Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 1 of 25 Page ID #:1 1 2 3 4 5 6 7 JOHN B. BULGOZDY (Cal. Bar No. 219897) Email: bulgozdyj@sec.gov ADRIENNE D. GURLEY Email: gurleya@sec.gov Attorneys for Plaintiff Securities and Exchange Commission Michele Wein Layne, Regional Director Alka N. Patel, Associate Regional Director John W. Berry, Associate Regional Director 444 S. Flower Street, Suite 900 Los Angeles, California 90071 Telephone: (323) 965-3998 Facsimile: (213) 443-1904 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 SECURITIES AND EXCHANGE COMMISSION, 13 Plaintiff, 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 vs. EMILIO FRANCISCO; PDC CAPITAL GROUP, LLC; CAFFE PRIMO INTERNATIONAL, INC.; SAL ASSISTED LIVING, LP; , SAL CARMICHAEL, LP; SAL CITRUS HEIGHTS, LP; SAL KERN CANYON, LP; SAL PHOENIX, LP; SAL WESTGATE, LP; SUMMERPLACE AT SARASOTA, LP; SUMMERPLACE AT CLEARWATER, LP; SUMMERPLACE AT CORRELL PALMS, LP;TRC TUCSON, LP; CLEAR CURRENTS WEST, LP; CAFFE PRIMO MANAGEMENT, LP; CAFFE PRIMO MANAGEMENT 102, LP; CAFFE PRIMO MANAGEMENT 103, LP; CAFFE PRIMO MANAGEMENT 104, LP; CAFFE PRIMO MANAGEMENT 105, LP; CAFFE PRIMO MANAGEMENT 106, LP; CAFFE PRIMO MANAGEMENT 107, LP; and CAFFE PRIMO MANAGEMENT 108, LP, Defendants. Case No. COMPLAINT Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 2 of 25 Page ID #:2 1 Plaintiff Securities and Exchange Commission (“SEC”) alleges: 2 3 JURISDICTION AND VENUE 1. The Court has jurisdiction over this action pursuant to Sections 20(b), 4 20(d)(1) and 22(a) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 5 77t(b), 77t(d)(1) & 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27(a) of the 6 Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78u(d)(1), 7 78u(d)(3)(A), 78u(e) & 78aa(a). Defendants have, directly or indirectly, made use of 8 the means or instrumentalities of interstate commerce, of the mails, or of the 9 facilities of a national securities exchange in connection with the transactions, acts, 10 11 practices and courses of business alleged in this Complaint. 2. Venue is proper in this district pursuant to Section 22(a) of the Securities 12 Act, 15 U.S.C. § 77v(a), and Section 27(a) of the Exchange Act, 15 U.S.C. § 13 78aa(a), because certain of the transactions, acts, practices and courses of conduct 14 constituting violations of the federal securities laws occurred within this district. 15 Defendant Emilio Francisco resides in this district and defendant PDC Capital 16 Group, LLC is headquartered in this district. 17 18 SUMMARY 3. Defendant Emilio Francisco and his company Defendant PDC Capital 19 Group, LLC, have engaged in an ongoing fraudulent scheme to defraud at least 131 20 investors in 19 different offerings out of at least $9.5 million, beginning in January 21 2013 and continuing at least through September 2016. Francisco and PDC Capital 22 made offerings in assisted living facilities, Caffe Primo restaurants, and a packaging 23 facility, primarily to investors in China, that purportedly qualify under the “EB-5 24 Immigrant Investor Program” administered by the U.S. Citizenship and Immigration 25 Service (“USCIS”). Defendants raised approximately $72.05 million from the 131 26 investors, consisting of approximately $65.5 million in capital contributions to 27 purchase units in limited partnerships, and $6.55 million in “administration fees” to 28 pay expenses of the limited partnerships until the projects were built. In several of 1 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 3 of 25 Page ID #:3 1 the offerings, Defendants expressly represented that an investor’s entire $500,000 2 capital contribution would be used to develop a specific project, and that only 3 administration fees would be available to pay expenses of the limited partnership 4 until the project was completed. 5 4. Approximately $19.2 million of investors’ funds was sent directly to 6 PDC Capital’s accounts, which exceeded by about $12.65 million the total 7 administration fees paid by investors. Of that $12.65 million of diverted investor 8 funds, Defendants PDC Capital and Francisco misappropriated at least $9.5 million 9 of investors’ capital contributions to support his luxury lifestyle including the 10 purchase and maintenance of a yacht, and to support his businesses. Francisco and 11 PDC Capital misrepresented to investors that their capital contributions would be 12 used for the designated purposes stated in the offering materials. In addition, 13 Francisco and PDC Capital commingled funds among different projects, contrary to 14 representations in the offering materials that investors’ funds would be used for the 15 specific project in which they were investing. Further, at least $1.5 million of 16 investors’ funds deposited into escrow for two offerings were not disbursed to the 17 bank accounts of the limited partnerships that were to receive the funds. 18 5. Defendants Francisco, PDC Capital Group, and Caffe Primo 19 International, Inc. – another company Francisco controlled as CEO and part-owner – 20 committed their fraud through the offerings for the Defendant limited partnerships. 21 At all relevant times, Defendant Francisco controlled the bank accounts, directly or 22 indirectly, for all of the Defendants; controlled and approved the terms of the various 23 offerings; and benefitted personally from the misuse and misappropriation of funds. 24 Defendants’ conduct appears to be ongoing and they raised funds from investors as 25 recently as September 2016. 26 6. By engaging in this conduct, the Defendants have violated, and continue 27 to violate, the antifraud provisions of Section 17(a) of the Securities Act, 15 U.S.C. § 28 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rules 10b-5 2 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 4 of 25 Page ID #:4 1 thereunder, 17 C.F.R. 240.10b-5. Alternatively, Francisco and PDC Capital Group 2 aided and abetted the violations by the limited partnership Defendants. Finally, 3 Francisco is liable as a control person for the violations of each of the corporate 4 Defendants under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). 5 6 THE DEFENDANTS 7. Emilio Francisco (“Francisco”) resides in Newport Beach, California. 