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Investment Fraud Continues to Plague USCIS EB-5 Program

By George C. Miller of Shustak Reynolds & Partners, P.C. posted on Monday, November 18, 2019.

The SEC recently announced a series of new enforcement actions against EB-5 regional centers participating in the U.S. Citizenship and Immigration Services (USCIS) EB-5 Immigrant Investor Program.  The EB-5 program allows certain foreign nationals to invest funds in the U.S. through USCIS-approved “regional centers.”  If, after two years, those investors can demonstrate their investments are generating jobs in the United States, they may be approved for permanent residency status.  With the high and growing demand for permanent U.S. residency and the rapid expansion of wealth in Asia and elsewhere around the world comes the perfect opportunity for bad actors to commit fraud.  Recent SEC enforcement actions in the EB-5 space have involved accusations of embezzlement, fraud, misrepresentation and self-dealing among regional centers and those who operate them – alleged misconduct that has caused hundreds of millions of dollars in losses to investors.  According to the SEC, prospective investors should carefully consider a prospective EB-5 investment.  At a minimum, the SEC cautions investors to:   

 

-          Confirm the regional center has, in fact, been designated and approved by the USCIS.  The USCIS maintains a list of approved regional centers on its website, www.uscis.gov

-          Request and obtain copies of the documents provided by the regional center to the USCIS.  In the approval process, regional centers must file an initial application (Form I-924) and submit certain operating information at the end of each calendar year.  Request copies of that information from the regional center and any additional supporting documentation provided to the USCIS.

-          Request that any information about the investment be provided in writing.  Far too often, clever fraudsters will convince investors to invest in face-to-face meetings or over the phone.  Prospective investors should request a copy of the investment offering memorandum and private placement memorandum directly from the issuer, review those documents carefully, and ask questions in writing, preferably via email as opposed to an instant message platform such as WhatsApp.  Never send any money, whether by wire transfer, EFT or check, unless or until all the “I’s have been dotted and T’s crossed” on the paperwork and the regional center has given credible answers for all questions asked.    

-          Ask about fees and compensation.  Specifically, ask whether the promoter of the investment is being paid a commission or kick back.  Ask whether the regional center or an affiliated manager will charge a management fee and, if so, how that fee will be calculated.  Confirm the information you are provided is in writing as part of the offering documents.  

-          Seek independent advice.  Before investing, consider seeking guidance from an experienced attorney or financial professional as to the legitimacy of the investment.  Conduct Google and public records searches using the names of the regional center, its principals and promoters of the investment.  If possible, visit the physical site locations of any developments or projects purportedly being constructed in connection with the investment.

 

The SEC further cautions prospective EB-5 investors to be wary of potential signs of fraud.  Those signs include:

 

-          Express promises of visas or residency.  While investing in an approved EB-5 project may render a foreign national eligible to apply for a visa the process is NOT automatic and there is no guarantee the USCIS will approve a conditional visa or remove the conditions on lawful, permanent residency.  The USCIS approves (or denies) visa applications on a case-by-case basis, notwithstanding an individual’s participation in an EB-5 investment program.

-          Guarantees or assurances of little to no investment risk.  Be cautious if a regional center or promoter “guarantees” the safety of an EB-5 investment or downplays the risk associated with such an investment.  Money invested through an EB-5 program is virtually always subject to some degree of risk.  

-          Unregistered investments and unlicensed “sellers” or “promoters” of the investment.  Just because a regional center has been approved to participate in the EB-5 program, that does not automatically mean it is approved to offer investments.  In fact, most investment vehicles offered by approved regional centers are NOT registered with the SEC or any state securities regulator.  Unregistered offerings carry inherent additional risk and typically are appropriate only for wealthy, sophisticated investors.  Similarly, those affiliated with regional centers, or those who promote the investments available through regional centers, typically are not licensed (either by the SEC, FINRA or a state securities regulator) to give investment advice. 

-          Multiple companies owned and controlled by the same individuals.  According to the SEC, some EB-5 investments are structured through layers of companies that are managed, owned or controlled by the same individuals.  Investors should take steps to confirm no conflicts of interest exist or self-dealing has occurred.

 

The SEC provides additional information and tips regarding the EB-5 process on its website in Chinese, Korean and Spanish.  While certainly not all EB-5 investments are fraudulent, the program continues to serve as a playground for fraudsters intent on praying on wealthy foreign investors unfamiliar with U.S. investment regulations.   Shustak Reynolds & Partners, P.C.’s EB-5 securities fraud lawyers are experienced in and knowledgeable about the EB-5 process and have decades of experience representing defrauded investors.  Shustak Reynolds & Partners, P.C. EB-5 lawyers also have substantial experience representing EB-5 regional centers and promoters in SEC and other regulatory proceedings.  Contact our firm today for a complimentary, confidential consultation.   

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. 
We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. 
Partner George C. Miller can be reached in the firm’s San Diego office at (619) 696-9500. 

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