EB-5 Ponzi Scheme Indicted by SEC

A Texan couple and their companies were charged by the U.S. Securities and Exchange Commission (SEC) for allegedly running a Ponzi scheme to defraud at least 10 foreign investors more than US$5,000,000 under the guise of the EB-5 investment visa program.

The EB-5 investment visa program (EB-5 Program) allows foreigners to apply for U.S. permanent resident status (commonly known as the "Green Card") by investing $500,000 or $1,000,000 dollars in a U.S. enterprise and creating or preserving at least 10 full-time job openings.   There are no specific qualification requirements of the EB-5 investors, and currently there is an abundance of EB-5 visa numbers.  Because of these advantages, many wealthy foreign investors are interested in the EB-5 Program.  At the same time, the EB-5 Program has also been abused by unscrupulous individuals and companies as a marketing tool to defraud innocent foreigners large sums of money.

By law, business entities called Regional Centers are established for the economic development of specific geographic areas and industries under the EB-5 Program. The Texan couple, Mr. and Mrs. Ramirez, formed a Regional Center called "USA Now LLC" to solicit foreign funds to invest in the EB-5 Program.  However, even before the Regional Center's application was approved by the U.S. government, the couple was already taking money from foreign investors. The Ramirezes initially targeted investors in Mexico, but later on also solicited money from investors in Nigeria and Egypt.

The Texan couple also allegedly made false promises to investors that the funds would be kept in escrow account, and would only be released for legitimate business purposes after the U.S. Citizenship and Immigration Services (USCIS) had approved their immigrant visa applications.  In reality, the couple would allegedly take the money out from the escrow account for their own illegal use.  Some alleged misappropriations of investor funds include the purchase of a Mercedes Benz and other automobiles for company employees, and financing of a Cajun-themed restaurant in Texas.  Further, the SEC also alleges that the Ramirezes would use the payments of subsequent investors to make Ponzi-payments to earlier investors.  For example, an initial EB-5 investor discovered that USA Now was not yet approved as a Regional Center and demanded a refund of investment. Because the Ramirezes already spent the funds of the first investor, they therefore used the investment funds from subsequent investors to pay back the first investor.

The Texan couple also allegedly promoted to foreign investors that the funds would be invested in an energy business, although they never included such an investment plan in the Regional Center application filed with the USCIS.  They also allegedly promised prospective investors a 5% return of investment without explaining how they were going to make good that promise.

This is not the first time that the SEC has investigated an EB-5 Regional Centers.  Because large sums of funds are involved in EB-5 Program, scammers often prey on foreign investors who are usually not sophisticated enough to understand all the legal intricacies of the U.S. legal system.  Hence, it is important for foreign investors to do their due diligence before choosing a Regional Center as an investment tool.  If in doubt, they should seek advice from independent professionals such as lawyers and business advisers.