7 He graduated from the University of California at Irvine, was awarded a J.D. by 8 Western State University in 1976, and is an active member of the California Bar. 9 Francisco is the CEO and Chairman of defendants PDC Capital Group, LLC (“PDC 10 Capital”) and Caffe Primo International, Inc. (“CPI”). Francisco also controls and/or 11 serves as the CEO of other entities involved the fraudulent scheme, such as PDC 12 Partners Management, Inc. (“PMI”) which managed assisted living projects; FDC 13 Partners Management, Inc. (“FDC”) which also managed assisted living projects; 14 and Summerplace Management, LLC (“SML”), which is the general partner of 15 several of the assisted living projects. Francisco was admitted to the California Bar 16 in 1976, was placed on suspension in 1992, and in 2012 his license was suspended 17 for nine months for a variety of types of misconduct. Francisco also currently works 18 as a marketing consultant for The Law Offices of Marilyn Thomassen & Associates 19 (“MTA”), a California law firm owned by Marilyn Thomassen. MTA and/or 20 Marilyn Thomassen serve as the escrow agent for PDC Capital’s EB-5 offerings, and 21 serves as immigration counsel for a number of investors in PDC Capital’s EB-5 22 offerings. 23 8. PDC Capital Group, LLC (“PDC Capital”) is a Delaware limited 24 liability company, headquartered in Costa Mesa, California. PDC Capital was 25 formed by Emilio Francisco in 2012 and is controlled by him as CEO. PDC Capital 26 was formed as a vehicle for managing EB-5 program investments. 27 28 9. Caffe Primo International, Inc. (“CPI”) is a Delaware corporation, which is owned by PDC Capital and Global Restaurant Partners, Inc. Francisco is 3 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 5 of 25 Page ID #:5 1 the CEO of CPI. CPI is a general partner of the defendant Caffe Primo Management 2 limited partnerships. 3 10. SAL Assisted Living, LP (“SAL Assisted Living”) is a Nevada limited 4 partnership headquartered in Costa Mesa, California, which was formed to invest in 5 the construction and operation of an assisted living facility in Lincoln, California, 6 and invests through the entity Summerplace at Lincoln, LLC. SML is the general 7 partner of SAL Assisted Living. 8 9 11. SAL Carmichael, LP (“SAL Carmichael”) is a Delaware limited partnership headquartered in Costa Mesa, California, which was formed to invest in 10 the construction and operation of an assisted living facility in Carmichael, California, 11 through the entity SAL Carmichael LLC. SML is the general partner of SAL 12 Carmichael. 13 12. SAL Citrus Heights, LP (“SAL Citrus Heights”) is a Delaware 14 limited partnership headquartered in Costa Mesa, California, which was formed to 15 invest in the construction and operation of an assisted living facility in Citrus 16 Heights, California, through the entity SAL Citrus Heights, LLC. SML is the 17 general partner of SAL Citrus Heights. 18 13. SAL Kern Canyon, LP (“SAL Kern Canyon”) is a California limited 19 partnership headquartered in Costa Mesa, California, which was formed to invest in 20 the construction and operation of an assisted living facility in Stockton, California, 21 through the entity SAL Kern Canyon, LLC. SML is the general partner of SAL 22 Kern Canyon. 23 14. SAL Phoenix, LP (“SAL Phoenix”) is a Delaware limited partnership 24 headquartered in Salem, Oregon, which was formed to invest in the construction and 25 operation of an assisted living facility in Glendale, Arizona. Sante GP Zanjero LLC 26 and SML are the general partners of SAL Phoenix. 27 28 15. SAL Westgate, LP (“SAL Westgate”) is a Delaware limited partnership headquartered in Costa Mesa, California, which was formed to invest in 4 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 6 of 25 Page ID #:6 1 the construction and operation of an assisted living facility in West Sacramento, 2 California, through the entity SAL Westgate, LLC. SML is the general partner of 3 SAL Westgate. 4 16. Summerplace at Sarasota, LP (“Sarasota”) is a Delaware limited 5 partnership formed to invest in the construction and operation of an assisted living 6 facility in Sarasota, Florida, through the entity Summerplace at Sarasota, LLC. FDC 7 is the general partner of Sarasota, and Francisco controlled its bank accounts at least 8 through the end of 2015. 9 17. Summerplace at Clearwater, LP (“Clearwater”) is a Delaware 10 limited partnership formed to invest in the construction and operation of an assisted 11 living facility in Clearwater, Florida, through the entity Summerplace at Clearwater, 12 LLC. FDC is the general partner of Clearwater. 13 18. Summerplace at Correll Palms, LP (“Correll Palms”) is a Delaware 14 limited partnership formed to invest in the construction and operation of an assisted 15 living facility in Titusville, Florida, through the entity Summerplace at Correll 16 Palms, LLC. FDC is the general partner of Correll Palms. 17 19. TRC Tucson, LP (“TRC Tucson”) is a Delaware limited partnership 18 formed to invest in the construction and operation of an assisted living facility in 19 Tucson, Arizona, which is owned by SET Real CO, LLC. SML and Sante GP 20 Tucson are the general partners of TRC Tucson. 21 20. Clear Currents West, LP (“Clear Currents LP”) is a Delaware 22 limited partnership headquartered in Costa Mesa, California. It was formed for the 23 purpose of investing in Clear Currents West, LLC, which will renovate a production 24 facility for Clear Currents environmentally friendly agriculture and cleaning 25 products. The general partner is Clear Currents West Management, LLC. 26 21. Defendants engaged in eight offerings under the EB-5 program for the 27 construction and operation of individual “Caffe Primo” restaurants. Each offering 28 had the same structure: the limited partnership (“LP”) is the issuer of securities, CPI 5 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 7 of 25 Page ID #:7 1 is the general partner, Francisco is an original limited partner, and Primo Hospitality 2 Group Management, Inc. is a non-voting general partner. Each LP invested in a 3 corresponding limited liability company (“LLC”) which built and operated the Caffe 4 Primo restaurants. 