refuse to work on the other Projects as well. See Kameli Decl. ¶ 102. Hence, using
funds from the Silver Line of Credit to enable CFIG to pay the subcontractors for their work on
another Project may ultimately have redounded to the benefit of the Silver Fund investors.
But this line of reasoning can be taken only so far. The court is unable to accept that
section 11(d) authorizes all of the expenses for which funds from the Silver Line of Credit were
used. Even assuming that this section may have given defendants authority to spend funds from
the line of credit on some expenses not directly related to the Silver Fund, there are at least some
expenses that appear to lie beyond the pale. The payments for personal expenses such as cruises
and tuition fall into this category. During the hearing, Kameli testified that he used his personal
credit card to pay for business expenses. See Tr. at 429:16-29 (“Q. You also put some of your
personal charges on these cards, right? A. The same way that some of the business charges for
CFIG projects are being placed on my personal American Express.”). Kameli’s response seems
to suggest that the personal expenses paid for with CFIG’s credit card may ultimately be
balanced with the CFIG expenses paid for with his personal credit card. It is not clear whether
Kameli will be able to demonstrate this, or whether, even if he were to succeed, it would make
any difference. At this stage, the SEC has made an adequate showing that, to the extent that
funds from the Silver Line of Credit were used for personal expenses, those funds were
misapplied. To the same extent, therefore, the Commission has made a sufficient showing that
defendants’ disclosures regarding the Silver Line of Credit were misleading.
The SEC has also made a sufficient showing with respect to materiality. In deciding
whether to authorize CFIG to take out a line of credit collateralized by investors’ funds, a
reasonable investor would have considered it important to know that defendants might draw on

27

the line of credit to pay personal expenses. Defendants cite a declaration from one Silver Fund
investor who stated: “Before sending my money to the Investment Holding Account, I
understood about the collateral paragraph 11(d) in the Investment Holding Account. I did
authorize CFIG to use the money in Investment Holding Account as collateral and obtain a line
of credit. CFIG was allowed to use the proceeds of the line of credit in any way it deemed
proper. It did not matter to me as how Mr. Kameli and CFIG used the proceeds of the line of
credit and for what use. It was not important to me whether the proceeds of the line of credit may
or may not be used for [Project-]related expenses.” Ex. F.36, Decl. of Silver Investor #2 at ¶ 14,
ECF No. 62-7. As explained previously, investor declarations alone are not sufficient to establish
materiality; and in any event, while the declaration indicates that it did not matter to the investor
whether funds from the line of credit were used for expenses unrelated to the Silver Project, it
does not clearly indicate that it did not matter to him whether his funds would be used to pay for
individuals’ personal expenses. The court finds this representation material.
With respect to scienter, the SEC contends that the defendants “knew that their purpose
in asking Silver Fund investors to authorize a line of credit was to benefit themselves, not the
investors,” and that defendants “knew, or were reckless in not knowing, that a reasonable
investor would view their authorization of a line of credit as an authorization to use the line of
credit for the benefit of the investor and the Silver Fund, not for the benefit of CFIG or for the
benefit of other Projects in which Silver Fund investors had no interest.” SEC Concl. Br. ¶ 108.
This puts too fine a point on the matter. To the extent that the SEC suggests that defendants’
chief purpose in taking out the line of credit was to engage in self-dealing, the record developed
so far does not support this contention. Given the broad language of section 11(d), it was not
unreasonable for defendants to believe that they were authorized to use the Silver Line of Credit

28

for expenses that did not benefit investors in the Silver Fund. Moreover, as already discussed, the
line separating what benefits CFIG from what benefits the Silver Fund or the Silver Project is a
porous one. Nevertheless, the court agrees that defendants knew (or were reckless in not
knowing) that investors who consented to have their funds used for a line of credit would not
have viewed this as authorizing CFIG’s expenditures on purely personal expenses. The SEC has
therefore made an adequate showing of scienter to this extent.
Therefore, the court concludes that the SEC has shown a substantial likelihood of
succeeding on the merits insofar as it is claiming that the defendants’ representations regarding
the Silver Line of Credit were misleading.
4.

