Erez Law is currently investigating broker-dealers across the country who were involved in EB-5 fraud. The U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy and U.S. Citizenship and Immigration Services (USCIS) warns individual investors about fraudulent investment scams that exploit the EB-5 Immigrant Investor Program. The EB-5 investment scams target foreign nationals who seek to become permanent lawful United States residents through the Immigrant Investor Program (EB-5).
If you believe that you have been the victim of such a scam, contact the investment fraud attorneys of Erez Law. Though nothing can replace the time and effort you lost, our EB-5 investment scam attorneys can help you recoup your investment losses. Call us at (888) 840-1571 or fill out our online contact form to get in touch with a lawyer today.
What is the EB-5 Program?
In 1990, Congress created the EB-5 Investment Program to stimulate the U.S. economy through job creation and capital investment by foreign investors, the EB-5 Immigrant Investor Program, administered by USCIS, allows entrepreneurs, their spouses and unmarried children under the age of 21 the opportunity to apply for a green card for permanent residence if they invest in a commercial enterprise in the U.S. and plan to create or preserve 10 permanent full-time jobs for qualified U.S. works.
In 1992, Congress created the Immigrant Investor Program, also known as the Regional Center Program, which sets aside EB-5 visas for participants who invest in commercial enterprises associated with regional centers approved by USCIS based on proposals for promoting economic growth.
According to the SEC alert, “The EB-5 program provides certain foreign investors who can demonstrate that their investments are creating jobs in this country, with a potential avenue to lawful permanent residency in the United States. Business owners apply to USCIS to be designated as ‘regional centers’ for the EB-5 program. 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. Toward the end of the two-year period of conditional residency, the foreign investor is eligible to apply to have the conditions on their lawful permanent residency removed, if he or she can establish that the job creation requirements have been met. Foreign investors who invest through EB-5, however, are not guaranteed a visa or to become lawful permanent residents of the United States.”
Warning Signs of a Fraudulent EB-5 Investment
According to USCIS, investors should verify if an EB-5 investment is legitimate by first confirming that the regional center has been designated by USCIS. Confirm that the regional center has been designated by USCIS by asking the regional center for copies of these forms and supporting documentation provided to USCIS.
Investors should also request investment information in writing and for a copy of the investment offering memorandum or private placement memorandum from the issuer. It also encourages investors to ask any questions you have about the investment, and if the issuer is unwilling or can’t answer any questions, do not invest.
However, just because a business is designated as a regional center by USCIS, it does not mean that any government agency has approved the investments or expressed a view on the quality or lack of quality of said investment. If a regional center is not on the list, investors should exercise extreme caution. There are attempts to misuse the EB-5 program as a way to carry out fraudulent securities offerings.
Investors should also determine if promoters, consultants, lawyers or agencies are being paid for recommending the EB-5 investment, how much, and what type of benefits they expect to receive in connection with recommending the investment.
You should also independently verify the information and confirm whether claims made about the investment are true by checking county or state records and examining loan documents, for example. Investors should also consider the developer’s incentives and identify if principals and developers have an equity investment in the project and if their financial incentive is tied to the success of the project or not.
You can identify warning signs of fraud with promises of a visa or becoming a lawful permanent resident or timing of a visa or green card. When you invest through the EB-5 program, you can 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. Additional warning signs include a guarantee of investment returns or claims for “no investment risk.”
If the EB-5 investment has consistently high investment returns there is cause for suspicion. Investments by nature go up and down, so be suspicious of investments that claim to have high returns regardless of market conditions.
Beware of unregistered investments. While a regional center may be listed on the USCIS website, most new commercial enterprise investment opportunities offered through regional centers are not registered with the SEC or any state regulator.
All investment professionals and their associated firms who offer and sell investments must be licensed or registered. Fraudulent investment schemes commonly involve unlicensed individuals or unregistered firms.
Finally, if layers of companies run by the same individuals, it could be a sign of fraud. Some EB-5 regional center investments are structured through layers of different companies that are managed by the same individuals, so it is best to confirm that conflicts of interest have been fully disclosed and are minimized.
By investing in a fraudulent EB-5 Immigrant Program offering, you may lose both your investment and your path to lawful permanent residency in the U.S. and have your immigration petition denied.
Recent SEC Action Regarding EB-5 Fraud
In October 2018, the Securities and Exchange Commission (SEC) SEC charged a California-based immigration attorney and her husband in a fraudulent scheme that generated millions of dollars of undisclosed compensation from foreign investors seeking permanent U.S. residency through the EB-5 Immigrant Investor Program. According to the SEC complaint, Jean Danhong Chen, Tony Jianyun Ye, and Law Offices of Jean D. Chen, with the assistance of a personal friend, Kuansheng Chen, secured over $10 million in undisclosed commissions by selling EB-5 securities to hundreds of Chen’s legal clients.
The SEC’s complaint alleges that Jean Chen and Ye secretly acquired and operated Golden State Regional Center LLC, an EB-5 regional center, and later advised clients to invest in the center’s projects without disclosing their ownership interest.
According to the SEC complaint, Kai Hao Robinson assisted in the scheme by posing as the sole manager in control of Golden State when she was in fact merely a figurehead controlled by Jean Chen and Ye. The SEC’s complaint alleges that the defendants violated or aided and abetted violations of antifraud provisions of the federal securities laws, and that certain of the defendants violated or aided and abetted violations of registration provisions.