5 a. Caffe Primo Management, LP (“Caffe Primo Management”) 6 is a California limited partnership formed for the purpose of 7 investing in Caffe Primo Management 101, LLC. 8 b. partnership formed for the purpose of investing in Caffe Primo 9 Management 102, LLC. 10 11 Caffe Primo Management 102, LP is a Delaware limited c. Caffe Primo Management 103, LP is a California limited 12 partnership formed for the purpose of investing in Caffe Primo 13 Management 102, LLC. 14 d. Caffe Primo Management 104, LP is a Delaware limited 15 partnership formed for the purpose of investing in Caffe Primo 16 Management 104, LLC. 17 e. Caffe Primo Management 105, LP is a Delaware limited 18 partnership formed for the purpose of investing in Caffe Primo 19 Management 105, LLC. 20 f. Caffe Primo Management 106, LP is a Delaware limited 21 partnership formed for the purpose of investing in Caffe Primo 22 Management 106, LLC. 23 g. Caffe Primo Management 107, LP is a Delaware limited 24 partnership formed for the purpose of investing in Caffe Primo 25 Management 107, LLC. 26 h. Caffe Primo Management 108, LP is a Delaware limited 27 partnership formed for the purpose of investing in Caffe Primo 28 Management 108, LLC. 6 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 8 of 25 Page ID #:8 1 THE FRAUDULENT SCHEME 2 A. The EB-5 Program 3 22. The EB-5 Immigrant Investor Program sets aside EB-5 visas for 4 participants who invest in commercial enterprises in the United States which create 5 jobs and meet certain other conditions. 6 23. Under the EB-5 Immigrant Investor Program, foreign investors who 7 invest capital in a “commercial enterprise” in the United States may petition the 8 USCIS (called an “I-526 Petition”) and receive conditional permanent residency 9 status for a two-year period. USCIS defines a “commercial enterprise” as any for- 10 11 profit activity formed for the ongoing conduct of lawful business. 24. The EB-5 Immigrant Investor Program requires a showing that the 12 foreign investor has placed the required amount of capital at risk for “the purpose of 13 generating a return” on the capital placed at risk. The foreign investor must invest at 14 least $500,000 in a “Targeted Employment Area” and thereby create at least ten full- 15 time jobs for United States workers. If the foreign investor satisfies these and other 16 conditions within the two-year period, the foreign investor may apply to have the 17 conditions removed from his or her visa and live and work in the United States 18 permanently. 19 B. The Fraudulent Offerings 20 25. PDC Capital was formed in 2012 to put together real estate transactions 21 and develop properties. PDC Capital is described as a marketing company and 22 solicits investors primarily in China to invest in EB-5 projects. 23 26. From about January 2013 to at least September 2016, Defendants have 24 raised approximately $72.05 million from at least 131 investors through offerings in 25 the Defendant EB-5 project limited partnerships. 26 27. 27 website. 28 28. Defendants solicited investors in the offering through PDC Capital’s Defendants also solicited investors in China through PDC Capital’s 7 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 9 of 25 Page ID #:9 1 marketing staff in China, who work with Chinese marketing agencies to solicit EB-5 2 investors. PDC Capital representatives train the sales agents about how to describe 3 the investments, and the marketing agents receive commissions of varying amounts. 4 5 6 29. At times, PDC Capital representatives meet directly with investors at seminars in China. 30. Defendant Francisco approves all marketing and offering materials that 7 are provided to investors. 8 1. 9 31. Offerings in Assisted Living Facilities and Clear Currents LP During the relevant period, Defendants Francisco and PDC Capital 10 offered and sold securities in the ten limited partnerships that were to finance, build, 11 and operate assisted living facilities in California, Florida, and Arizona, specifically 12 Defendants (1) SAL Assisted Living, (2) SAL Carmichael, (3) SAL Citrus Heights, 13 (4) SAL Kern Canyon, (5) SAL Phoenix, (6) SAL Westgate, (7) Sarasota, (8) 14 Clearwater, (9) Correll Palms, and (10) TRC Tucson (the “Assisted Living LPs”). 15 32. In addition, Defendants Francisco and PDC Capital also offered 16 securities in Defendant Clear Currents LP, which was to renovate a production 17 facility for Clear Currents’ environmentally friendly agriculture and cleaning 18 products. In all material respects, the offering for the Clear Currents LP followed 19 the structure and operation of the offerings for the Assisted Living LPs, as alleged 20 below. 21 33. The Assisted Living LPs used similar mechanisms for the offer and sale 22 of securities. In exchange for a $500,000 capital contribution and a $45,000-$50,000 23 administration fee, or a total investment ranging from $545,000 to $550,000, an 24 investor receives an interest in one of the Assisted Living LPs. Investors are 25 required to deposit their entire investment consisting of both the capital contribution 26 and the administration fee into special escrow accounts managed by a law firm that 27 has an ongoing relationship with Defendant Francisco. The Assisted Living LPs 28 then lent the offering proceeds to a limited liability company created specifically for 8 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 10 of 25 Page ID #:10 1 2 that EB-5 offering (the “Project LLC”). 34. The PPMs state that units in the limited partnerships being offered for 3 sale are “securities” and reference provisions of the federal securities laws. The 4 offerings solicit minimum investments of $500,000 as a capital contribution for one 5 limited partnership unit. The PPMs state that investors’ capital contributions are 6 pooled for the purposes of the particular project. The PPMs also provide that the 7 limited partnership would be run “exclusively” by the General Partners who have 8 “broad powers” over the day-to-day management of the partnerships’ affairs, and 9 that the investors (the limited partners) generally have no power to participate in the 10 management of the limited partnership. The PPMs also represent that success of the 11 limited partnership is substantially dependent on the performance of the General 12 Partners and management. 