A lawsuit alleging fraud and misconduct brought forth by 27 EB-5 visa immigrant investors against New Orleans Regional Center operators William Hungerford and Tim Milbrath is seeking an immediate accounting of the whereabouts of their investments as well as relief and answers to their questions concerning the status of their residency in the United States. As first reported by Greenberg Traurig attorney Kate Kalymkov, the suit alleges the following:
For complete information regarding this case, please see Michael Gibson's Article
Canada has been a major destination for wealthy Chinese investors since the 90s. To qualify, the investor has to own at least $1,600,000 assets. Unconditional permanent residence can be obtained if the investor deposits $800,000 for 5 years with the Canadian Federal government or the government of Quebec. The funds are completely secure as they are guaranteed by the Federal Government or by the Province of Quebec. It will be used for economic development and will be returned to the investor at the end of 5th year. Because of its safe nature of the Canadian program and it is relatively easier to be granted permanent residency in Canada, Canadian investment immigration program became a dominant program among Chinese emigration agents for last 15 years. The majority of 600+ licensed Chinese emigration agencies are now beginning to explore EB-5 program and investor program in European countries.
AMONG the most popular tools for attracting foreign investment to the United States is the EB-5 program. It seems like the perfect win-win: any foreigner who invests between $500,000 and $1 million here, and creates at least 10 domestic jobs from that investment within two years, gets a green card.
Given how many high-worth investors are clamoring to enter the United States, the program could have a significant effect on American unemployment. Indeed, it has brought in some $1 billion over the last fiscal year, and the President's Council on Jobs and Competitiveness has called for the program to be "radically" expanded over the next few years.
Unfortunately, the program is so rife with fraud and corruption that it could actually have the opposite impact and deter investment. To regain its credibility, the program must make a number of changes to enable more transparency and demand more competence from its operators.
The most egregious problems with the EB-5 program can be found in its 218 regional centers, which work with private-sector brokers to identify local investments and direct foreign participants to them. Examples abound of centers and brokers playing down risky investments and misrepresenting how the program works, including a promise that EB-5 investments are guaranteed by the federal government, when the government in fact does nothing of the sort. Many investments have failed to create the required 10 jobs and even gone bankrupt, leaving the investor without his money or his green card.
While many EB-5 regional centers have solid records, a disturbing number have directed investor money to risky projects and companies that pay little to no return, overseen by brokers who get a commission regardless of how the investment plays out.
Aside from accusations of outright fraud, there is also a clear lack of understanding among government administrators about how to manage an investment program. As a result, they often approve businesses that are simple to understand, like a condo development or a grocery store, but whose business models don 't generate enough profit to hire workers, while rejecting more sophisticated businesses that stand a greater potential of generating profits and jobs.
For the time being, these problems haven't turned the tide of interest in the EB-5 program. But that could change: recent high-profile investigations by Reuters and Businessweek, as well as a warning against fraudulent brokers by the Chinese Supreme People's Court, could start having a significant deterrent effect, especially since other countries, like Canada, are following America's lead with their own versions of the program.
Fortunately, the solutions are straightforward. The federal government needs to rein in freewheeling brokers with heavier penalties for misrepresenting investments, hire more business-savvy administrators and make the entire process more transparent, so that applicants know why their money was accepted or rejected.
The EB-5 program has a lot of promise to reduce unemployment, and the White House is right to call for its expansion. Rather than end it, let's fix it.
Good news: USCIS is looking to hire experienced attorneys with knowledge of corporate, finance and securities law to work on the securities and investment related issues related to the EB-5 visa and practices within the industry. If the Regional Centers and EB-5 agents & service providers were hoping that financial and securities practices in the industry would continue to be ignored by USCIS it looks like that may not be true for much longer. At least they will hopefully have the resources and manpower to investigate financial and securities related problems within the industry.
note: "ALD attorneys also provide litigation support to the Department of Justice in federal lawsuits involving USCIS regulations, adjudications, practices, and/policies."
Here is the job description:
Open Period: Tuesday, April 10, 2012 to Tuesday, April 24, 2012 |
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Recently, a prospective client informed me that it was not required to comply with the U.S. securities laws because all EB-5 money for their project would be raised outside of the U.S. from foreign investors. Not only is that not accurate, but any lawyer preparing disclosure documents relating to an EB-5 investment with the belief the he or she can simply use a template from another deal and "fill in the blanks" may find his or her client facing securities fraud litigation and/ or enforcement action by the U.S. Securities and Exchange Commission ("SEC"). Furthermore, SEC investigators are considering extending the reach of enforcement actions in cases involving complex financial transactions to lawyers who provided the legal advice on fraudulent deals .
