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Were EB-5 investors misled? The U.S. Immigration Fund, partner Qiaowai, and a 2017 Senatorial investigation request that seemingly went nowhere.

I've written multiple times about deceptive marketing of EB-5 investments to unwary customers in China--but I missed this 5/12/17 investigation by Reuters, Behind Kushner Companies, a Chinese agency skirts visa-for-investment rules.

This followed up on widespread reports that Jared Kushner’s family company invoked his White House role in recruiting investors for a real estate project in Jersey City. 

The migration agency Qiaowai, which often works with the U.S. Immigration Fund, the leading loan packager (aka "regional center," which has marketed sold two rounds of Atlantic Yards financing, as well as Nassau Coliseum financing), was found by Reuters' Alexandra Harney to have made improper promises regarding the program:
Qiaowai’s promotional materials online and on social media, however, sometimes refer to a green card guarantee or “safeguard”, and the safety of capital invested in EB-5 projects. Reuters found six instances where Qiaowai offered such assurances in its online promotion of the One Journal Square project, and several other instances in promotion of previous projects.

In one advertisement for the One Journal Square event in Shanghai posted on Chinese social media platform WeChat on May 5, Qiaowai wrote that the project “in a real sense guarantees a permanent green card and the safety of the investment principal, and we consider it one of the best of Qiaowai’s 87 projects to date!” After Reuters asked Qiaowai for comment, the post was deleted.
(Emphases added)

Note this passage from the article:
Several experts interviewed by Reuters said the promises by Qiaowai were a breach of the program’s rules while others played down the concerns, saying such representations were commonplace and just one aspect of a problematic program.
Sure, it's just one aspect, and commonplace (see other coverage of Qioawai here, here, and here, including Atlantic Yards), but it's blatantly deceptive, so maybe we shouldn't play it down.

The relationship

From Reuters:
USIF said the firm was “committed to strict adherence to securities and all applicable laws,” and it required Qiaowai to certify in writing its compliance with these laws as well.
USIF did not make assurances about green cards or the safety of funds, the company said in an emailed response to questions.
That may be so, but it's questionable that USIF didn't have any inkling of Qiaowai's statements. 

It's reminiscent of the claim by the New York City Regional Center (NYCRC)--the first regional center to market Atlantic Yards to EB-5 investors--to Reuters in December 2010, say they were surprised that their marketing partner in South Korea was misleading investors. (Alas, Reuters never followed up after I pointed out that the same claims came from NYCRC principals.)

Reuters noted that the "fees and terms of Qiaowai’s arrangements" with USIF have not been disclosed. Sure, that may have been true regarding the Kushner project. 

However, thanks to disclosures in some legal cases, we now known that in other cases, USIF both earns significant sums and promises significant sums to Qiaowai, which obviously gives both partners incentive not to rock the boat.

The Grassley request

Not long after the Reuters coverage, Sen. Chuck Grassley (R-IA), then chair of the Senate Judiciary Committee, asked the Department of Homeland Security (DHS) and the Securities and Exchange Commission (SEC) to investigate "potentially fraudulent statements and misrepresentations" by the two companies. (See letter at bottom.)

Grassley cited the Reuters article, as well as a 5/9/17 New York Times article by Javier C. Hern├índez C. Hernandez and Jesse Drucker, which reported that “Qiaowai promised safe investments and ‘guaranteed’ green cards, according to emails and text messages sent to clients.”

"While Qiaowai has been marketing One Journal Square as a sure thing that cannot fail, the U.S. Immigration Fund has been fighting a rear-guard action in D.C., to prevent much needed reforms of the EB-5 program," wrote Grassley, who has long aimed to ensure that EB-5 investments go to rural areas rather than get focused on high-profile urban areas like New York City, popular for USIF investments.

Grassley asked, among other things, if Qiaowai and USIF had ever been investigated and whether they were considered broker-dealers for EB-5 investment purposes.

As far as I know, Grassley never got a response--at least not one made public. (I queried his office, SEC, and DHS, but didn't get a reply.)

Judiciary now more generous to EB-5?

Note that Grassley has since been succeed as Judiciary Chair by Sen. Lindsay Graham (R-SC), which makes scrutiny less likely.

Graham has sponsored a bill that would roll back EB-5 reforms and make it easier to again steer investments to major cities. USIF founder Nicholas Mastroianni II contributed $5,000 to Graham's campaign in September 2019.

If the Republicans hold one or both Senate seats in the upcoming special election in Georgia, the friendly Graham will remain heading the Judiciary Committee. 

If the Democrats win two Senate seats in Georgia, that might change the equation--but it might not. Current Senate Majority Leader Chuck Schumer (D-NY) is a co-sponsor with Graham of the EB-5 bill that would help real-estate investors and EB-5 promoters. 

The history of EB-5 is that it gets bipartisan support from legislators more interested in getting constituents cheap financing than looking carefully at the details. 

And even critics like Grassley have been motivated mostly by ensuring that EB-5 deals for their constituency--in this case, rural locations--are not disadvantaged in relation to those in big cities.