Beware of EB-5 Investor Scam

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Recently, U.S. Citizenship and Immigration Services (USCIS) issued a warning regarding scams associated with the EB-5 investor visa. According to USCIS, scammers target foreign nationals who are seeking to become permanent lawful residents under the EB-5 Immigrant Investor Program. In order to protect EB-5 applicants, the SEC took emergency action to stop allegedly fraudulent securities offerings made through the EB-5 program.

The EB-5 investor visa is a business-based immigration option for foreign nationals who invest at least $1 million in a new commercial enterprise, or $500,000 in a regional center. 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.

In an investor alert issued on October 1, 2013, USCIS notified 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 agencies recently worked together in SEC v. Marco A. Ramirez, et al. to stop an alleged investment scam in which the 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. In another recent case, SEC v. A Chicago Convention Center, et al., the SEC and USCIS thwarted an alleged $156 million investment fraud.

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

  1. 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.
  2. Obtain copies of documents provided to USCIS.
  3. Request investment information in writing. Investors should request a copy of the investment offering memorandum or private placement memorandum from the issuer.
  4. Ask if promoters are being paid.
  5. Seek independent verification to confirm whether the issuer’s claims are accurate. 
  6. Consider structural risk by examining loan documents and offering statements.
  7. Consider the developer’s incentives.
  8. Look for warning signs of fraud, such as promises of a visa or permanent legal resident status and a guaranteed return on investment.
  9. 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.
  10. 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.
  11. Consider whether there 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 of the specific and stringent requirements of the EB-5 investor visa, it is highly recommended that applicants consult with a knowledgeable immigration lawyer.

Topics:  EB-5, Fraud, Investors, Scams, SEC, USCIS, Visas

Published In: Business Torts Updates, Finance & Banking Updates, Immigration Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ronald Shapiro | Attorney Advertising

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