17 Dec Part 1: Corruption in the EB-5 Regional Center Program
Corruption in the EB-5 Regional Center Program: Part 1
This is Part 1 in a three-part series on corruption in the EB-5 Regional Center. In this post, we will examine how and why fraud has taken place within the program. In Part 2, we will discuss governmental efforts to crack down on illegal activity in the EB-5 space. And, in Part 3, we will guide investors on how to avoid being the victims of EB-5 fraud.
Significant positive impact has resulted from the EB-5 program. Some have dubbed it a “win-win-win” in terms of helping immigrants, U.S. workers, and American communities alike.[1] Lawmakers see its great potential in reducing unemployment, and President Obama has called for the expansion of the program.[2] Indeed, the program has won by-partisan support and the accolades of billionaires Warren Buffett, Bill Gates, and Sheldon Adelson.[3]
Despite its merits, the EB-5 program has also incited controversy, as revelations have surfaced over the last few years of fraud and corruption, particularly in the context of Regional Centers. Regional Centers “work with private-sector brokers to identify local investments and direct foreign participants to them”. While many Regional Centers have solid reputations and a breadth of experience working in the program, “some have directed investor money to risky projects and companies that pay little to no return, and have deliberately misled investors by providing false guarantees and misinformation. In many cases, corruption in the program has been enabled by unscrupulous brokers who get a commission regardless of how the investment plays out”.[4]
According to a New York Times op-ed, “Examples abound of centers and brokers playing down risky investments and misrepresenting how the program works, including a promise that EB-5 investments are guaranteed by the federal government — when the government in fact does nothing of the sort. Many investments have failed to create the required 10 jobs and even gone bankrupt, leaving the investor without his money or his green card.”[5]
The following instances of fraud committed by the operators of Regional Centers serve as an illustration of how the EB-5 Regional Center program has been misused:
In August 2014, a ground-breaking case was heard by a federal grand jury. In what is touted as the “Chicago Convention Case”, the jury indicted Anshoo Sethi, a 30-year-old Chicago operator of an EB-5 regional center, on charges of fraud for allegedly misleading 290 Chinese nationals seeking visas into investing $160 million in a hotel and convention- center project near O’Hare International Airport.[6] The project was touted as the “World’s First Zero Carbon Emission Platinum LEED certified” hotel and conference center. A whistleblower alerted the Securities and Exchange Commission (SEC) to Sethi’s suspicious activities. Following an investigation, the SEC alleged, among other things, that Sethi told investors that his company had acquired all necessary building permits and that the project was backed by several major hotel chains, neither of which was true.[7] The SEC froze and returned about $147 million to the Chinese investors.[8]
Another investment scam involved the owners of the USA Now Regional Center, which received approval from USCIS in March 2011. In October 2013, the SEC brought fraud charges against the owners for stealing foreign investor funds under the auspices of the EB-5 program. Allegedly, the owners falsely promised investors a 5% return on their investment and an opportunity to obtain an EB-5 visa; used investment funds that were supposed to remain in escrow until I-526 approval to purchase personal vehicles, settle an unrelated lawsuit and repay a previous EB-5 investor; and diverted over $1 million of investor funds into their Cajun-themed restaurant. Unfortunately, none of the USA NOW investors have yet had their I-526 petitions approved. [9] The assets of the company are frozen for the extent of the lawsuit.[10]
Some have argued that the lack of governmental regulation is a major source of fraud and corruption in the EB-5 Regional Center program. Indeed, the program is not overseen by a financial regulator but instead by the U.S. Citizenship and Immigration Services (USCIS), which is a division of the Department of Homeland Security. There are no rules on who can own or run a center, and there are no specific audit requirements. A Regional Center has no public reporting requirements regarding its performance, does not have to identify its principals, nor to disclose any financial, legal, or regulatory problems they have encountered. “Accustomed to processing visas and conducting immigrant background checks, USCIS is ill-equipped to review business plans, job- creation studies, and securities offerings.” The Securities and Exchange Commission (SEC) retains the power to police fraud, but, in practice, the agency can only address any corruption scandals after damage has been done.[11]
Both the SEC and USCIS are raising awareness of how the program can be misused and what investors can do to protect themselves. These governmental efforts will translate into increasing scrutiny of the program in the form of an audit to help members of Congress determine whether or not to renew the program in September 2015.[12]
Specific governmental efforts to restore integrity to the EB-5 Regional Center program will be further discussed in the Part 2 of this series. Also, stay tuned for art 3, which will offer strategies for foreign investors on how to vet regional centers before committing time and money to potentially risky investments.
To find out about our range of expert EB-5 services and business visa solutions, designed to specifically address USCIS’s concerns, contact e-Council Inc.com at info@ecouncilinc.com.
e-Council Inc.com’s website, newsletter and other forms of communication contain general information about legal matters. The information is not legal advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal advice from your attorney or other professional legal services provider. If you have any specific questions about any legal matter you should consult your attorney or other professional legal services provider.
[1] http://fortune.com/2014/07/24/immigration-eb-5-visa-for-sale/
[2] http://iiusa.org/blog/wp-content/uploads/2011/10/JobsCouncil_InterimReport_Oct11.pdf
[3] http://www.nytimes.com/2014/07/11/opinion/sheldon-adelson-warren-buffett-and-bill-gates-on-immigration-reform.html?_r=0
[4] http://www.nytimes.com/2012/04/16/opinion/reform-the-eb-5-program.html?_r=0
[5] http://www.nytimes.com/2012/04/16/opinion/reform-the-eb-5-program.html?_r=0
[6] http://seattletimes.com/html/businesstechnology/2025210624_eb5auditxml.html
[7] http://www.sec.gov/investor/alerts/ia_immigrant.htm
[8] http://seattletimes.com/html/businesstechnology/2025210624_eb5auditxml.html
[9] http://www.eb5investors.com/blog/sec-action-against-usa-now; http://www.themonitor.com/news/local/article_b8d84bde-2b7a-11e3-a6fa-0019bb30f31a.html
[10] http://www.valleycentral.com/news/story.aspx?id=954063
[11] http://fortune.com/2014/07/24/immigration-eb-5-visa-for-sale/
[12] http://seattletimes.com/html/businesstechnology/2025210624_eb5auditxml.html