A blistering report up the report by the Department of Homeland Security's Inspector General is hardly the only evaluation planned of the EB-5 immigrant investor program, which provides green cards for investors and their families if they park $500,000 in an investment that purportedly creates ten jobs.
The regional center component of EB-5--the opportunity to make pooled investments rather than directly into a project--is set to expire on September 30, 2015, and before any vote on reauthorization, expect some more spotlight on EB-5.
The regional center component--enormously popular, because investors can count indirect jobs--has been officially a pilot program, renewed every three years. Advocates want to make it permanent, with minor reforms. Others seek more significant reforms. And others may want to abolish it.
As I wrote in January 2014, in December 2013, Sen. Charles Grassley (R-IA) released an internal memo from Homeland Security Investigations (HSI), the investigative arm of U.S. Immigration and Customs Enforcement. The latter is an agency within the Department of Homeland Security, which also houses United States Citizenship and Immigration Services (USCIS), which oversees the EB-5 program.
HSI proposed "the Regional Center Model be allowed to sunset, as HSI maintains there are no safeguards that can be put in place that will ensure the integrity of the RC model.”
SEC crackdown coming
The SEC is preparing sanctions against as many as two dozen immigration lawyers, people familiar with the matter said, for collecting deal fees from foreign investors trying to access the EB-5 visa program, which grants U.S. residency for $500,000 investments that create 10 jobs.And instead of quoting an industry cheerleader, which is typical with most reporting, Bloomberg found a skeptic:
The lawyers were prohibited from earning transaction fees because they weren’t registered as brokers, according to the people, who asked not to be named because the investigations aren’t public.
“It’s not been demonstrated that it does much to create jobs, it’s given rise to a lot of questionable schemes, and it’s very complicated,” said David Martin, a law professor at the University of Virginia who has served as general counsel to the Immigration and Naturalization Service.An investor alert
The SEC on 10/913 issued Investor Alert: Investment Scams Exploit Immigrant Investor Program
The U.S. Securities and Exchange Commission's ("SEC") Office of Investor Education and Advocacy and U.S. Citizenship and Immigration Services ("USCIS") are aware of investment scams targeting foreign nationals who seek to become permanent lawful U.S. residents through the Immigrant Investor Program ("EB-5"). In close coordination with USCIS, which administers the EB-5 program, the SEC has taken emergency enforcement action to stop allegedly fraudulent securities offerings made through EB-5.The announcement stated:
The SEC and USCIS are aware of attempts to misuse the EB-5 program as a means to carry out fraudulent securities offerings. In a recent case, SEC v. Marco A. Ramirez, et al., the SEC and USCIS worked together to stop an alleged investment scam in which the SEC claims that the defendants, including the USA Now regional center, falsely promised investors a 5% return on their investment and an opportunity to obtain an EB-5 visa.
In another case, SEC v. A Chicago Convention Center, et al., the SEC and USCIS coordinated to halt an alleged $156 million investment fraud. The SEC alleged that an individual and his companies used false and misleading information to solicit investors in the "World's First Zero Carbon Emission Platinum LEED certified" hotel and conference center in Chicago, including falsely claiming that the business had acquired all necessary building permits and that the project was backed by several major hotel chains.
Also coming is an audit from the Government Accountability Office (GAO), which in November 2014 began reviewing EB-5 at the request of three Republican Senators, including Grassley.
The Department of Commerce
It's odd that EB-5, which is more about economic development than immigration in some ways, is under the supervision of USCIS.
The Seattle Times also noted that the Department of Commerce is studying the economic impact of EB-5. So another report will emerge before the regional center component of the EB-5 will be up for reauthorization.
The SEC offers a list of steps potential investors should take, which aren't necessarily easy for people in another country who don't read or speak English well. In fact, the questions are so at odds with EB-5 marketing--as shown in the Atlantic Yards example--that the SEC could and should have a field day cracking down on such marketing.
Obtain copies of documents provided to USCIS.(Emphases added)
Request investment information in writing. Ask for a copy of the investment offering memorandum or private placement memorandum from the issuer. Examine it carefully and research similar projects in evaluating the proposal.
Ask if promoters are being paid. If there are supposedly unaffiliated consultants, lawyers, or agencies recommending or endorsing the investment, ask how much money or what type of benefits they expect to receive in connection with recommending the investment.
Seek independent verification. Confirm whether claims made about the investment are true. For example, if the investment involves construction of commercial real estate, check 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.
Look for warning signs of fraud. Beware if you spot any of these hallmarks of fraud:
Promises of a visa or becoming a lawful permanent resident. Investing through EB-5 makes you eligible to apply for a conditional visa, but there is no guarantee that USCIS will grant you a conditional visa or subsequently remove the conditions on your lawful permanent residency. USCIS carefully reviews each case and denies cases where eligibility rules are not met. Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.
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.
Unregistered investments. Even though a regional center may be designated as a regional center 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.
Unlicensed sellers. Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or registered. Designation as a regional center does not satisfy this requirement. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms.
As I reported in December 2010, a promoter of the first Atlantic Yards EB-5 investment, on video, claimed that "all of the immigration risk [was] out of the process."