13 35. Defendant PDC Capital, through its sales agents, provides investors with 14 offering materials which include a private placement memorandum (“PPM”), an 15 investor questionnaire, a limited partnership agreement (“LP Agreement”), a spousal 16 consent form, a subscription agreement, an escrow agreement, a term sheet, and in 17 some cases, a sample promissory note (between the Assisted Living Offering LP and 18 the Project LLC). 19 36. Each of PDC Capital’s investors signed an escrow agreement, which 20 governs how the investor’s funds will be released. Typically, the escrow agreement 21 allows for the release of all investor funds to the limited partnership once an investor 22 was accepted and approved by the partnership. One exception is the SAL 23 Carmichael offering, which states that 80% of an investor’s subscription proceeds 24 would be released upon approval of the first investors I-526 petition, with the 25 remaining 20% released when the last investor’s I-526 petition was approved. 26 37. The Assisted Living LPs vary somewhat from offering to offering in 27 terms of the scope of the project. The PPMs state that the Project LLC will either 28 “develop, construct, lease and operate (and eventually sell),” or “build out and 9 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 11 of 25 Page ID #:11 1 renovate,” a memory care or assisted living facility. The PPMs or accompanying 2 term sheets also describe the number of jobs that each project is expected to generate 3 based on the number of partnership units offered. For example the SAL Kern 4 Canyon offering was for 10 partnership units, and the term sheet represents that the 5 project will create 130 direct jobs. 6 38. The PPMs represent how the investors’ funds were to be used. 7 Typically, the offering documents state that the proceeds from the offering “except 8 for all administration fees, will be loaned to the Project LLC to fund the purchase of 9 the land as well as some of the components of the Development.” Each PPM also 10 states that the EB-5 investor funds would constitute a portion of the project’s 11 funding, with owner contributions and/or construction loans providing the rest of the 12 funding. 13 39. The Assisted Living LP PPMs also contain disclosures concerning 14 compensation to the General Partners. In general, any remuneration paid by the 15 limited partnership to the General Partners is to be paid out of administration fees, 16 loan interest proceeds, or through dividends paid from the project company to the 17 limited partnership as its parents, so as to comply with USCIS requirements. 18 40. The PPMs state that investors would receive an accrued distribution on 19 their investment with a rate of return of 1.5% to 2%, and after five years, repayment 20 of their $500,000 investment with any accrued interest. 21 41. Defendant Francisco and one of his associates provided the information 22 that was included in the PPMs and other offering documents for each of the Assisted 23 Living LPs, and Clear Currents LP. Defendant Francisco was responsible for 24 determining what information from the PPMs would be highlighted in PowerPoint 25 presentations to investors. 26 27 42. Defendant Francisco controlled the bank accounts of the Assisted Living LPs and Clear Currents LP, directly or indirectly through PDC Capital. 28 10 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 12 of 25 Page ID #:12 1 2 2. 43. Caffe Primo Offerings During the relevant period, Defendants Francisco and PDC Capital 3 offered and sold securities in eight limited partnerships that were to finance, build, 4 and operate Caffe Primo restaurants, specifically Defendants (1) Caffe Primo 5 Management, LP; (2) Caffe Primo Management 102, LP; (3) Caffe Primo 6 Management 103, LP; (4) Caffe Primo Management 104, LP; (5) Caffe Primo 7 Management 105, LP; (6) Caffe Primo Management 106, LP; (7) Caffe Primo 8 Management 107, LP; and (8) Caffe Primo Management 108, LP (the “Caffe Primo 9 LPs”). 10 44. As with the offerings of the Assisted Living LPs, the Caffe Primo LPs 11 offered securities in the form of limited partnership units in exchange for a $500,000 12 capital contribution and a $45,000-$50,000 administration fee, or a total investment 13 ranging from $545,000 to $550,000. The Caffe Primo LPs were then to lend funds 14 to an associated limited liability company (“Caffe Primo LLCs”) for that particular 15 offering and restaurant. For example, Caffe Primo Management 108, LP was to lend 16 money to Caffe Primo 108, LLC, for the construction and operation of the 17 restaurants associated with that offering. 18 45. Defendants PDC Capital and Francisco, directly or indirectly, provided 19 the following offering documents to investors in the offerings of the Caffe Primo 20 LPs: a private placement memorandum (“PPM”), an investor questionnaire, a 21 limited partnership agreement, a spousal consent form, a subscription agreement, an 22 escrow agreement, a joinder agreement, and a promissory note. 23 46. The PPMs for the Caffe Primo LPs offer investors the opportunity to 24 purchase limited partnership units in a particular Caffe Primo LP. The PPMs refer to 25 the limited partnership units as “securities” and refer to provisions of the federal 26 securities laws. Each unit requires the investment of at least $500,000 for a capital 27 contribution. The investors’ funds are pooled, and used to develop the particular 28 Caffe Primo in which they were investing. The PPMs state that the General Partners 11 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 13 of 25 Page ID #:13 1 2 will conduct the day-to-day management of the limited partnership, as fiduciaries. 47. The offering materials state that investors would receive a preferred rate 3 of return of 1.5% per year, with any remaining distributions to the General Partner. 4 After 5 years, investors will receive distributions until their capital contribution is 5 returned. In addition, once the capital contribution is returned, investors may 6 continue to share in a percentage of any remaining distributions. 