Land Transactions
Finally, the SEC claims that defendants violated the securities laws based on the sale of

land by Platinum Real Estate and Property Investments (“PREPI”) to three of the Florida
Projects. The Florida PPMs stated that Kameli was the sole owner of PREPI; that PREPI owned
the Projects; and that PREPI would provide real estate for the Projects. See, e.g., Ex. 39, First
American Assisted Living EB-5 Fund, LLC Private Placement Memorandum at 12, 14 (Mar.
2013). According to the Commission, PREPI acquired the land to be used for the First American,
Ft. Myers, and Naples Projects for between roughly $665,000 and $750,000 each; and that it sold
the land a short time later to each of the Projects for approximately $1 million.18 In all, the SEC
contends, Kameli reaped a profit of $1.06 million from these transactions. Compl. ¶ 104. The

18

Specifically, in December 2012 and October 2014, PREPI bought two parcels of land for a
total of $664,850, which it sold to the First American Project in September 2016 for $1 million.
See Aguilar Decl. ¶¶ 31-32. In January 2013, PREPI purchased a parcel of land for $550,000,
which it sold to the Ft. Myers Project in December 2014 for $1 million. Id. ¶ 28. And in
December 2013, PREPI purchased a parcel of land for $750,000, which it sold to the Naples
Project in December 2014 for $1 million. Id. ¶ 29.
29

SEC maintains that the proceeds from these sales were not used for the benefit of the Project that
purchased the land. See Compl. ¶¶ 119, 124, 129. As in the case of the development fees
discussed above, the Commission argues that because these proceeds were not disclosed to
investors, the PPMs’ representations regarding compensation and conflicts of interest were
misleading. See SEC Concl. Br. ¶¶ 112(iii), 116.
In response, defendants once again present testimony that, if true, provides a fuller
picture of the events in question. Defendants state that PREPI purchased the land before any of
the Florida EB-5 Funds had even been established. In his declaration, Kameli avers that he
purchased the land when the market was down, and that when he later had it appraised, the land
for each Project was valued at above $1 million.19 Kameli Decl. ¶ 137. Thus, Kameli states, by
selling the land to the Projects for $1 million, he sold the land for less than its market price. Id.
According to Kameli, he sold the land for $1 million because that was the amount that had been
listed for land costs in the Projects’ Business Plans. Id. The SEC has not responded to Kameli’s
testimony on this point.
The court concludes that the SEC has failed to make a sufficient showing that defendants’
non-disclosure of the proceeds from these sales renders the PPMs’ representations regarding
compensation misleading. As an initial matter, the Commission has not explained its basis for
characterizing the proceeds as “compensation” within the meaning of the PPMs. Ordinarily,

19

The appraisals were performed in 2014. See Ex. F.26, Integra Realty Resources Appraisal
Report Of: Bright Oaks of Wildwood ALF Real Property (Dec. 8, 2014), ECF No. 61-88. The
First American Project’s land was appraised at a value of $1.04 million. See Defs.’ Concl. Br. ¶
46(iv)(b); Ex. F.26 at 3. The Naples land was appraised at a value of $1,160,000.00. Id. ¶ 47(b);
Ex. F.26 at 225. The land for the Fort Myers Project was appraised at a value of $1,750,000.00.
Id. ¶ 49; Ex. F.26 at 111. Defendants later obtained a second appraisal that valued the First
American Project’s land at $1,450,000. Id. ¶ 46(iv)(c); Ex. F.43, Integra Realty Resources
Appraisal of Real Property: Bright Oaks of Wildwood--ALF Site at 5, ECF No. 66-8.
30

“compensation” is defined as “[r]emuneration and other benefits received in return for services
rendered; esp., salary or wages.” Black’s Law Dictionary (10th ed. 2014). The profit earned by
PREPI does not represent remuneration for services. If the funds in question cannot properly be
regarded as “compensation,” defendants’ failure to disclose the funds cannot be used to establish
that the PPMs’ disclosures regarding compensation were misleading. Further, even if the
proceeds could be considered compensation, the SEC has not established that it was misleading
for defendants not to have disclosed it. As discussed above in connection with the SEC’s claims
regarding undisclosed development fees, the Commission has offered virtually no argument
addressing why defendants should have been required to make specific disclosures regarding
specific forms of compensation. The PPMs’ representations regarding CFIG’s and AEP’s
compensation for management services do not suggest that these entities (or affiliated entities
such as PREPI) will not receive compensation for any other services they may provide to the
Projects.
The SEC also has failed to provide a sufficient basis for concluding that the PPMs’
disclosures regarding conflicts of interest were misleading by virtue of defendants’ failure to
disclose the profits from the land sales. As noted above, the Florida PPMs informed investors
that Kameli was the sole member of PREPI and that PREPI owned the Projects. The PPMs also
informed investors in at least two places that Kameli was the sole member of AEP and that AEP
managed the Projects. See, e.g., Ex. 39, First American Assisted Living EB-5 Fund, LLC Private
Placement Memorandum at 12, 14 (Mar. 2013). In addition, as with the Illinois PPMs, the
Florida PPMs contained the general disclosure that “certain transactions and agreements
included herein and entered into by the individuals listed above, as well as the companies
affiliated with those individuals, will not be made in an arm’s length and may not be as good as