In September 2018, the SEC settled charges with an Illinois-based regional center CMB Export, its CEO Patrick Hogan, and 37 affiliated limited partnerships related to securities issued under the EB-5 Immigrant Investor Program. Between 2011 and 2015, the entities affiliated with CMB Export LLC offered EB-5 securities in the form of limited partnership interests without registering them with the SEC and without a valid exemption from registration.
The order found that Hogan paid transaction-based compensation to U.S. individuals and entities for soliciting foreign investors to purchase these securities. The order also requires CMB Export to pay a $5.15 million penalty, Hogan to pay a penalty of $515,000, and each of the 37 CMB limited partnerships to pay a penalty of $160,000, for total monetary relief of $11.585 million.
In March 2018, the SEC charged a New York-based company Edwin Shaw LLC with illegally brokering dozens of investments by foreign nationals seeking U.S. residency between April 2014 and March 2017. The SEC investigation found that the company solicited foreign nationals interested in applying for legal residency through the federal government’s EB-5 Immigrant Investor Program to invest in securities issued by a taxi and limousine company based in Queens, New York.
Edwin Shaw was not registered with the SEC as a broker or dealer when it engaged in the solicitations and otherwise effectuated these securities transactions. According to the SEC, “For each successful investment, Edwin Shaw received a fee ranging from $5,000 to $50,000. More than 30 foreigners invested in the program after solicitations by Edwin Shaw, which improperly used approximately $400,000 of the investor fees on its own expenses and personal expenses of Edwin Shaw’s principal.” Edwin Shaw agreed to a cease-and-desist order and agreed to pay disgorgement of $400,000 plus prejudgment interest of $54,209.20 and a penalty of $90,535.
In February 2018, Miami-based businessman Ariel Quiros behind an alleged scheme involving investments in a Vermont-based ski resort has agreed to pay back more than $81 million of investor money that he used illegally, according to the SEC complaint alleged that Quiros allegedly misused more than $50 million in investor funds to purchase a different ski resort and to fund personal expenses such as income taxes and two luxury New York City condominium purchases.
Investors were told their money would specifically be used for construction projects at the Jay Peak Resort and a nearby proposed biomedical research facility. Failing to contribute approximately $30 million in investor funds toward Jay Peak construction, with two projects going uncompleted, jeopardizing the investors’ investments and participation in the EB-5 Immigrant Investor Program, Quiros settled and agreed to be held liable for more than $81 million in disgorgement of ill-gotten gains plus a $1 million penalty, and he must forfeit approximately $417,000 in cash that was frozen after the SEC filed the case.
In April 2017, the SEC settled a complaint with an Idaho man who siphoned away $5 million of dollars for personal use (purchase of two personal residences and two luxury vehicles) rather than investing it as promised to create U.S. jobs through the EB-5 Immigrant Investor Program. Serofim Muroff raised more than $140.5 million in EB-5 offerings to Chinese investors through his companies Blackhawk Manager and ISR Capital for the intended purposes of acquiring and developing luxury real estate in McCall, Idaho, and investing in gold mining ventures in Idaho and Montana.
Muroff and his companies agreed to pay disgorgement of $5,062,082 plus interest totaling $865,270 and a penalty of $2 million. Muroff’s bookkeeper and administrative assistant Debra L. Riddle, who was charged in the SEC’s complaint along with Muroff and his companies, agreed to pay disgorgement of $503,417 plus interest totaling $81,626 and a penalty of $100,000.
In June 2016, the SEC filed a complaint against Xin “Lisa” Wang and Charles C. Liu for misusing investors’ money that was raised for the purpose of building a cancer treatment center. According to the complaint Wang and Woo raised more than $27 million from Chinese EB-5 investors to build a center that would treat cancer through proton beam radiation. After 18 months of raising funds, no construction took place at the proposed site and Liu transferred $11 million of investor funds to firms in China and diverted another $7 million of investor funds to his wife’s personal account.
Recovering Losses Through FINRA Arbitrations
Investors in the United States are filing FINRA arbitration claims against their brokerage firms for investments made in EB-5 Immigrant Program investments on the advice of their financial advisor or for damages caused by the wrongful conduct of brokerage firms or their financial advisors. Many of these investors were not adequately warned about the high-risk nature of the investment or if the investments were fraudulent or not and have suffered serious losses as a result. Investors may have a claim against the brokerage firm based on misrepresentation, unsuitability, breach of fiduciary duty, and state and federal securities laws.
A broker must have reasonable grounds for each recommendation made to investors considering such factors as the customer’s other securities holdings, financial situation, and risk tolerance.
In addition, before a financial advisor recommends a security to his customers, the financial advisor must conduct due diligence, investigating the facts surrounding the security, to confirm that it is suitable for the customer. The suitability of an investment for a particular individual is at the center of the investment process and one of the key duties owed by a broker to the customer. A firm may be held liable for its broker’s failure to recommend suitable investments to its customers.
In addition, pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, the brokerage firm may be liable for investment or other losses suffered by financial advisors who worked for the firm.
What should I do if I was the victim of an EB-5 Scam?
If you have experienced investment losses or financial irregularities associated with the EB-5 Immigrant Program and you feel the investment may have been fraudulent, we are here to help. We are not afraid of taking on corrupt firms, and we can and will combat some of the largest brokerage firms in the United States. Count on our experience to successfully take you through the FINRA arbitration process.
Call us at (888) 840-1571 for a free consultation or complete our contact form to discuss your legal options for recovering losses in EB-5 Immigrant Program investments. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations, and institutions in claims against brokerage firms, banks and insurance companies. If you have more questions about investment fraud, you can contact our firm to speak with one of our qualified fraud attorneys today.