EB-5 Investment Program Fraud Alert

In light of the increasing number of EB-5 investor visa cases involving fraud and illegal practices, the U.S. Securities and Exchange Commission's ("SEC") and U.S. Citizenship and Immigration Services ("USCIS") recently issued a fraud alert to prospective foreign investors to help them identify potential fraudulent or illegal EB-5 Program activities. 

The main points of the fraud alert are summarized below:

1. Confirm that the regional center has been designated by USCIS. If you intend to invest through a regional center, check the list of current regional centers on the USCIS website. If the regional center is not on the list, exercise extreme caution. Even if it is on the list, understand that USCIS has not endorsed the regional center or any of the investments it offers.

2. Obtain copies of documents provided to USCIS. Regional centers must file an initial application (Form I-924) to obtain USCIS approval and designation, and must submit an information collection supplement (Form I-924A) at the end of every calendar year. Ask the regional center for copies of these forms and supporting documentation provided to USCIS.

3. Request investment information in writing. Ask for a copy of the investment offering memorandum or private placement memorandum from the issuer. Examine it carefully and research similar projects in evaluating the proposal. Follow up with any questions you may have. If you do not understand the information in the document or the issuer is unwilling or unable to answer your questions to your satisfaction, do not invest.

4. Ask if promoters are being paid. If there are supposedly unaffiliated consultants, lawyers, or agencies recommending or endorsing the investment, ask how much money or what type of benefits they expect to receive in connection with recommending the investment. Be skeptical of information from promoters that is inconsistent with the investment offering memorandum or private placement memorandum from the issuer.

5. Seek independent verification. Confirm whether claims made about the investment are true. For example, if the investment involves construction of commercial real estate, check county records to see if the issuer has obtained the proper permits and whether state and local property tax assessments correspond with the values the regional center attributes to the property. If other companies have purportedly signed onto the project, go directly to those companies for confirmation.

6. Examine structural risk. Understand that you may be investing in a new commercial enterprise that has no assets and has been established to loan funds to a company that will use the funds to develop projects. Carefully examine loan documents and offering statements to determine if the loan is secured by any collateral pledged to investors.

7. Consider the developer's incentives. EB-5 regional center principals and developers often make capital investments in the projects they manage. Recognize that if principals and developers do not make an equity investment in the project, their financial incentives may not be linked to the success of the project.

8. Look for warning signs of fraud. Beware if you spot any of these hallmarks of fraud:

• Promises of a visa or becoming a lawful permanent resident. Investing through EB-5 makes you eligible to apply for a conditional visa, but there is no guarantee that USCIS will grant you a conditional visa or subsequently remove the conditions on your lawful permanent residency. USCIS carefully reviews each case and denies cases where eligibility rules are not met. Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.
• Guaranteed investment returns or no investment risk. Money invested through EB-5 must be at risk for the purpose of generating a return. If you are guaranteed investment returns or told you will get back a portion of the money you invested, be suspicious.
• Overly consistent high investment returns. Investments tend to go up and down over time, particularly those that offer high returns. Be suspicious of an investment that claims to provide, or continues to generate, high rates of return regardless of overall market conditions.
• Unregistered investments. Even though a regional center may be designated as a regional center by USCIS, most new commercial enterprise investment opportunities offered through regional centers are not registered with the SEC or any state regulator. When an offering is unregistered, the issuer may not provide investors with access to key information about the company's management, products, services, and finances that registration requires. In such circumstances, investors should obtain additional information about the company to help ensure that the investment opportunity is bona fide.
• Unlicensed sellers. Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or registered. Designation as a regional center does not satisfy this requirement. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms.
• Layers of companies run by the same individuals. Some EB-5 regional center investments are structured through layers of different companies that are managed by the same individuals. In such circumstances, confirm that conflicts of interest have been fully disclosed and are minimized. 

(For more information, see the full alert at: http://www.sec.gov/investor/alerts/ia_immigrant.htm)

The EB-5 Investment Visa - A Quick Summary

Summary of the EB-5 Visa Program:

• A special visa to allow foreign nationals to obtain U.S. permanent residence (“green card”) if they invest capital in a new or troubled enterprise and create at least 10 full time jobs for U.S. workers.

Benefits of the EB-5 Program: 

• Generally faster than other categories as the visa numbers are currently available for all countries including China and India (although China may have a cut-off date in 2015).
• Does not have specific qualifications or experience requirements.
• Family members including spouses and children under 21 can also obtain U.S. green cards.
• Can invest directly or indirectly through third party companies. 

How many EB-5 visas may be issued every year?       

• Up to 10,000 EB-5 visas may be issued annually.  3,000 are set aside for targeted employment area (with high unemployment) 

How much capital is required to invest in the EB-5 visa program?