Limited liability company interests and limited partnership interests generally are considered "securities" under federal and state securities laws. As securities, the offer and sale of these interests to EB-5 investors are subject to the anti-fraud provisions of federal and state securities laws. While the anti-fraud provisions do not mandate or prescribe any specific disclosure, to assure compliance with the anti-fraud provisions, issuers of limited liability company interests or limited partnership interests should provide investors with full, fair and complete disclosure of all information that a reasonable investor would consider important in making an investment decision. Omissions of material facts can lead to substantial liability. To inform investors of all material facts associated with an investment, well-advised issuers typically provide investors with a written disclosure document, commonly referred to as private placement memorandum, or PPM. The PPM not only serves as a means of providing required information to investors, but also as a means of documenting that such information was provided to prospective investors, thereby avoiding later claims by disgruntled investors that material information was withheld in connection with their investment by the issuer.
The suit also claims that "the proposed State Center project would prompt an exodus of state government jobs" which would "[render] the central business district with more vacancies." As of December 2011, the number of vacancies in the district stood at 25%, a harrowing figure that reflects the current economic recession.
Despite the lawsuit, EB-5 promoters are are still raising funds for the project, which they present as a public-private partnership with the full support of state and local government, including the current Governor of Maryland, Martin O'Malley.
State Center is a big project, $1.5 billion all told.
To finance the construction of two office towers that are part of the development, the project's officers will combine $30 million from the State of Maryland and $10 million from the developer with other private funds to raise a total of $230 million. We know that EB-5 investments will help finance at least this part of the construction and that the DC Regional Center is handling the EB-5 funding element.
According to a promotional video targeting prospective EB-5 investors, the two buildings will occupy 605,000 square feet of space with an underground parking garage beneath. The State of Maryland has already pre-leased 515,000 square feet for 20 years. The remaining space will accommodate street-level retail establishments, including a grocery store.
Lately, when scouring EB5 visa news I come across information that
a) could be misleading,
b) is completely untrue and
c) irresponsible.
Just yesterday I saw an informative video presentation by an immigration attorney from California that started out presenting a very good explanation of the program rules. However, further into the video I was shocked to here the following:
"The USCIS recently proposed changes to help streamline the EB5 process for eligible foreign nationals" [all perfectly true] The presenter went on to say."if you meet the requirements, and for a fee you can get your petition adjudicated in 15 days." Completely untrue at this time.
What is so annoying is that statements like this, from an otherwise credible attorney, cause so much unnecessary confusion and grief among potential EB5 visa clients. When an attorney makes a statement that premium processing for the EB5 visa category is available clients often call us and say "why was I not offered premium processing." We are then left to explain that actually, despite what an attorney indicated, premium processing is not yet available in EB5 visa cases. Please, please, try to be as accurate as possible when providing EB5 visa information to clients and potential clients. It is important to the credibility of the EB5 visa program. If indeed you do make a statement that you later find to be incorrect (we are all human after all) please go ahead and use the same forum to correct that information. This applies equally to EB5 visa news, blogs and forums.
Is the recently expanded and much-ballyhooed Jay Peak Resort in the Northeast Kingdom facing financial difficulties?
Or did a former associate of the resort just get miffed and write a snarky letter that set off inaccurate speculation?
Probably the latter, and not just because Bill Stenger, Jay Peak's owner, insists that the resort is doing just fine, and is "about 35 percent ahead (of last year) in revenues."
It's also because James Candido, the state official who keeps tabs on the resort's affairs, said he found "no issues" regarding its finances.
And perhaps because Douglas Hulme, who started the discussion of the resort's situation by announcing that his firm "no longer has confidence in the "financial status of Jay Peak", declined several requests over a three-day period to discuss his allegation.
A Federal Grand Jury in Cleveland has issued a 37 count indictment against EB-5 Visa Regional Center owner A. Eddy Zai and two others. Zai, 90% owner of the Cleveland International Fund (CIF), is being charged with fraud, bribery, money laundering, conspiracy and making false statements which led to what United States Attorney Steven Dettelbach called "A conspiracy that resulted in one of the largest credit union collapses in history"
Federal Bureau of Investigation (FBI) Special Agent Stephen D. Anthony said that "This indictment is the result of a lengthy joint investigation between the FBI and the IRS. Zai was the single largest recipient of fraudulent loans and significantly contributed to one of the largest collapses of a credit union in U.S. history.
The EB5 investor visa program has aroused the interest of many individuals who wanted to obtain a green card for the United States and whose only advantage was money. Despite the mutual benefits of the program, the maze of paperwork and the complexity of the eligibility requirements require the professional assistance of an EB5 lawyer.
The EB5 lawyer has mainly two tasks related to the EB5 investor visa, apart from the inherent responsibilities of representing the clients' best interest. The lawyer needs to identify the most adequate regional center to invest in for the particular situation of the client. He or she also needs to provide complete petition preparation services.