7 48. The PPMs for the Caffe Primo LPs typically state that the investors’ 8 funds will be used to build and operate a Caffe Primo restaurant in California. The 9 offering documents state that the funds will be used to “build out and launch,” and 10 for “legal and fees,” “corporation operations and administrations,” and for “ongoing 11 support and professional services,” which includes, among other items, travel, 12 marketing, and supplies for the particular limited partnership. The PPMs also 13 disclose that investors’ proceeds can be used for finder’s fees and commissions, and 14 that PDC Capital will contribute $300,000 to the project. 15 49. Defendant Francisco is the signatory on the subscription agreements for 16 the Caffe Primo LPs, and the bank accounts for the Caffe Primo LPs are controlled 17 by PDC Capital. 18 19 3. 50. Defendants’ Misrepresentation and Misuse of Investor Funds Investors sent their capital contributions of $500,000 and administration 20 fees of $45,000-$50,000 to the lawyers’ escrow account. An investor’s entire capital 21 contribution of $500,000 was to be provided to the limited partnership making the 22 offering to be used to develop the specific EB-5 project described in the particular 23 offering’s PPM. The capital contribution could not be used to support PDC 24 Capital’s operations. 25 51. Only the administration fee could be used for other expenses, including 26 those of PDC Capital. Defendant Francisco admitted that PDC Capital was not 27 entitled to use any of the capital contributions to support PDC Capital’s operations 28 and was limited to using administration fees. 12 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 14 of 25 Page ID #:14 1 52. Defendant Francisco has sole responsibility for how PDC Capital, the 2 Assisted Living LPs, the Project LLCs, Clear Currents LP, and the Caffe Primo LPs 3 spent money. Defendant Francisco was aware of all of the movement of money, no 4 disbursements or transfers took places without his knowledge, and he had approval 5 authority along with one other PDC Capital employee for all the accounts of PDC 6 Capital, the Assisted Living LPs, the Project LLCs, Clear Currents LP, and the Caffe 7 Primo LPs. 8 53. Once a project is built and operating, PDC Capital and the investors, 9 depending on the offering, may earn continuing income associated with the project 10 under the terms of the offering documents. To date, none of the facilities associated 11 with the Assisted Living LPs are completed and operating. As of November 2016, 12 construction may have started on one of the facilities. Some of the Caffe Primo 13 restaurants are in operation, however, Defendant CPI’s 2015 tax return showed it 14 had total income of $1,583 for that year. 15 54. Approximately 131 investors paid into escrow about $6.55 million in 16 administration fees for the Assisted Living LPs offerings, Clear Currents LP, and the 17 Caffe Primo LPs offerings. 18 55. Approximately $19.2 million of investors’ funds was sent directly to 19 PDC Capital’s accounts from the lawyers’ escrow accounts. Thus, at least $12.65 20 million of investors’ capital contributions were improperly diverted to PDC Capital. 21 56. Of that $12.65 million, Defendants PDC Capital and Francisco 22 misappropriated at least $9.5 million to finance Francisco’s luxury lifestyle, 23 including the purchase and maintenance of a yacht, and to support his businesses. 24 57. In addition, Defendants Francisco and PDC Capital diverted investors’ 25 funds from one project to another on multiple occasions. Defendant Francisco 26 admitted that he was not permitted to move investors’ funds from one project to 27 another because doing so would run afoul of the USCIS requirements for the EB-5 28 program. The PPMs also represented that investors’ funds would be pooled and 13 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 15 of 25 Page ID #:15 1 used for the particular project that was the subject of the offering. Nonetheless, 2 Francisco and PDC Capital frequently moved investors’ funds among various 3 projects. 4 58. For example, an investor in TRC Tucson wired a $500,000 capital 5 contribution to the lawyer’s escrow account on November 3, 2015. The funds were 6 transferred among two other accounts controlled by the lawyer, before the entire 7 capital contribution was disbursed on November 12, 2015 and November 13, 2015, 8 to seven other recipients including PDC Capital. None of the funds from the TRC 9 Tucson investor were disbursed to bank accounts of TRC Tucson. 10 59. In addition, for at least two Caffe Primo offerings, the total amount of 11 the investors’ capital contributions were not transferred to the associated limited 12 partnership bank account. Caffe Primo Management 107, LP raised a total of $1.65 13 million from three investors, but only $1 million was transferred from the lawyer’s 14 escrow accounts to the Caffe Primo 107 bank account. Caffe Primo Management 15 108, LP raised a total of $1.65 million from three investors, but only $500,000 was 16 transferred from the lawyer’s escrow accounts to the Caffe Primo 108 bank account. 17 At least $1.5 million of the investors’ funds were diverted from the Caffe Primo 18 offerings. 19 60. By misappropriating a substantial portion of the investors’ capital 20 contributions, Defendants materially misled investors that the entire capital 21 contribution would be used to fund the specific projects, provide the promised 22 returns, and create the requisite ten jobs. 23 61. By diverting funds to different offerings or projects, Defendants 24 materially misled investors that their entire capital contributions would be used to 25 fund the specific projects, provide the promised returns, and create the requisite jobs. 26 27 28 4. 62. Defendants’ Ongoing Conduct and Explanation Defendant Francisco admitted that as of May 16, 2016, no construction had started on any of the projects associated with the Assisted Living LPs. 14 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 16 of 25 Page ID #:16 63. 1 In May 2016, Defendant Francisco explained that any loans between 2 Project LLCs consisted of his own funds, and that he had up to $1 million of his 3 personal funds invested with PDC Capital. Francisco claimed that any funds that 4 moved between projects were his own money, and not the investors’ capital 5 contributions. In fact, bank records show that Francisco had contributed at most 6 about $115,000 to PDC Capital. 