With financing scarce and often difficult to obtain, it’s little wonder that real estate developers across the U.S. are looking for new ways to fund their endeavors. Within the past three years, there has been an increasing amount of interest in the EB-5 Investor Visa Program as a potential source of capital as foreign nationals seek to invest in the U.S. According to a number of recent reports, there is a growing class of foreign millionaires looking to invest in businesses and development projects through the EB-5 program. The Portland State University Center for Real Estate Quarterly Report recently published a primer on the ins-and-outs of the EB-5 program (PDF).
A recent story in the Miami Herald has—perhaps unfairly—characterized the EB-5 program as “selling greencards.” More precisely, the program provides green cards to investors who provide at least $1 million dollars (or, in some cases, $500,000) for projects that add at least 10 jobs to the local economy. The story is a sign that the press is now paying attention to the program.
A more interesting development is the Securities and Exchange Commission’s announcement that it had filed civil charges against—and received an emergency order to freeze assets of—the Intercontinental Regional Center Trust of Chicago. The SEC alleges misrepresentations or omissions in the offering documents and in documents filed with U.S. Citizenship and Immigration Services in connection with the applications for conditional permanent residency, specifically:
- The offering documents made numerous false claims, including the receipt of all necessary building permits, franchise agreements with several major hotel chains, the availability of a state-sponsored bond facility, the value of the underlying land, the financial potential for the project to provide a return to investors and the refundability of administrative fees if visa approvals were not granted.
- The sponsors provided falsified documents to USCIS in an attempt to secure conditional visa approvals for investors, which approvals were a precondition to release of each investor’s $500,000 investment to the issuer.
- More than $2.5 million of $11 million in administrative fees were directed to the principal’s personal bank account in Hong Kong and most of the balance spent rather than available for refund.
As pointed out in a blog post, while there have been allegations of fraud around other regional center projects, this is the first EB-5 enforcement action filed by the SEC. Press reports from September 2012 indicate that an internal memorandum prepared by the USCIS noted that Regional Centers “are not even making good-faith attempts to conform their offering documents to basic securities regulations.” Press reports also indicate that the Department of Homeland Security’s Office of Inspector General has launched an investigation into fraud in the EB-5 program. The SEC notes in its press release for this action there was close coordination with USCIS in bringing the case.
This case confirms that both the SEC and USCIS are paying attention to EB-5 applications’ compliance with securities laws, and USCIS is now monitoring for securities law compliance in its review of visa applications.