• US$1,000,000 of investment is required in the regular program – Investors choose the business to invest their capital. 
• US$500,000 of capital is required if investor invests in Regional Centers 

Do I need to invest the total sum of capital immediately?

• No, capital can be invested in installments depending on the type of business, as long as there is a concrete plan to invest the required amount of money in the U.S. enterprise. 

Which investment option should I choose – $1,000,000 or the $500,000?

• The investment of one million dollars allows the investor to choose any business to invest in.  It is more suitable for investors who already have certain type of business in mind and who intend to be actively involved in the business enterprise.  The Regional Centers ($500,000) may be more suitable for the passive investors who do not want to be actively running the business. 

What documents are required to prove that I have the capital to invest?

• The U.S. government would like to know that you have the stated capital to invest, and also that the capital comes from legal sources.  Typically, financial documents from the last five years are required including, for examples, personal or company income tax returns, foreign business licenses and registration, salary records, bank account records,  real estate documents, stock and security ownership documents, etc. 

What other documents are needed to prove the case?

• Depending on the applicant and the business being invested, other documents may be required including: bank statements showing amounts deposited in the U.S. business accounts for the enterprise, evidence of assets purchased for the U.S. enterprise, evidence of property transferred from abroad to the U.S., mortgage agreement, promissory note, security agreement, evidence that U.S. workers have been hired, etc.   

Would it be a problem if I have had a pending court case against me before?

• It depends.  Provide certified copies of any judgments or evidence of all pending governmental civil or criminal actions, governmental administrative proceedings, and any private civil actions (pending or otherwise) involving monetary judgments against the immigrant investor from any court in or outside the United States within the past fifteen years. 

Are there risks involved in my investment?     

• EB-5 is an investment visa and carries all the “normal” risks associated with investing in a business.  Investors must perform their due diligence before making an investment decision.  In fact, the EB-5 regulations require that the investment must be placed “at risk” in order to qualify for the EB-5 visa.  

Before my EB-5 visa application is approved, is there a way to protect my investment?

• Yes, it may be possible to place the funds in an escrow account during the adjudication process. Once the I-526 petition is approved, the funds will be transferred to the Eb-5 enterprise upon approval of the immigration visa petition.  

What are the basic procedures of applying for EB-5 green card?         

There are two major steps:

• File I-526 with evidence to apply for 2 years of conditional lawful permanent resident status
• File I-829 with evidence to remove conditions 90 days before the 2nd anniversary (evidence must match the initial business plan) 

What U.S. government office will be handling my EB-5 applications? 

• Generally, the United States Citizenship and Immigration Services (USCIS), a branch of the Department of Homeland Security, will be adjudicating the EB-5 petitions. 

What does it mean by “conditional lawful permanent resident status” or green card?

• Even if the USCIS agrees that the evidence is sufficient to support a I-526 EB-5 petition, the  petitioner (foreigner) will only be approved for a temporary green card for 2 years. This is called the conditional green card.  A second petition I-829 must be filed within two years to remove the conditions to make the green card permanent. 

How can I remove my conditional status?

• Ninety (90) days prior to the two-year anniversary of the date on which the immigrant investor obtained conditional lawful permanent resident status, the immigrant investor must file a Form I-829 to remove the conditions.  Additional evidence must be filed to prove that the required capital has been invested or being actively invested as initially planned, and 10 full-time jobs have been or are expected to be created within a reasonable time.  

What are Regional Centers?

• A Regional Center is a business entity approved by the USCIS to be involved with the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment.  However, just because it has been approved by USCIS, it does not mean that it is a “safe” or “good” investment. Currently there are about 290 to 300 Regional Centers approved. 

How do I know which Regional Center to invest in?    

• It is ultimately an immigrant investor’s decision to choose which Regional Center to invest in.   Professionals such as attorneys, accountants, business and financial professionals may provide professional guidance and advice to help you make the decision. 

Should I use an agent, consultant or other middlemen to help me invest in the EB-5 visa program?

• Many intermediaries (agents, immigration consultants, investment companies, etc.) receive financial incentives from the regional centers or other related parties.  Therefore, their advice may not be objective.  In fact, some of them have been found to use exaggerated or even untruthful information to attract foreign investment.  Consequently, it is very important for foreign investors to hire independent business, financial and legal professionals to do due diligence and to investigate the offer of investment program thoroughly. 

EB-5 Regional Center Eligibility Update: Form I-924A

USCIS reminds existing Regional Centers to file their annual update to demonstrate their continued eligibility for the EB-5 Program.  Specifically, all approved EB-5 regional centers with a designation letter dated on or before September 30, 2014 must file Form I-924A, Supplement to Form I-924, for fiscal year 2014 no later than Dec. 29, 2014.

USCIS will issue a notice of intent to terminate participation in the EB-5 Immigrant Investor Program if a regional center fails to timely file or files an incomplete Form I-924A.

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.