64. 7 In May 2016, after Defendant Francisco provided testimony to the SEC, 8 PDC Capital closed all of its existing bank accounts, and opened new bank accounts 9 at a different bank. 10 65. As of at least September 2016, Defendants continued to raise money 11 from investors. 12 66. Defendants’ offerings and sales of limited partnership interests were 13 made using means and instrumentalities of interstate commerce. Investor funds were 14 wired to the escrow accounts, and wired from the escrow accounts to PDC Capital’s 15 accounts, as well as accounts of the projects. In addition, projects were located in 16 Arizona and Florida, and several of the Defendants are Delaware limited 17 partnerships. Defendants also used means and instrumentalities of interstate 18 commerce to transmit offering documents and other materials to sales agents and 19 prospective investors in China, and used instrumentalities such as email to 20 communicate with investors. 67. 21 At all relevant times, Defendant Francisco acted with scienter. 22 Francisco’s state of mind is imputed to the companies he controls, including 23 Defendants PDC Capital, CPI, the Assisted Living LPs, Clear Currents LP, and the 24 Caffe Primo LPs. 68. 25 26 /// 27 /// 28 /// Alternatively, at all relevant times, Defendant Francisco was negligent. 15 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 17 of 25 Page ID #:17 1 FIRST CLAIM FOR RELIEF 2 Fraud in the Offer or Sale of Securities 3 Violations of Section 17(a) of the Securities Act 4 (against all Defendants) 5 69. 6 68 above. 7 70. The SEC realleges and incorporates by reference paragraphs 1 through As alleged above, Defendants engaged in a scheme to defraud investors 8 by making false statements concerning the limitation on use of proceeds, as well as 9 the manner in which proceeds would be used, including engaging in transactions 10 designed to obscure the diversion of funds, to enrich themselves at the expense of 11 investors. 12 71. As alleged above, Defendants obtained money by means of untrue 13 statements of material fact concerning the use of proceeds of the Assisted Living LPs, 14 Clear Currents LP and Caffe Primo LPs offering. 15 72. As alleged above, Defendants engaged in transactions and a course of 16 business obtained money from investors by means of false statements in the PPMs 17 about the use of investor proceeds and limitations on the use of investors’ capital 18 contributions. 19 73. At all relevant times, Defendant Francisco acted with scienter to enrich 20 himself at the expense of the defrauded investors. In the alternative, Defendant 21 Francisco was negligent. Defendant Francisco’s state of mind is imputed to the 22 entities he controlled, including PDC Capital, CPI, and the Assisted Living LPs, 23 Clear Currents LP and Caffe Primo LPs. 24 74. By engaging in the conduct described above, Defendants Francisco and 25 PDC Capital, with regard to the Assisted Living LPs and Clear Currents LP, directly 26 or indirectly, in the offer or sale of securities, and by the use of means or instruments 27 of transportation or communication in interstate commerce or by use of the mails 28 directly or indirectly: (a) employed devices, schemes, or artifices to defraud; (b) 16 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 18 of 25 Page ID #:18 1 obtained money or property by means of untrue statements of a material fact or by 2 omitting to state a material fact necessary in order to make the statements made, in 3 light of the circumstances under which they were made, not misleading; and (c) 4 engaged in transactions, practices, or courses of business which operated or would 5 operate as a fraud or deceit upon the purchaser. 75. 6 By engaging in the conduct described above, Defendants Francisco and 7 PDC Capital, and CPI, with regard to the Caffe Primo LPs, directly or indirectly, in 8 the offer or sale of securities, and by the use of means or instruments of transportation 9 or communication in interstate commerce or by use of the mails directly or indirectly: 10 (a) employed devices, schemes, or artifices to defraud; (b) obtained money or 11 property by means of untrue statements of a material fact or by omitting to state a 12 material fact necessary in order to make the statements made, in light of the 13 circumstances under which they were made, not misleading; and (c) engaged in 14 transactions, practices, or courses of business which operated or would operate as a 15 fraud or deceit upon the purchaser. 76. 16 Each of the Defendants knew, or was reckless in not knowing, that he or 17 it employed devices, schemes and artifices to defraud. Each of the Defendants knew, 18 or was reckless or negligent in not knowing, that he or it obtained money or property 19 by means of untrue statements of a material fact or by omitting to state a material fact 20 necessary in order to make the statements made, in light of the circumstances under 21 which they were made, not misleading; and engaged in transactions, practices, or 22 courses of business which operated or would operate as a fraud or deceit upon the 23 purchaser. 77. 24 By engaging in the conduct described above, each of the Defendants 25 violated, and unless restrained and enjoined will continue to violate, Sections 26 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77q(a)(1), 27 77q(a)(2), & 77q(a)(3). 28 /// 17 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 19 of 25 Page ID #:19 1 SECOND CLAIM FOR RELIEF 2 Fraud in Connection with the Purchase or Sale of Securities 3 Violations of Section 10(b) of the Exchange Act 4 and Rules 10b-5(a) and 10b-5(c) Thereunder 5 (against all Defendants as primary violators, and, 6 alternatively, against Francisco as a control person 7 under Section 20(a) of the Exchange Act) 8 78. 9 68 above. 10 79. The SEC realleges and incorporates by reference paragraphs 1 through As alleged above, Defendants engaged in a scheme to defraud investors 11 by making false statements concerning the limitation on use of proceeds, as well as 12 the manner in which proceeds would be used, including engaging in transactions 13 designed to obscure the diversion of funds, to enrich themselves at the expense of 14 investors. 