Connecticut, US
Increased enforcement activity by the Securities & Exchange Commission (SEC) against individuals and companies involved in the fifth employment-based (EB-5) immigrant investor visa program is a welcome development for prospective participants in the program. The EB-5 program can be a boon both to wealthy foreigners seeking U.S. permanent residence and to economic development in the United States. But while the relevant federal regulations focus on the integrity of the individual foreign national seeking permanent residence through investment (such as requiring documentation that the funds to be invested were lawfully gained), the government’s recent efforts to root out fraud highlight concerns about foreign investors being cheated by individuals and entities offering fraudulent investment opportunities, and indicate the federal government’s willingness to do something about it.
For example, in February 2013 the SEC brought charges against an individual and two Regional Centers behind an investment scheme in Chicago which allegedly fraudulently sold more than $145 million in securities and collected $11 million in fees from prospective immigrant investors primarily from China. The case was settled in federal district court in March 2014, with substantial civil injunctive and monetary penalties assessed against the defendants. In another case, the SEC and U.S. Citizenship and Immigration Services (USCIS) worked together to bring charges against two people in Texas who ran an alleged investment scam that solicited investments for a Regional Center that had not yet been approved, falsely promised investors a five percent return on their investment as well an EB-5 visa, misused investor funds for personal use and used new investor funds to make Ponzi-like payments to an existing investor.
The SEC and USCIS have issued a joint investor alert to caution foreign nationals about fraudulent EB-5 schemes. The alert advises prospective immigrant investors to take special care to research thoroughly any offering that purports to be affiliated with the EB-5 program. Suggested steps include the following:
- Confirm that the regional center has been designated by USCIS
- Obtain copies of documents provided to USCIS
- Request investment information in writing
- Ask if promoters are being paid
- Seek independent verification
- Examine structural risk
- Consider the developer’s incentives
Prospective investors should also look for telltale warning signs of fraud, including promises of a visa or becoming a lawful permanent resident; guaranteed investment returns or no investment risk; overly consistent high investment returns; unregistered investments; unlicensed sellers; and layers of companies run by the same individuals.
The good news is that the EB-5 program is benefiting from increased professionalism and enhanced management on the part of USCIS. The EB-5 program is now centralized at the Immigrant Investor Program Office located in Washington, D.C., where professional economists assist immigration examiners in adjudicating petitions, and where senior officers serve as case managers to “quarterback” the caseload. After years of lengthy processing times and spotty investor interest in the program, applications have jumped dramatically in recent years, with USCIS receiving nearly a 300% increase in I-526 filings (the initial and most difficult application in the two-step EB-5 application process) between FY2010 and FY2013. As of April 1, 2014, USCIS had approved 480 Regional Centers, which are driving economic development by attracting foreign investment in projects across the nation.
Far from being a deterrent, the SEC’s recent enforcement activities should be welcome to foreign investors. Moreover, rooting out fraud helps ensure the integrity of the EB-5 program for the vast majority of legitimate operators of Regional Centers, who spend the time and money to secure the necessary legal advice to make sure their projects comply with all relevant laws. Everyone who complies with the law—individual investors and Regional Centers alike—benefits from a program that operates efficiently and under appropriate government oversight.