Choosing the Right Regional Center
There are several steps which an EB5 lawyer needs to follow so that the client is properly advised and explained all options related to regional centers before actually making a decision.
Recently I received a question from a potential EB5 client asking for information on how he might find a regional center that did not charge an administration fee.
My reply centered on the client's motivation, aside from the obvious, to choose a regional center project based upon a lack of, or a very low, administration fee. The response I received intrigued me so I thought I should share it with our readers and offer some thoughts. Here is the client's response:
Where in official docs it is mentioned that investment beneficiaries can or may charge rather variable amounts for their admin fees?
I thought it goes without saying that the investment money makes it possible that all their needs are covered by investment itself.
Whenever I see a question from an EB5 client that is confused it offers a chance to try to clear-up potential future confusion by offering a little commentary.
Keep in mind that the decision to charge an administration fee by the regional center is their decision alone. The USCIS do not have any involvement in the negotiation of these fees. The fees charged by a regional center for participation in one of their projects is typically governed by a) the regional centers want to recoup some of the costs of putting the project together, b) to offset some of the regional centers fees for legal documents, marketing and other expenses and c) market driven forces. i.e. the need to be competitive in the EB5 marketplace.
From feedback of previous clients, I can say that I have never heard from anyone that they were going to use the amount of an administration fee (or the total lack thereof) as criteria for the choice of regional center project.
Typical administration fees charged by EB5 regional centers range from $35,000 to $60,000. Keep in mind that in addition to these fees you will incur legal fees of your own for filing of your I-526 petition, consular processing or adjustment of status and filing of your I-829 petition to remove conditions (after approx.. two years). Legal fees do vary based upon your choice of EB5 attorney. It is imperative that you engaged an experienced EB5 attorney NOT simply an experienced immigration attorney.
More about this tomorrow when we discuss Consular Processing procedures and the need for expert advice before attending a consular interview.
A federal appeals office upheld the termination of Victorville's EB-5 visa investor center, leaving the city with no option but to pursue a pricey lawsuit or say goodbye to millions in funding they'd hoped to borrow through the program.
City officials got the news Thursday afternoon, with plans to discuss next steps during the Jan. 17 city council meeting.
U.S. Citizenship and Immigration Services approved Victorville's Regional Center in 2009, allowing foreign nationals to supply at-risk loans to the city so long as that money helped create 10 local jobs. Investors would then be granted U.S. visas and the loans would have to be paid back five years later with interest.
Nineteen people gave Victorville $500,000 each under the program, and the city intended to use that money to pay back restricted funds borrowed from its water department to build the struggling wastewater plant at Southern California Logistics Airport.
Then, in a precedent-setting move, USCIS terminated Victorville's program in October 2010 due to "material factual discrepancies" in related financial reports.
Victorville sent USCIS additional information and appealed to that office to overturn the decision, but was turned down in May. The city then filed a lawsuit in Washington, D.C. District Court against USCIS, the Department of Homeland Security and several top officials with those agencies, but agreed to pause that civil case as it waited on word from USCIS's Administrative Appeals Office.
In a letter dated Dec. 21, the AAO affirmed the decision to terminate Victorville's program.
Several Chinese agents and investors are calling into question the claims being made by a new EB-5 Visa Regional Center, The Intercontinental Regional Center Trust of Chicago.
Many are calling this project the new Atlantic Yards due to the extremely large size of the offering ($249.5 million) and the claims being made by its promoters and migration agents in China. The agents need to heavily promote issues of this magnitude in order to raise such an exceptionally large offering (most EB-5 visa project offerings are under $50 million) in a very short period of time.
In order to raise this much capital from an extremely large number of investors (499), the migration agencies in China and elsewhere often make exaggerated claims to meet their quota. If successful, they can earn well over $100,000 - $150,000+ for each investor ($45,000 from the subscription fee plus a percentage of the loan collected by the General Partners).
The Chinese investors are not aware that these agents are collecting such large fees. It is not disclosed to them, and most foreign investors believe that these migration agents are paid only a very small amount ($5,000) and are working on investors' behalf.
Many hopeful immigrants who wish to invest in projects in the United States through the USCIS EB-5 Immigrant Visa program seek assurances that their investment funds will be properly administered. Escrow Accounts, while new to many of them, offer just this type of assurance. There are a variety of benefits to this structure, and many Regional Centers find that it provides them with a competitive edge over other Regional Centers. Here are a few bullet points on what the investors gain when the Regional Center offers an escrow:
The investors' main goal is to make an investment which leads to securing their visas. An escrow account allows the investors peace of mind during the application phase. For Regional Centers on their own, establishing and maintaining these escrow accounts is challenging. The NES Financial solution navigates this process for the Regional Centers and allows them to offer exactly what their investors are looking for.
