SEC Continues to Crack Down on EB-5 Fraud

Late last year, investors who claimed the $8.5 million frozen by the Securities and Exchange Commission (SEC) was rightfully theirs were denied access to the money by a federal judge. U.S. District Judge Joan Lenard ruled that management of the funds would continue with a court-appointed receiver, initially established following the filing of a fraud case against Liliy Zhong. The suit claims that Zhong and her company EB5 Asset Manager LLC obtained the money through fraudulent promises to Chinese investors of U.S. visa acquisition via the federal EB-5 program.[i]

 

Established in 1990, the EB-5 Immigrant Investor Program was designed to attract foreign capital and stimulate national job growth. The creation of ten U.S. jobs and an investment of $1 million ($500,000 under certain circumstances) procured for the investor a permanent resident visa.[ii]

While individual businesses may participate, the U.S. Citizenship and Immigration Services (USCIS) registers some companies as EB-5 “regional centers” that seemingly have the ability to satisfy the requirements of the program. These centers also ostensibly have the capacity to accept and direct funding from foreign investors to promote the required economic development.[iii] 

Though expansion of the program in 1993 relaxed job requirements by allowing the inclusion of indirect growth and decreased managerial oversight, it was not until the Great Recession that utilization of this visa system skyrocketed, increasing from 1,360 conditional visas issued in FY2008 to more than 10,000 in FY2014.[iv]

Such an increase in the program’s use has brought a corresponding increase in those attempting to take fraudulent advantage of it. According to the SEC, Zhong misappropriated funds investors were told would be utilized in construction projects, instead purchasing luxury cars, a yacht, and multi-million dollar home. [v] In a similar case, Bingqing Yang has been accused by the SEC of executing a $68 million Ponzi-like scheme, with $8 million raised from EB-5 Chinese investors, to provide a life of luxury.[vi]

Yang promised those seeking to obtain U.S. residency they would do so through investment in eight oil and gas drilling projects with one of her companies. In reality, the company was hopelessly in debt and the money simply lined Yang’s pockets.[vii]

It is not just Chinese nationals targeted by EB-5 profiteers. According to the SEC, Marco and Bebe Ramirez fraudulently raised $5 million from investors initially in Mexico, then Egypt and Nigeria. Utilizing promises of obtaining green cards, the couple began raising money prior to being certified as a regional center. These funds were diverted into other businesses and for personal use. Some were even used to pay a previous investor, creating a Ponzi-like scheme.[viii]

The exploitation of the EB-5 program has become so common the SEC Office of Investor Education and USCIS issued a joint warning, alerting the public to this potential misuse. The statement offered important clarification, including the lack of guarantee in obtaining permanent residency and an absence of government approval of investment opportunities, as well as advice and links to official websites for further information.[ix]  

Government lawmakers and auditors have called into question the ability of the immigration law specialists at the USCIS to oversee a program requiring financial regulation and investment knowledge.[x] If you feel you may have fallen victim to such a scam, please contact an attorney for further direction.

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[i] Wickham, A. (2015, December 1) Investors Can’t Touch Assets in $8.5M EB-5 Fraud Row [electronic format]. Retrieved from http://www.law360.com/articles/732402/investors-can-t-touch-assets-in-8-5m-eb-5-fraud-row

[ii] EB-5 Program: Success, Challenges and Opportunities for States and Localities (2015, September 17) [electronic format]. Retrieved from http://bipartisanpolicy.org/library/eb-5-visa-program/

[iii] SEC Halts Texas-Based Scheme Targeting Foreign Investors Seeking U.S. Residency Through EB-5 Visa Program (2013, October 1) [electronic format]. Retrieved from http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539854731

[iv] EB-5 Program: Success, Challenges and Opportunities for States and Localities (2015, September 17) [electronic format]. Retrieved from http://bipartisanpolicy.org/library/eb-5-visa-program/

[v] Wickham, A. (2015, December 1) Investors Can’t Touch Assets in $8.5M EB-5 Fraud Row [electronic format]. Retrieved from http://www.law360.com/articles/732402/investors-can-t-touch-assets-in-8-5m-eb-5-fraud-row

[vi] SEC Charges Oil Company and CEO in Scheme Targeting Chinese-Americans and EB-5 Investors (2015, July 6) [electronic format]. Retrieved from http://www.sec.gov/news/pressrelease/2015-141.html

[vii] ibid

[viii] SEC Halts Texas-Based Scheme Targeting Foreign Investors Seeking U.S. Residency Through EB-5 Visa Program (2013, October 1) [electronic format]. Retrieved from http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539854731

[ix] Investor Alert: Investment Scams Exploit Immigrant Investor Program (2013, October 9) [electronic format]. Retrieved from http://www.sec.gov/investor/alerts/ia_immigrant.htm

[x] EB-5 Program: Success, Challenges and Opportunities for States and Localities (2015, September 17) [electronic format]. Retrieved from http://bipartisanpolicy.org/library/eb-5-visa-program/