EB-5 visa pit­falls

The EB-5 visa in­vest­ment pro­gram can’t keep up with de­mand, but the process is fraught with haz­ards, Chris Davis re­ports from New York.

China Daily (USA) - - FRONT PAGE -

The US in­vest­ment pro­gram can’t keep up with de­mand, but the process is fraught with haz­ards.

This is one of those ar­eas where fraud takes many faces and takes many forms.”

Rosie Dawn Grif­fin, whistle­blower at­tor­ney

When it’s com­pleted in 2025, Hud­son Yards on Man­hat­tan’s West­side will in­clude more than 17 mil­lion square feet of com­mer­cial and res­i­den­tial space, more than 100 stores, 4,000 res­i­dences, 14 acres of pub­lic open space, a 750-seat pub­lic school and a lux­ury ho­tel with more than 200 rooms.

The largest pri­vate real es­tate devel­op­ment in the his­tory of the US also will have cre­ated more than 23,000 con­struc­tion jobs – and made 1,200 Chi­nese per­ma­nent US res­i­dents. All of them gained ci­ti­zen­ship by us­ing the most pop­u­lar res­i­dency-for-sale pro­gram in the world, the EB-5 visa, col­lec­tively pro­vid­ing some $1.2 bil­lion for the $20 bil­lion devel­op­ment in ex­change for green cards.

The green-card pro­gram was barely no­ticed when it was in­tro­duced in the early 1990s to at­tract for­eign in­vest­ment and cre­ate jobs in the US.

By 2007 it was is­su­ing about 700 visas a year. But af­ter the fi­nan­cial cri­sis — when busi­nesses had trou­ble find­ing fi­nanc­ing from tra­di­tional sources — EB-5 took off, reach­ing its an­nual quota of 10,000 for the first time in 2014 and over­loaded with a wait­ing line ever since.

“We used to never reach the cap and now we do ev­ery year,” said Sarah Poppy Alexan­der, a whistle­blower lawyer at the San Fran­cisco branch of Con­stan­tine Can­non. “The vast ma­jor­ity are Chi­nese.”

The good news, ac­cord­ing to the US Cit­i­zen and Immigration Services (USCIS), is that the pro­gram has pumped about $8.7 bil­lion worth of in­vest­ment into the US econ­omy and cre­ated 35,150 jobs since 2012.

The fraud

The bad news is that when that kind of money flows, some of it comes with fraud. “This is one of those ar­eas where fraud takes many faces and takes many forms,” said Rosie Dawn Grif­fin, who also spe­cial­izes in whistle­blower law and works at the Wash­ing­ton of­fice of Con­stan­tine Can­non.

EB-5 is con­tro­ver­sial for a num­ber of rea­sons, said Alexan­der. “It’s un­der the Immigration and Cus­toms En­force­ment of­fice, but they do not seem to have the re­sources right now to be able to track the pro­gram and make sure would-be in­vestors are not be­ing de­frauded,” she said.

Over the past year, the Se­cu­ri­ties and Ex­change Com­mis­sion (SEC) has been lend­ing a hand.

Their high­est-pro­file case came in April — the biggest EB-5 scam ever. Though it didn’t tar­get Chi­nese in­vestors per se, it gives a glimpse of the scope that EB-5 abuses can ex­pand to. A 52-count com­plaint al­leges that two Ver­mont busi­ness­men orches­trated an eight-year scheme “sys­tem­at­i­cally loot­ing” mil­lions from a $350 mil­lion pool for a ski re­sort that was raised from hun­dreds of for­eign in­vestors in 74 coun­tries.

The tar­gets

In­vestor im­mi­grants from China get about 90 per­cent of EB-5 visas, so they are the most com­mon tar­get of scams.

In Cal­i­for­nia last Novem­ber, physi­cian Robert Yang, 45, and his of­fice man­ager Clau­dia Kano, 45, were ac­cused of si­phon­ing off at least half of the $20 mil­lion they raised from 40 Chi­nese in­vestors to build nurs­ing homes in Pa­mona.

Ear­lier that month, the SEC went af­ter Lin “Lily” Zhong and her com­pany EB-5 As­set Man­ager LLC in Florida. The com­plaint said that Zhong had raised $8.5 mil­lion from 17 in­vestors, mostly Chi­nese peo­ple hop­ing to im­mi­grate to the US.

In­stead of us­ing the money for the real es­tate devel­op­ment as ad­ver­tised, Zhong al­legedly spent it on a $2.5 mil­lion “part-time” home (she is a per­ma­nent res­i­dent of New Zealand), a $55,000 year-old BMW SUV for her daugh­ter, a new $98,346 Mercedes S550 for her­self and a $175,495 48-foot Sea Ray muscle boat.

Last week, a district court judge in North­ern Cal­i­for­nia en­tered a fi­nal judg­ment against Luca In­ter­na­tional Group, a San Fran­cisco Bay Area oil and gas com­pany that promised in­vestors an­nual re­turn rates of 20-30 per­cent “know­ing the op­er­a­tions were los­ing mil­lions of dol­lars and the en­ter­prise was sink­ing un­der a moun­tain of debt.”

Aside from reach­ing out to Chi­nese-Amer­i­can in­vestors through Chi­nese-lan­guage me­dia, the SEC charged, Luca CEO Bingqing Yang and her chief fundraiser Lily Lei also tar­geted Chi­nese ci­ti­zens who sought per­ma­nent US res­i­dence through the EB-5 pro­gram. The SEC said Luca comin­gled in­vestor funds to pre­vent the scheme from col­laps­ing and used money from new in­vestors to make sham profit pay­ments to ear­lier in­vestors.

