Monday, April 14, 2014

Why does Forest City (with partners) continue misleading EB-5 promotion? Well, they got away with it the first time

Forest City Ratner and its anticipated Chinese partner stand to save tens of millions of dollars--maybe more--from $249 million in cheap capital raised through immigrant investors, but only if their clearly deceptive pitch to those investors gets a pass from federal regulators.

That was obviously a calculated risk, because, in 2010, even more clearly deceptive tactics got a pass. Forest City Ratner raised $228 million (the original goal was $249 million) from investors who prized getting green cards over a significant return on their investment, which they'd park for five to seven years.

(The justification for the federal EB-5 program is that the investments create jobs, but indirect/induced jobs can be counted and, in the case of Atlantic Yards, the project would go ahead without that investment. It merely lowered Forest City's cost of capital and, astoundingly, is considered kosher.)

Proof on video

"Can you tell us about the advantage of this problems, and what difference from other projects?" Gregg Hayden, a representative of the New York City Regional Center (NYCRC), representing the deal, was asked on a webcast in 2010.

"The first major advantage is that the approval process, from USCIS [United States Citizenship and Immigration Services], having already been accomplished, takes all of the immigration risk out of the process for the EB-5 investor," Hayden responded, as shown below. (Emphasis added)

I asked the USCIS if acceptance of the regional center's application meant a specific project "has been completely pre-approved by USCIS" or that the immigration risk had been eliminated.

The answer was no.

USCIS spokeswoman Luz Irazabal told me at the time: “When we approve a regional center, or we approve an amendment to it, if it’s specific to that regional center, it does not mean that the petitions that are going to be filed have been pre-approved."

Can a project be “completely pre-approved by USCIS?" I asked, quoting Hayden's language.

Irazabal cautioned that she could not comment on specific projects, but responded, “USCIS either approves or denies a benefit. You’re either a U.S. citizen or you’re not. We don’t pre-adjudicate benefits.

As it happened, the first round of EB-5 investors have sailed through. So it was a calculated risk.

Boilerplate warning

The following passage appeared in the confidential offering memoranda for two previous NYCRC projects, regarding the Brooklyn Navy Yard and Steiner Studios:

Presumably, such boilerplate also appeared in the memorandum for the Brooklyn Arena and Infrastructure Project, so, despite Hayden's language, the project promoters had an out.

Misleading promotion

Most of the promotion took place in China, but Reuters reported that an agent for the Kookmin Migration Consulting Co., working on behalf of the NYCRC in Korea, "told would-be investors if they invested in the company's latest project their permanent green cards were 'guaranteed' and implied investors would be financing a new arena."

George Olsen, NYCRC managing principal, acknowledged to Reuters that the claims were "not accurate," but blamed his affiliate. 

Actually, as shown in the video, the NYCRC's own man in China made such claims.

Documentation, as shown in the brochure at right, suggested that not only was the arena the centerpiece, the city, state, and National Basketball Association were involved.

They got away with it.

The EB-5 program is already dubious, because it essentially gives permission for developers and entrepreneurs valuable public property (a limited amount of green cards) to market in exchange for investments that benefit them predominantly.

It's unsurprising that such a lucrative opportunity tempts project promoters into stretching the truth to make their projects stand out in a very competitive overseas market.

But that's where regulation--and some skeptical reporting--should come in. 

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