15 80. As alleged above, Defendants engaged in transactions and a course of 16 business obtained money from investors by means of false statements in the PPMs 17 about the use of investor proceeds and limitations on the use of investors’ capital 18 contributions. 19 81. At all relevant times, Defendant Francisco acted with scienter to enrich 20 himself at the expense of the defrauded investors. Defendant Francisco’s state of 21 mind is imputed to the entities he controlled, including PDC Capital, CPI, and the 22 Assisted Living LPs, Clear Currents LP and Caffe Primo LPs. 23 82. By engaging in the conduct described above, Defendants Francisco and 24 PDC Capital, with regard to the Assisted Living LPs and Clear Currents LP, directly 25 or indirectly, in the offer or sale of securities, and by the use of means or instruments 26 of transportation or communication in interstate commerce or by use of the mails 27 directly or indirectly: (a) employed devices, schemes, or artifices to defraud; and (b) 28 engaged in transactions, practices, or courses of business which operated or would 18 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 20 of 25 Page ID #:20 1 operate as a fraud or deceit upon the purchaser. 83. 2 By engaging in the conduct described above, Defendants Francisco and 3 PDC Capital, and CPI, with regard to the Caffe Primo LPs, directly or indirectly, in 4 the offer or sale of securities, and by the use of means or instruments of transportation 5 or communication in interstate commerce or by use of the mails directly or indirectly: 6 (a) employed devices, schemes, or artifices to defraud; and (b) engaged in 7 transactions, practices, or courses of business which operated or would operate as a 8 fraud or deceit upon the purchaser. 84. 9 Each of the defendants knew, or was reckless in not knowing, that he or 10 it employed devices, schemes and artifices to defraud; and engaged in acts, practices 11 or courses of conduct that operated as a fraud on the investing public by the conduct 12 described in detail above. 85. 13 By engaging in the conduct described above, each of the defendants 14 violated, and unless restrained and enjoined will continue to violate, Section 10(b) of 15 the Exchange Act, 15 U.S.C. § 78j(b), and Rules 10b-5 thereunder, 17 C.F.R. §§ 16 240.10b-5(a) & 240.10b-5(c). 86. 17 Defendant Francisco was a control person of Defendants PDC Capital 18 and CPI because he possessed, directly or indirectly, the power to direct or cause the 19 direction of the management and policies of each of these entities. Accordingly, 20 pursuant to Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), defendant 21 Francisco is liable to same extent as each of these Defendants for those Defendants’ 22 violations of Section 10(b) and Rules 10b-5(a) and (c) thereunder. 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 19 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 21 of 25 Page ID #:21 1 THIRD CLAIM FOR RELIEF 2 Fraud in Connection with the Purchase or Sale of Securities 3 Violations of Section 10(b) of the Exchange Act 4 and Rule 10b-5(b) Thereunder 5 (against Defendants Francisco, PDC Capital, the Assisted Living LPs (SAL 6 Assisted Living, SAL Carmichael, SAL Citrus Heights, SAL Kern Canyon, SAL 7 Phoenix, SAL Westgate, Sarasota, Clearwater, Correll Palms, TRC Tucson). 8 Clear Currents LP, and the Caffe Primo LPs (Caffe Primo Management, and 9 Caffe Primo Management 102-108) as primary violators, and, alternatively, 10 against Francisco as a control person under Section 20(a) of the Exchange Act) 11 87. 12 68 above. 13 88. The SEC realleges and incorporates by reference paragraphs 1 through As alleged above, Defendants obtained money by means of untrue 14 statements of material fact concerning the use of proceeds of the Assisted Living LPs 15 and Caffe Primo LPs offering. 16 89. At all relevant times, Defendant Francisco acted with scienter to enrich 17 himself at the expense of the defrauded investors. Defendant Francisco’s state of 18 mind is imputed to the entities he controlled, including PDC Capital, and the Assisted 19 Living LPs, Clear Currents LP, and Caffe Primo LPs. 20 90. Defendants Francisco, PDC Capital, SAL Assisted Living, SAL 21 Carmichael, SAL Citrus Heights, SAL Kern Canyon, SAL Phoenix, SAL Westgate, 22 Sarasota, Clearwater, Correll Palms, TRC Tucson, Clear Currents LP, Caffe Primo 23 Management, Caffe Primo Management 102, Caffe Primo Management 103, Caffe 24 Primo Management 104, Caffe Primo Management 105, Caffe Primo Management 25 106, Caffe Primo Management 107, and Caffe Primo Management 108, and each of 26 them, directly or indirectly, in connection with the purchase or sale of a security, by 27 the use of means or instrumentalities of interstate commerce, of the mails, or of the 28 facilities of a national securities exchange, made untrue statements of a material fact 20 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 22 of 25 Page ID #:22 1 or omitted to state a material fact necessary in order to make the statements made, in 2 the light of the circumstances under which they were made, not misleading. 3 91. Defendants Francisco, PDC Capital, SAL Assisted Living, SAL 4 Carmichael, SAL Citrus Heights, SAL Kern Canyon, SAL Phoenix, SAL Westgate, 5 Sarasota, Clearwater, Correll Palms, TRC Tucson, Clear Currents LP, Caffe Primo 6 Management, Caffe Primo Management 102, Caffe Primo Management 103, Caffe 7 Primo Management 104, Caffe Primo Management 105, Caffe Primo Management 8 106, Caffe Primo Management 107, and Caffe Primo Management 108, and each of 9 them, knew, or was reckless in not knowing, that he or it made untrue statements of a 10 material fact or omitted to state a material fact necessary in order to make the 11 statements made, in the light of the circumstances under which they were made, not 12 misleading. 