Watch Out For EB-5 Investor Visa Scams

Visa2Not long ago, U.S. Securities and Exchange Commission’s (“SEC”) Office of Investor Education and Advocacy, and U.S. Citizenship and Immigration Services (“USCIS”) jointly issued an investor alert to warn individual investors about fraudulent investment scams associated with the EB-5 investor visa. The SEC, together with USCIS, which administers the EB-5 program, has taken emergency enforcement action to stop allegedly fraudulent securities offerings made through the EB-5 program.

The EB-5 investor visa is a business-based immigration option available to those immigrants who invest at least $1 million in a new commercial enterprise employing at least 10 full-time U.S. workers. Foreign individuals who invest in a “targeted employment area” (TEA), however, are only required to invest a minimum of $500,000. In order to qualify, the commercial enterprise that receives the investment funds must have been established after November 29, 1990 and must create or preserve at least 10 full-time jobs for U.S. workers within two years of the investor’s admission into the United States. Additionally, foreign investors can invest $500,000 in a qualified and approved Regional Center.  These regional centers offer investment opportunities in “new commercial enterprises” that may involve securities offerings.  Through EB-5, a foreign investor who invests a certain amount of money that is placed at risk, and creates or preserves a minimum number of jobs in the United States, is eligible to apply for conditional lawful permanent residency.

In the aforementioned investor alert, issued on October 1, 2013, USCIS advised investors that the agency and the SEC have become aware of attempts to misuse the EB-5 program as a means to carry out fraudulent securities offerings.  USCIS reminded investors that “the fact that a business is designated as a regional center by USCIS does not mean that USCIS, the SEC, or any other government agency has approved the investments offered by the business, or has otherwise expressed a view on the quality of the investment.”

The SEC and USCIS worked together to stop an alleged investment scam in a recent case, SEC v. Marco A. Ramirez, et al. whereas SEC believed that the defendants, including the USA Now regional center, falsely promised investors a 5% return on their investment and an opportunity to obtain an EB-5 visa. According to the SEC, the promoters allegedly solicited investors before the business was designated as a regional center, and used investor funds for personal use such as funding their restaurant. As stated by the SEC’s complaint, the investors did not obtain even conditional visas as a result of their investments through the USA Now regional center.

In another case, SEC v. A Chicago Convention Center, et al., the SEC and USCIS managed to freeze an alleged $156 million investment fraud where an individual and his companies used false and misleading information to solicit foreign investors, including falsely claiming that the business had acquired all necessary building permits and that the project was backed by several major hotel chains. In addition, before USCIS adjudicated the visa applications, the defendants allegedly spent more than 90 percent of the administrative fees, including some for personal use.

With this investor alert, USCIS reminded investors to fully research any investment by taking the following steps:

  • Confirming that the regional center has been designated by USCIS.  Investors can check the list of current regional centers on USCIS’s website at www.uscis.gov.
  • Obtain copies of documents provided to USCIS.
  • Request investment information in writing. Investors should request a copy of the investment offering memorandum or private placement memorandum from the issuer.
  • Ask if promoters are being paid. Be skeptical of information from promoters that is inconsistent with the investment offering memorandum or private placement memorandum from the issuer.
  • Seek independent verification to confirm whether claims made about the investment are true.
  • Consider structural risk by examining loan documents and offering statements to determine if the loan is secured by any collateral pledged to investors.
  • Consider the developer’s incentives.
  • Look for warning signs of fraud, such as promises of a visa or permanent legal resident status and a guaranteed return on investment.  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.
  • Beware of unregistered investments. Many investment securities offered through a regional center are not registered with the SEC, which means that investors may not have access to crucial information about the company, its management, products and finances.
  • Beware of unlicensed sellers. Investment professionals and the firms that offer and sell investments must be licensed or registered with the appropriate federal and state agencies. The designation of a business as a regional center alone does not satisfy the licensing requirements and many fraudulent investment schemes involve unlicensed or unregistered investment professionals.
  • Look out whether the investment involves layers of companies run by the same individuals. Some EB-5 regional investments are structured with layers of companies that are all managed by the same individuals, which can create conflicts of interest if ownership is not fully disclosed.

Because the risk involved of losing both your money and your path to lawful permanent residency in the United States, along with the stringent requirements of the EB-5 investor visa, it is strongly recommended that applicants consult with a knowledgeable immigration lawyer from the very beginning.

To speak to an immigration attorney about your goals, please contact us. We look forward to serving you.

Gokhan Yazici

Gokhan Yazici is an experienced attorney and counsellor practicing in the state of New York. He is specialized in U.S. Immigration Law, Corporate & Business Law, Business Transactions, Commercial Litigation, International Trade & U.S. Customs Law. Mr. Yazici holds an LL.B. degree from Istanbul University Law School and an LL.M. degree from Temple University James Beasley School of Law.