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those obtained in an arm’s length transaction. See Ex. 39, First American Assisted Living EB-5
Fund, LLC Private Placement Memorandum at 12 (Mar. 2013), ECF No. 9-15; Ex. 43, Ft. Myers
EB-5 Fund, LLC Private Placement Memorandum at 12 (May 2014), ECF No. 11-4; Ex. 47,
Naples Memory Care EB-5 Fund, LLC Private Placement Memorandum at 12 (July 2013), ECF
No. 11-8. As explained above in connection with the Projects’ payment of development fees, the
SEC has presented no argument or evidence to show why, given these representations and the
factual context of this case, defendants were required to provide more specific disclosures
regarding the land sales.20
Because the SEC has failed to make a substantial showing that it is likely to succeed in
demonstrating that the PPMs’ disclosures are misleading on this score, it is unnecessary to
consider the elements of materiality or scienter. Nevertheless, the court notes that Kameli’s
testimony presents a serious challenge to the SEC’s evidence of scienter. The Commission’s
argument is based on the fact that, as noted above, the land costs were listed at $1 million in each
of the Projects’ Business Plans even before the land had been appraised. As a result, the SEC
says, defendants “appeared to pre-determine these sales prices based on their own profit motive
and well before they obtained these appraisals.” SEC Concl. Br. ¶ 122. However, if it is true that
at the time PREPI purchased the land, defendants did not know when it would be sold to the
Projects, the $1 million figure can reasonably be viewed as merely an estimate of the land’s
20

The SEC separately asserts that “[i]n addition to making false and misleading statements about
their conflicts of interest and compensation, the Defendants also are liable for deceptive conduct
– sometime referred to as “scheme liability” – for, among other things, using [PREPI] as an
intermediary to receive undisclosed compensation.” Concl. Br. ¶ 117. This argument has not
been adequately developed. In support of this assertion, the SEC cites a single case, SEC v.
Familant, 910 F. Supp. 2d 83, 93-94 (D.D.C. 2012), for the proposition that “deceptive conduct
can be actionable under ‘scheme liability’ provisions.” Concl. Br. ¶ 117. The Commission
provides no further elaboration regarding the requirements for scheme liability, nor any
discussion regarding how those requirements are supposedly met here.
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future value. (As it happens, defendants’ estimate of the value turned out to be conservative).
The SEC has not challenged the accuracy of the appraisals and does not dispute that PREPI sold
the land to the Projects at a price below its fair market value. Nor does there appear to be any
reason why, if defendants had wanted to sell the land for a higher price in light of the appraisals,
the Business Plans’ land-cost projections could not have been amended. Given that defendants
nevertheless sold the land to the Projects at a discount, it is difficult to infer that they acted with
an intent to deceive or defraud investors.
In short, the court concludes that the SEC has not made a substantial showing that it is
likely to succeed on the merits of its claims that defendants violated § 10(b) and § 17(a) by
failing to disclose to investors information about the land purchases.
B.