13 92. By engaging in the conduct described above, defendants Francisco, PDC 14 Capital, SAL Assisted Living, SAL Carmichael, SAL Citrus Heights, SAL Kern 15 Canyon, SAL Phoenix, SAL Westgate, Sarasota, Clearwater, Correll Palms, TRC 16 Tucson, Clear Currents LP, Caffe Primo Management, Caffe Primo Management 17 102, Caffe Primo Management 103, Caffe Primo Management 104, Caffe Primo 18 Management 105, Caffe Primo Management 106, Caffe Primo Management 107, and 19 Caffe Primo Management 108 violated, and unless restrained and enjoined will 20 continue to violate, Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rules 21 10b-5(b) thereunder, 17 C.F.R. § 240.10b-5(b). 22 93. Defendant Francisco was a control person of defendants, PDC Capital, 23 SAL Assisted Living, SAL Carmichael, SAL Citrus Heights, SAL Kern Canyon, 24 SAL Phoenix, SAL Westgate, Sarasota, Clearwater, Correll Palms, TRC Tucson, 25 Clear Currents LP, Caffe Primo Management, Caffe Primo Management 102, Caffe 26 Primo Management 103, Caffe Primo Management 104, Caffe Primo Management 27 105, Caffe Primo Management 106, Caffe Primo Management 107, and Caffe Primo 28 Management 108 because he possessed, directly or indirectly, the power to direct or 21 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 23 of 25 Page ID #:23 1 cause the direction of the management and policies of each of these entities. 2 Accordingly, pursuant to Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), 3 defendant Francisco is liable to same extent as each of the entity Defendants for those 4 Defendants’ violations of Section 10(b) and Rule 10b-5(b) thereunder. 5 FOURTH CLAIM FOR RELIEF 6 Aiding and Abetting Violations of Section 10(b) of the 7 Exchange Act and Rule 10b-5(b) 8 (Defendants Francisco and PDC Capital) 9 94. 10 68 above. 11 95. The SEC realleges and incorporates by reference paragraphs 1 through Defendants Francisco and PDC Capital provided substantial assistance 12 to the Assisted Living LPs, the Caffe Primo LPs, and Clear Current in their violations 13 of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder in connection 14 with the securities offerings of the Assisted Living LPs, the Caffe Primo LPs, and 15 Clear Currents LP. 16 96. Be engaging in the conduct described above, Defendants Francisco and 17 PDC Capital aided and abetted, and unless enjoined will continue to aid and abet 18 violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 19 thereunder, 17 C.F.R. § 240.10b-5(b), pursuant to Section 20(e) of the Exchange Act, 20 15 U.S.C. § 78t(e). 21 22 PRAYER FOR RELIEF WHEREFORE, the SEC respectfully requests that the Court: 23 24 25 26 27 28 I. Issue findings of fact and conclusions of law that Defendants committed the alleged violations. II. Issue orders, in forms consistent with Rule 65(d) of the Federal Rules of Civil Procedure, temporarily, preliminarily and permanently enjoining Defendants 22 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 24 of 25 Page ID #:24 1 Francisco, PDC Capital, CPI, SAL Assisted Living, SAL Carmichael, SAL Citrus 2 Heights, SAL Kern Canyon, SAL Phoenix, SAL Westgate, Sarasota, Clearwater, 3 Correll Palms, TRC Tucson, Clear Currents, Caffe Primo Management, Caffe Primo 4 Management 102, Caffe Primo Management 103, Caffe Primo Management 104, 5 Caffe Primo Management 105, Caffe Primo Management 106, Caffe Primo 6 Management 107, and Caffe Primo Management 108, and their officers, agents, 7 servants, employees, and attorneys, and those persons in active concert or 8 participation with any of them, who receive actual notice of the orders by personal 9 service or otherwise, and each of them, from violating Section 17(a) of the Securities 10 Act, 15 U.S.C. §77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. §§ 78j(b), 11 and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. 12 13 III. Issue orders, in forms consistent with Rule 65(d) of the Federal Rules of Civil 14 Procedure, temporarily, preliminarily and permanently enjoining Defendants 15 Francisco, PDC Capital, CPI, SAL Carmichael, SAL Citrus Heights, SAL Kern 16 Canyon, SAL Assisted Living, SAL Westgate, SAL Phoenix, TRC Tucson, Sarasota, 17 Clearwater, Correll Palms, Clear Currents LP, Caffe Primo Management, LP, Caffe 18 Primo Management 102, LP, Caffe Primo Management 103, LP, Caffe Primo 19 Management 104, LP, Caffe Primo Management 105, LP, Caffe Primo Management 20 106, LP, Caffe Primo Management 107, LP, Caffe Primo Management 108, LP, and 21 their officers, agents, servants, employees, attorneys, subsidiaries and affiliates, and 22 those persons in active concert or participation with any of them, from, directly or 23 indirectly, participating in the offer or sale of any security which constitutes an 24 investment in a “commercial enterprise” under the United States Government EB-5 25 visa program administered by the United States Citizenship and Immigration Service 26 (“USCIS”). 27 28 IV. Issue in a form consistent with Fed. R. Civ. P. 65, a temporary restraining order 23 Case 8:16-cv-02257 Document 1 Filed 12/27/16 Page 25 of 25 Page ID #:25 1 and a preliminary injunction freezing the funds and assets of Defendants; ordering 2 repatriation of any funds or assets transferred overseas; prohibiting each of the 3 Defendants from destroying documents; permitting expedited discovery, ordering 4 accountings by each of the Defendants, and appointing a receiver over the Defendant 5 entities. 6 V. 7 Order Defendants to disgorge all funds received from their illegal conduct, 8 together with prejudgment interest thereon, and to repatriate any funds or assets they 9 caused to be sent overseas. 10 11 VI. Order Defendants to pay civil penalties under Section 20(d) of the Securities 12 Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 13 78u(d)(3). 14 15 VII. Retain jurisdiction of this action in accordance with the principles of equity and 16 the Federal Rules of Civil Procedure in order to implement and carry out the terms of 17 all orders and decrees that may be entered, or to entertain any suitable application or 18 motion for additional relief within the jurisdiction of this Court. 19 20 21 VIII. Grant such other and further relief as this Court may determine to be just and necessary. 22 23 24 25 26 27 Dated: December 27, 2016 /s/ John B. Bulgozdy John B. Bulgozdy Adrienne D. Gurley Attorneys for Plaintiff Securities and Exchange Commission 28 24