SEC Continues Crackdown on Allegedly Fraudulent EB-5 Projects
The Securities and Exchange Commission (SEC) has been stepping up its fight against fraud in the popular EB-5 visa program. This has come in the backdrop of the rising cases of fraudulent business people exploiting EB-5 investors’ funds to the tunes of hundreds of millions of dollars. It has been characterized by arrests and prosecutions as well as reclamation of properties accompanied by huge fines. We at RunRex.com compiled this report.
An Overview of the EB-5 Visa Program
The EB-5 Visa program is essentially a legal pathway for wealthy foreigners to gain permanent residency in the U.S.A. Participants are required to invest at least $500,000 in rural areas and areas experiencing high unemployment rates, and at least $1,000,000 in well-off areas. The money should be invested into a business that will employ at least 10 American citizens on a full-time basis. The program has been in existence since the early 1990s and has been significantly beneficial to America’s economy.
EB-5 is most popular with rich Chinese nationals who have accumulated wealth in the backdrop of the China’s growing economy. In fact, of the 10,000 EB-5 visas granted by the government in 2015, 85% were to Chinese nationals. Consequently, it is Chinese nationals who have suffered the most at the hands of these fraudsters.
Big Money Fraud
Fraudsters have been targeting wealthy Chinese nationals seeking to move to the U.S.A. by offering them an easy option through the EB-5 visa program. These fraudsters convince their victims that they are setting up businesses or properties and they should invest with them to get their EB-5 visa applications approved. In most cases, the fraudsters squander the money on personal use or fail to invest all of it and refund some of it.
While the most recent cases involve hundreds of millions of dollars, they are just a tip of the iceberg considering that there is a backlog of many more cases. Here is an insight into two of the most notable SEC visa program fraud cases.
The biggest Burst
The biggest case of EB-5 visa program fraud to be successfully prosecuted took place this year. It involved a hotel developer based in Chicago, who was eventually sentenced to three years in prison. The defendant was accused of duping foreign Chinese investors by lying that he was planning to construct a hotel and conventional center around O’Hare Airport. The project was estimated to cost about $900 million, and each investor was required to contribute at least $500,000 and collectively $41,500 in administrative fees.
In total, the defendant managed to collect about $158 million from 290 investors. However, the project didn’t materialize, and a significant amount went to personal use. The defendant was found guilty and, in addition to the three-year sentence, was required to pay $8.85 million in restitution fees – a total of $147 million has been paid back to the investors.
Father-and-Daughter Dual
Another case was publicized in April in California. It involves California Investment Immigration Fund, LLC, a company run by a father-and-daughter dual: Victoria Chan and Tat Chan. The dual established the company in 2008 and had thus far been targeting unsuspecting Chinese nationals looking to invest in the EB-5 visa program. Just as in the earlier case, the two had been promising to invest the money into related companies and real estate properties. However, none of the money was invested as stipulated by the law. Instead, it was either refunded or used for personal gain.
Federal agents raided the dual’s properties in 2007 and uncovered fraud and money laundering at a huge scale. Most of the money was used to buy luxury homes and cars worth about $15 million. These properties include a commercial property in the City of Industry estimated to be worth $3 million, five residences in several cities estimated to be worth $10 million, and parcels of land worth about $13 million. In the lawsuit, the Justice Department has termed this as fraud and is seeking the forfeiture of the properties.
Tat and Victoria Chan have not yet been charged, but all signs show that they will be prosecuted soon. It is also suspected that they may have stashed millions of dollars in off-shore accounts, and the justice department has taken steps to recover this money.
Major Overhauls Coming Soon
In spite of its incredible success, the E-B5 visa program has not yet been made permanent. Instead, it is usually valid for a finite period and renewed when that period expires. The current program has been extended to September 39, but it is under strict scrutiny from the Congress.
It is expected that—as has been happening over the years—this program will be reviewed and revised to curb the ongoing fraud. This may see a greater involvement by the SEC and other regulatory bodies. In the meantime, the Justice Department is planning to crack down on more fraudsters and get justice for the hundreds of the current victims.