The court or­dered Luca to pay $68.3 mil­lion in dis­gorge­ment for the Ponzi scheme.

“The SEC is do­ing as good a job as they can go­ing af­ter th­ese com­pa­nies,” Alexan­der said. “The hard part is that of­ten­times th­ese frauds are very hard to de­tect and un­less there’s some­one who knows some­thing and brings in­sider in­for­ma­tion forward to the SEC, they don’t know who has a le­git­i­mate in­vest­ment op­por­tu­nity and who does not.”

US whistle­blower laws al­low any­one with in­for­ma­tion about fraud to help bring scam­mers to jus­tice and some­times get a cash re­ward of up to 30 per­cent of the amount re­cov­ered, even if they’re not based in the US.

EB-5 in­vest­ment fraud can be re­ported through the SEC’s whistle­blower pro­gram, which is part of the Dodd-Frank act and en­cour­ages any­one with knowl­edge of vi­o­la­tions of US se­cu­ri­ties laws to step forward. Since the in­cep­tion of the pro­gram, the agency has paid more than $85 mil­lion in awards to more than 32 whistle­blow­ers.

$14.7 Mil­lion award

One of them is Michael Sears, a prin­ci­pal in a small Vir­ginia-based real es­tate in­vest­ment fund man­age­ment firm. He was awarded $14.7 mil­lion award for blow­ing the whis­tle on an EB-5 fraud per­pe­trated against Chi­nese in­vestors by a Chicago-based busi­ness­man who claimed to be build­ing a mas­sive con­ven­tion cen­ter and ho­tel com­plex near O’Hare Air­port.

The busi­ness­man, 32-year-old An­shoo Sethi, amassed $158 mil­lion from 290 Chi­nese in­vestors, promis­ing each a green card.

In Jan­uary, Sethi pleaded guilty to wire fraud, ad­mit­ting he gave in­vestors forged doc­u­ments say­ing the project’s ho­tels would be op­er­ated by Hy­att, which had no con­nec­tion to the deal. Sethi, who faces up to 20 years in fed­eral prison, has been sell­ing prop­er­ties to pay back in­vestors, in­clud­ing the $41,500 ad­min­is­tra­tive fee he col­lected from each (a to­tal of $11.5 mil­lion).

None of the in­vestors re­ceived green cards.

Grif­fin said one of the most con­tro­ver­sial parts of the EB-5 pro­gram are the re­gional cen­ters, what she calls “the peo­ple who group to­gether in­vestors, han­dle the pa­per­work and then fun­nel the money into par­tic­u­lar in­vest­ments.”

The num­ber of th­ese groups that spon­sor EB-5 pro­jects has bal­looned, go­ing from 11 in 2007 to 588 in 2014 and 867 as of last month, ac­cord­ing to the (USCIS).

But mak­ing the agency’s head­count is not the same as get­ting their bless­ing. “The fact that a busi­ness is des­ig­nated a re­gional cen­ter by USCIS does not mean that USCIS, the SEC, or any other gov­ern­ment agency has ap­proved the in­vest­ments of­fered by the busi­ness,” an SEC state­ment reads.

“As you have more and more re­gional cen­ters com­ing on­line, we’re see­ing more and more fre­quently cen­ters that are not fully com­ply­ing,” Reaz Jafri, a lawyer at the in­ter­na­tional firm of With­ers LLP, told Forbes re­cently.

Re­gional cen­ters

Alexan­der said that re­gional cen­ters are one of the main rea­sons Congress has grown so con­cerned about the EB-5 pro­gram, “be­cause that adds an ex­tra layer in the process mak­ing it eas­ier for peo­ple to not re­ally know who they’re giv­ing their money to.”

Repub­li­can Sen­a­tor Chuck Grass­ley of Idaho and Demo­cratic Sen­a­tor Pa­trick Leahy of Ver­mont put forward a bill last year to curb fraud in EB-5 but it was put on hold and will be de­bated next month as part of the bud­get process, Alexan­der said.

Re­gional EB-5 cen­ters have their coun­ter­part in China with hun­dreds of so called “mi­gra­tion agents,” who have been key in hook­ing up in­vestors with some of the most suc­cess­ful EB-5 pro­jects, but some are re­port­edly ratch­et­ing up the finder’s fees they charge re­gional cen­ters.

The con­sul­tants can make up to $200,000 per in­vestor, which works out to as much as a 40 per­cent com­mis­sion on deals that start at $500,000 and range to $1 mil­lion. But, as The Real Deal re­ports, de­vel­op­ers and re­gional cen­ters con­tinue to hire them, be­cause they are the “gate­keep­ers” to thou­sands of wealthy Chi­nese ea­ger to buy in, and get a green card.

Alexan­der em­pha­sized that “no mat­ter how so­phis­ti­cated in their fields or pow­er­ful in their home coun­tries hope­ful im­mi­grants are, they suf­fer a spe­cial sort of vul­ner­a­bil­ity when they risk their sav­ings and to come to the US.

“The DOJ (Depart­ment of Jus­tice) and the SEC have demon­strated their com­mit­ment to pur­su­ing bad ac­tors ready to ex­ploit this vul­ner­a­bil­ity to line their own pock­ets,” she wrote in an op-ed re­cently. “But th­ese frauds are so de­struc­tive to hope­ful im­mi­grants — and so an­ti­thet­i­cal to Amer­i­can val­ues — that action can­not come soon enough.”

JUDY ZHU / FOR CHINA DAILY

A build­ing un­der con­struc­tion in the Hud­son Yards com­plex.

NANCY KONG / FOR CHINA DAILY

Four Sea­sons Ho­tel New York

NANCY KONG / FOR CHINA DAILY

Cen­tral Park Tower

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