Risk of Repetition
In addition to making the necessary showing that defendants have violated the securities

laws, the SEC must show a risk that defendants will violate the laws in the future without a
preliminary injunction. See, e.g., S.E.C. v. Yang, 795 F.3d 674, 681 (7th Cir. 2015) (“Once the
SEC has demonstrated a past violation, it ‘need only show that there is a reasonable likelihood of
future violations in order to obtain [injunctive] relief.’”) (quoting SEC v. Holschuh, 694 F.2d
130, 144 (7th Cir. 1982)). That showing has not been made here.
First, the SEC has shown a likelihood of success with respect only to the Silver Line of
Credit. Moreover, the Commission’s showing on this point is limited to defendants’ use of funds
from the line of credit for personal expenses; it does not extend, as the SEC maintains, to
defendants’ use of the funds for any purpose other than the Silver Fund. The SEC has not
established a sufficient risk that defendants will commit any future violations of the securities
laws based on their use of funds from the Silver Line of Credit. For one thing, the record

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indicates that the Silver Line of Credit was substantially paid off by March 2016. See Trans. at
295:5-6. The SEC’s accountant testified that at some point, funds from the Silver Line of Credit
were used to establish a separate $1 million line of credit at MB Financial. See Tr. at 297:21298:7; Aguilar Decl. ¶ 17. Although the record is not entirely clear on this point, it appears that
this MB Financial Line of Credit was used to pay off a separate line of credit, and not for
Kameli’s or others’ personal expenses. See Ex. 11, ECF No. 8-11. In any case, the line of
credit’s maturity date is October 2017 (the exact date is unclear), Aguilar Decl. ¶ 17, after which
point defendants presumably will no longer be able to draw upon it. More importantly, whatever
defendants may have believed previously about their authority to use the funds from the Silver
Line of Credit, they are now on notice that any use of the funds for personal expenses is
verboten.
The court notes that defendants have established a track record of cooperation with the
SEC. Defendants state (and the SEC does not dispute) that they have cooperated fully with the
SEC during its investigation for the past two years. In addition, defendants agreed to freeze their
assets pending resolution of this motion. Defendants have also stated that they have no intention
of seeking additional lines of credit (and they point out that, in light of these proceedings, they
would be unlikely to obtain any additional lines in any event). See Defs.’ Concl. Br. ¶ 38. Under
these circumstances, the court does not believe that an injunction is necessary to prevent
defendants from any further unjustified expenditures using funds from the Silver Line of Credit.
The SEC expresses concern about the potential for future securities violations based on
the fact that Kameli continues to solicit investors for other EB-5 projects. See SEC Concl. Br. ¶
134. However, Kameli states (and the SEC does not dispute) that while he continues to advise
clients regarding EB-5 investments and related immigration issues, he no longer accepts

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subscriptions for investment in his own Funds. Indeed, Kameli says that he has not accepted new
investors in his Funds for approximately the past two years. See Kameli Decl. ¶¶ 145-57; Defs.’
Concl. Br. ¶¶ 65-66. Moreover, while it is true that Kameli is still the manager of the Funds, he
informed investors in April 2017 that, in light of the SEC’s investigation, he intended to resign
his position and to transfer his shares to the investors. See, e.g., SEC Opening Br. at 12; see also
Tr. at 44:9-23; Tr. at 48:16-20. It appears that this process has been delayed at least in part due to
difficulties in reaching agreement among investors regarding who should replace Kameli as the
Funds’ manager. See, e.g., Tr. at 88:14-89:15 (describing disputes among investors in the Elgin
Fund regarding, inter alia, Kameli’s proposal that Omid Amjadi become manager of the Fund).
This court is not empowered to order relief because it or the SEC’s proposed Receiver
believes that it is necessary to save the Projects in which defendants’ clients have invested. It is
empowered to do so only if the SEC has satisfied both prongs of the preliminary injunction test.
This standard, while not onerous, has not been met here. Although the SEC has presented a great
deal of evidence, much of it relates to matters not in dispute (e.g., the fact that the Projects made
undisclosed payments to CFIG and Bright Oaks; that funds of investors in the Illinois Funds
were placed in brokerage accounts; that funds from the Silver Line of Credit were used for
purposes that did not benefit Silver Fund investors; and that PREPI made a profit when it sold
land to the First American, Ft. Myers, and Naples Projects). The Commission in numerous
instances has not presented fully developed arguments to show why defendants’ actions violated
securities laws. Nor has it addressed the evidence presented by defendants. Accordingly, the
SEC’s motion for a preliminary injunction is denied.
Conclusion

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For the reasons discussed above, the court denies the SEC’s motion for a preliminary
injunction. Accordingly, the SEC’s request for ancillary relief, including appointment of a
Receiver, is likewise denied.

Date: Sept. 5, 2017

/s/
Joan B. Gottschall
United States District Judge

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