30 Dec Part 3: How to Avoid Investment Scams in the EB-5 Regional Center Program & DUE DILIGENCE

This is Part 3 in a three-part series on corruption in the EB-5 Regional Center Program. In Part 1 (which you can read here), we examined some revelations of corruption in the program. In Part 2, we discussed governmental efforts to make the program more transparent. In this post, we will guide investors on what they can do to avoid becoming the victims of EB-5 fraud.

As we discussed in Part 1 of this series, the EB-5 Regional Center program has benefited immigrants, U.S. workers, and American communities alike. However, some developers, Regional Center principals, and brokers have misled foreign investors by providing false information and making unrealistic promises. In Part 2, we described recent efforts made by the Securities and Exchange Commission (SEC) and United States Citizenship and Immigration Services (USCIS) to crack down on corruption. e-Council Inc.’s prior blog articles also discussed a recent government audit of the program.

The EB-5 Regional Center Program is not foolproof, and it is unclear if and when the government will enact reforms designed to safeguard investors against fraud. It is most important for investors to know that Regional Center designation by USCIS does not mean that USCIS, the SEC, or any other government agency has approved the investments offered by the business, or has otherwise expressed a view on the quality of those investments.[1]

Consequently, investors should seek information about the risks of the EB-5 Regional Center Program and guidance from experienced EB-5 professionals, such as our team at e-Council Inc.  To help investors make safer choices, our team has compiled some helpful tips drawn collectively from the SEC and our very own EB-5 Director, Diana Levy, Esq.[2]:

• Confirm that the Regional Center has been designated by USCIS. Before investing, make sure to check the list of current Regional Centers on USCIS’s website at www.uscis.gov. If the Regional Center is not on the list, investors should request a copy of the USCIS designation letter from the Regional Center itself. Failure of the Regional Center to provide a copy of its designation letter should be a red flag to any investor. It is important to note that inclusion of a Regional Center on the approved list in no way constitutes USCIS’ endorsement of the Regional Center or any of the investments it offers.

• Confirm that the Regional Center has been approved for the relevant geographic area/ industry. According to e-Council Inc.’s EB-5 Director, Regional Centers are designated for particular geographic regions and NAICS industry clusters. Investors should confirm that their investment project falls within the Regional Center’s approved area and industries by reviewing the Regional Center’s designation letter. (If necessary, a Regional Center can request expansion of its geographic region and/or industry clusters by filing an I-924 amendment with USCIS).

• Conduct a Due Diligence Assessment to vet the project and involved parties. e-Council Inc. is highly experienced, both directly and in conjunction with our EB-5 strategic partners,  in conducting Due Diligence Assessments that can guide investors toward making appropriate choices. Our Due Diligence Assessments include the following:

• Vet the project for EB-5 readiness: We can determine whether the particular project meets all EB-5 requirements and whether it is likely to pass USCIS scrutiny.
• Determine the legitimacy of the parties involved: We can investigate the backgrounds of the principals of the Regional Center and/or the project developer to ensure they have a solid and consistent track record in the field.
• Examine the Regional Center and developer’s financial stake in the project: We will review the project financials to see if the Regional Center principals and developers are making equity investments in the projects they own/manage.  If the owners of the project do not make an equity investment in the project, they may have little incentive to ensure its success.
• Seek independent verification: We will confirm whether claims made about the investment are true by obtaining relevant documentation from state authorities.  For example, if the investment involves construction of commercial real estate, we will examine county records to see if the issuer has obtained the proper permits and whether state and local property tax assessments correspond with the values the Regional Center attributes to the property. If other companies have purportedly signed onto the project, we will go directly to those companies for confirmation.

• Look for warning signs of fraud. According to the SEC, investors should be wary if they encounter any of the following when dealing with a Regional Center:
  • Promises of a visa or becoming a lawful permanent resident. Investing through EB-5 makes you eligible to apply for conditional permanent residency, but there is no guarantee that USCIS will grant conditional residency or subsequently remove the conditions on your lawful permanent residency. USCIS carefully reviews each case and denies cases where eligibility requirements are not met.
  • Guaranteed investment returns or no investment risk. Money invested through EB-5 must be at risk for the purpose of generating a return. If you are guaranteed investment returns or told you will get back a portion of the money you invested, be suspicious.
  • Overly consistent high investment returns. Be suspicious of an investment that claims to provide, or continues to generate, high rates of return regardless of overall market conditions.
  • Unregistered investments.  Even though a Regional Center may be designated by USCIS, most new commercial enterprise investment opportunities offered through Regional Centers are not registered with the SEC or any state regulator.  When an offering is unregistered, the issuer may not provide investors with access to key information about the company’s management, products, services, and finances that registration requires. In such circumstances, investors should obtain additional information about the company to help ensure that the investment opportunity is bona fide.[3]

In sum, because the EB-5 Regional Center program is (currently) only minimally regulated by the government, investors should hire trusted experts who can guide them toward investment opportunities that are sound and truly EB-5 eligible. e-Council Inc. is a full-service company that will vet your project for EB-5 viability, ensure its soundness, and connect you with other strategic partners, as needed, to ensure the success of your investment and the USCIS’ approval of your visa petition.

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://www.sec.gov/investor/alerts/ia_immigrant.htm

[2] Unless otherwise noted, tips are from http://www.sec.gov/investor/alerts/ia_immigrant.htm

[3] For a complete list of warning signs, see http://www.sec.gov/investor/alerts/ia_immigrant.htm