An immigrant visa program designed to attract foreign investment in U.S. businesses has also attracted scammers targeting immigrant investors.
At issue is the federal immigrant visa known as the Employment-Based, Fifth Preference (EB-5) visa. Foreign investors who meet certain eligibility requirements can apply for conditional resident alien status (a conditional “green card”) in the United States by investing in a U.S. business.
The minimum investment is $1 million (or $500,000 for certain targeted high unemployment or rural areas) in a commercial enterprise that within two years creates at least 10 new full-time jobs or preserves at least 10 jobs in a pre-existing business.
After two years, if investment has met the jobs requirement, the immigrant investor may apply to become a lawful permanent resident and eventually may apply for potential U.S. citizenship.
An immigrant investor could invest the funds directly into a new or troubled business, or indirectly through a “regional center” approved for this purpose by the U.S. Citizenship and Immigration Services (USCIS).
Most EB-5 visa applicants invest through these regional centers. But while the USCIS approves each regional center, the specific investments offered by regional centers generally do not undergo review or approval by any federal or state regulatory agency.
Fraudsters have preyed upon unsuspecting EB-5 investors through the use of illegitimate businesses or sham regional centers.
In April, state officials in Vermont and the Securities and Exchange Commission filed similar civil actions alleging investor fraud dating back to 2008 at EB-5 development projects run by two men.
The complaints allege that the men misused more than $200 million of investor funds intended for EB-5 development projects in Vermont, including a ski resort and a biomedical research facility. The cases also allege that one of the men misappropriated $50 million of investor funds for personal use, including the purchase of a Manhattan apartment and the payment of personal income taxes.
In June 2016, the SEC Commission announced fraud charges and an asset freeze against a husband and wife accused of misusing money they raised from investors to build and operate a cancer treatment center to help oncology patients in Southern California.
The SEC said the pair raised $27 million for the cancer treatment center from 50 investors in China through the EB-5 immigrant investor program. Of the money raised, $11 million was transferred to three firms in China and another $7 million was diverted to the couple’s personal accounts.
Foreign investors considering the EB-5 visa program should conduct due diligence on the claimed investment opportunity as well as the regional center itself.
For example, fraudsters may represent that they are working through USCIS-approved regional centers when in fact they have not applied for USCIS approval.
Furthermore, investors should monitor the uses of any funds to ensure funds are not directed towards expenses that do not meet EB-5 requirements, such as promoter fees and administrative fees.
The following are steps immigrant investors can take to protect themselves.
Investigate the Investment Promoter and Regional Center
EB-5 investments, even those offered through USCIS-approved regional centers, generally are not reviewed or approved by any federal or state regulatory agency. Nonetheless, potential investors should check with the appropriate regulatory authorities for any information about the potential investment or promoter.
Do not invest through a regional center that has not been approved by USCIS. A list of approved regional centers is available on the USCIS website. The USCIS also identifies regional centers that have had their approvals withdrawn.
Get it in Writing
The sponsor of an investment should have a business plan and offering documents, such as a private placement memorandum, outlining the proposed terms of the investment. Do not invest unless you receive such information.
Conduct your own analysis of the investment opportunity. Review and compare any investment materials to information in USCIS filings and other written or verbal statements from the issuer or its promoter. Any inconsistencies should be treated as a red flag.
How Are the Sponsors or Developers Paid?
Be comfortable that you understand how the sponsors/developers of an investment opportunity will be compensated, particularly if the sponsor/developer is not itself investing in the opportunity.
Understand how the sponsors/developers are incentivized. Are the sponsors/developers of a regional center investing their own money into the projects they are managing? If not, the developers’ financial incentives are not linked to a project’s ultimate success and profitability.
What is the structure of the investment and any affiliates? If there are layers of entities managed by the same individuals, there may be conflicts of interest that should be disclosed and evaluated.
Compare the answers you receive to information contained in the offering materials.
Investigate the Claims and Independently Verify Information
Many EB-5 investments help finance real estate developments. Real estate developments require permits and approvals from appropriate zoning or planning authorities. Contact these agencies and obtain information or records to verify representations that permits or approvals have been received.
In addition, if the project involves the sale of land, inquire whether an independent appraisal has been conducted and request a copy. Additionally, check local property tax assessments for how property has been valued and whether that value reasonably supports the investment opportunity.
No investment promoter should ever promise a visa or permanent residency in exchange for an EB-5 investment. Investment promoters have no ability to make such promises.
The EB-5 program does not guarantee a visa will be issued, or that permanent residency will result. The EB-5 only provides an avenue for such eligibility.
–North American Securities Administrators Association and the Texas State Securities Board