Class action accuses EB-5 fund operator of unlawful broker-dealer activity

EB-5 investors are suing EB5 Affiliate Network, alleging it acted as an unregistered broker-dealer while marketing Montessori school fund investments that collapsed. 

The class action, filed April 16 in U.S. District Court for the District of Puerto Rico (Saurabh et al. v. EB5 Affiliate Network, LLC, Case No. 3:26-cv-01228), levels seven counts against the firm, including securities fraud, unlawful broker-dealer activity, breach of fiduciary duty, and fraudulent inducement. 

Four foreign-national investors say they each wired $500,000 between February and March 2022 for interests in Higher Ground Education's Montessori school funds. The investments were pitched as direct EB-5 opportunities during a window when the federal Regional Center program had lapsed — meaning only direct jobs counted toward the immigration requirement of ten full-time U.S. positions per investor. 

According to the filing, EB5AN went well beyond routine fund administration. The investors allege the firm actively solicited them, advised on suitability, processed subscription agreements, directed wire transfers to escrow accounts at Signature Bank, and collected transaction-based compensation and unit interests — all without SEC registration or FINRA membership. That conduct, the suit argues, amounts to textbook broker-dealer activity requiring registration under the Exchange Act. 

EB5AN allegedly circulated business plans projecting roughly 145 full-time jobs by Year 4 across a six-school plan spanning Illinois, Washington, Kansas, Oklahoma, and Florida — about 13.2 jobs per investor, comfortably above the ten-job threshold. But the filing claims the firm never disclosed what was unraveling underneath: Higher Ground Education's deteriorating finances, fragile school sites, sensitivity to enrollment swings, and a dependence on bridge financing and fresh EB-5 capital to keep the lights on. 

Those risks caught up in 2025. Higher Ground Education and its affiliates entered Chapter 11 after foreclosures and widespread school closures gutted the network. The projected jobs vanished. The investors say they lost both their money and the immigration benefits they were promised. 

For advisors and fund operators in the private placement space, the case is one to watch. The filing draws on First Circuit precedent to argue that transaction-based compensation, active solicitation, and hands-on control over subscription mechanics can push a firm squarely into broker-dealer territory — no matter what it calls itself. For compliance teams, it is a stark reminder that the registration line is drawn by what a firm does, not the title it puts on its letterhead. 

The investors are seeking rescission of their securities purchases, compensatory damages, disgorgement of fees, and class certification on behalf of all similarly situated investors. No determination on the merits has been made.