SEC and USCIS Identify and Halt EB-5 Investor Fraud
The United States Securities and Exchange Commission (SEC), with help from the United States Citizenship and Immigration Services (USCIS) on Monday identified and halted the operations of and announced charges against an alleged fraudulent EB-5 investor program in Chicago, IL. By offering potential investors a pathway to legal permanent residence, a Chicago-based individual and his limited liability company has allegedly spent foreign investor funds personally –spending the money rather retaining it for refund if necessary- and diverting investor funds to a personal bank account. This investment project was based on false documents and untrue statements as to the progress of development prior to foreign investor involvement. In reaction to the seriousness of this fraud case, the SEC has frozen the US assets of the man in charge of the fraudulent investment project in an attempt to secure the invested capital of the affected victims. This case highlights the importance of due diligence and using trusted representatives when selecting an immigrant investor visa program in particular, and when seeking a green card in general.
The investment project in question centered on a proposal to build a LEED-certified zero-emissions hotel and conference center near Chicago’s O’Hare Airport. The Chicago LLC responsible for the investment fraud led investors to believe that all permits for the project had been obtained and that the hotel would be built in conjunction with three of the largest hotel groups in the US: Starwood Hotels, InterContinental Hotels, and Hyatt Hotels. Roughly 250 investors had wired the LLC nearly $145 million in an attempt to receive legal permanent residence in the United States; however, beyond receiving the funds the LLC made none of the other necessary steps to ensure investors would receive a green card legally. Furthermore, the head of the LLC spent nearly all of the administrative fees charged to the clients (fees that were stated to be refundable if the investor’s EB-5 visa petition was rejected) while transferring a large portion of the collected fees to his personal bank account.
In addition to defrauding investors, this project also sent falsified documents to the USCIS in its attempt to gain provisional green cards for the duped investors, despite the project being largely unrealized. While the documents offered to the USCIS and the investors stated a 2012 construction start date, and a 2014 occupancy date for the constructed buildings, not such work had begun even into 2013. Also, in addition to misleading potential investors by claiming involvement of the Hyatt Hotels Group, the perpetrator of this fraud also submitted forged documents of support from the Hyatt Group to the USICS.
This is an unfortunate story, but despite the potential losses of wired funds, the SEC is confident that its actions, in conjunction with the USCIS, have saved the bulk of the invested funds for return to the defrauded investors. Nearly 90% of the administrative fees have already been used by the owner of the fraudulent company (a total nearing $11 million), but a freeze on the company’s US assets has helped insure that the bulk of the actual investment money will not be lost.
Beyond such an example of fictitious or otherwise dubious investment projects, the EB-5 visa through regional center investment carries significant risks on its own. Firstly, when petitioning to be considered as an EB-5 investment project there is the risk that the regional center petition will be denied. In such a case all of the preparation and work that goes in to creating a business plan and investment strategies will be wasted. Next, even after receiving regional center designation, investors may not end up getting the conditions removed on their conditional green cards if the regional center company does not operate according to its business plan. Sometimes, even if a company does operate according to its original business plans conditions may not be removed from an investor’s green card if the required jobs have not been created after 2 years. And finally, as the EB-5 investment program involves putting money at risk, there is the possibility that even in the best circumstances an investor could still potentially lose his/her investment with no return. The SEC case detailing fraud in Chicago is obviously more intentionally damaging that the risks just described, but it none-the-less shows in a dramatic way the careful consideration that must be exercised before committing to a regional center EB-5 investment.
The complexity and scale of this fraud case show the importance of adequately vetting a potential investment project for EB-5 purposes. If a foreign investor wants to apply for the EB-5 visa through regional center investment, he/she has no control over day to day operations as he/she has only a small percentage of stakes in the Regional Center Company. However, if a foreign investor wants to apply for the EB-5 visa through direct investment, he/she would have more control over day to day operations, which would effectively reduce the risk of being cheated by such a fraud where an investor is putting business management in the hands of someone else. We previously wrote an article about the EB-5 visa and franchises in which we suggest that, for aliens who consider investing directly without using a regional center but who do not have extensive prior business experience, a franchise may be a helpful way to establish a productive business and invest in the United States while pursuing permanent resident status. If you would like to learn more details about that issue, you may read that article by clicking the following link:
The orchestrator of this scheme had gone through many of the normal procedures for becoming a source of EB-5 investor visas without actually having a true project in which to direct investors’ funds. Not only were the nearly 250 investors in this case potentially disposed of their personal wealth, but they were also victims of fraud involving immigration. By playing on these honest investor’s desire to become permanent residents of the US the schemer in this plot denied the investors opportunity costs of their capital as well as the opportunity costs of waiting for a green card that would never come. This case truly highlights the complexities of the EB-5 visa program which require experience immigration attorneys in addition to any business considerations. If anything goes wrong -and this case is an extreme example of something going wrong for an investor- it is not just the money that may be lost but also wasted time attempting to immigrate to the United States.
We gladly announce that Attorney Kristin Whitaker, a former officer working in the Administrative Appeals Office (AAO) of the USCIS, has joined Zhang & Attorneys, L. P. since February 4, 2013.
Attorney Kristin Whitaker is a Senior Attorney and Training Manager supporting the firm's Houston offices. For the past five years, Kristin has served as an attorney for the USCIS working in the AAO, handling a wide range of appeals cases. This experience has given her a unique insight into the USCIS which she will utilize to assist clients in obtaining the best possible results.
Founded in 1996, Zhang & Attorneys, L.P. offers legal services to clients nationwide in all aspects of U.S immigration law. We have successfully handled thousands of immigration cases.
At Zhang & Attorneys, L.P., our attorneys and supporting professionals are committed to providing high-quality immigration and non-immigration visa services. We specialize in NIW, EB-1, PERM, and I-485 cases. In the past seventeen years, we have successfully helped thousands of clients get green cards. If you plan to apply for a green card, please send your CV to Attorney Jerry Zhang (email@example.com) for a free evaluation.
Zhang & Attorneys, L.P.
Silicon Valley New York Los Angeles Chicago Houston Austin Seattle