EB-5 Fraud – How to Avoid It
The EB-5 visa program is one of the best ways for high net worth foreign individuals to obtain a Green Card and permanent residency status in the United States. Unfortunately, some immigrant investors have been scammed by fraudulent EB-5 investment “opportunities,” and the U.S. Securities and Exchange Commission (SEC) has brought actions involving hundreds of millions of dollars against those involved with alleged EB-5 related fraud.
These bad apples do not reflect the overall quality of EB-5 investment possibilities, but it is critical that potential investors perform their due diligence before handing over the required $500,000 minimum for an EB-5 project. There are ways to help ensure that you aren’t caught up in EB-5 fraud.
How to Avoid EB-5 Fraud
EB-5 fraud not only robs you of the ability to obtain a Green Card but also literally robs you of the funds you put into the phony EB-5 investment. Keep in mind that you and your agent are responsible for vetting potential Regional Center investment projects, as well as those managing them.
Proper due diligence means investigating every aspect of a proposed Regional Center project and its administration. For best results, choose a developer and regional center with a good track record. Look for a team that has completed many similar projects over the past several years. Avoid investing with developers who have never worked on these types of projects.
Experienced developers know what to do if problems arise. This is critical because of the strict timeline of an EB-5 investment. EB-5 investors have just two years to prove that their project created 10 full-time jobs for US workers.
EB-5 Red Flags
According to the SEC, there are certain practices that are definite red flags when it comes to the legitimacy of an EB-5 investment. These include:
- Promises of a visa or becoming a lawful permanent resident. Investing through EB-5 makes you eligible to apply fora 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. USCIS carefully reviews each case and denies cases where eligibility rules are not met. Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.
- Guaranteed investment returns or no investment risk.Money invested through EB-5 must be at risk for the purpose of generating a return. If you are guaranteed investment returns or told you will get back a portion of the money you invested, be suspicious.
- Overly consistent high investment returns.Investments tend to go up and down over time, particularly those that offer high returns. Be suspicious of an investment that claims to provide, or continues to generate, high rates of return regardless of overall market conditions.
- Unregistered investments. Even though a regional center may be designated as a regional center by USCIS, most new commercial enterprise investment opportunities offered through regional centers are not registered with the SEC or any state regulator. When an offering is unregistered, the issuer may not provide investors with access to key information about the company’s management, products, services, and finances that registration requires. In such circumstances, investors should obtain additional information about the company to help ensure that the investment opportunity is bona fide.
- Unlicensed sellers.Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or registered. Designation as a regional center does not satisfy this requirement. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms.
- Layers of companies run by the same individuals. Some EB-5 regional center investments are structured through layers of different companies that are managed by the same individuals. In such circumstances, confirm that conflicts of interest have been fully disclosed and are minimized.
Business Due Diligence
When conducting due diligence, the first thing an investor should do is search the United States Citizenship and Immigration Services (USCIS) website and confirm the Regional Center in question is on the USCIS list. If the Regional Center is listed, the next step involves contacting the Regional Center and requesting copies of Form I-924, the USCIS approval form for the Regional Center. Other important steps to take include:
- Asking for investment offering information in writing. If the project’s proponents cannot supply you with this information, do not invest your funds.
- Verifying all information received from the developer. For example, if documents state the property is worth X amount, verify its value by checking local property tax assessments.
- Examining loan documents. You want to know the assets and debts pertinent to the project.
- Has the developer invested its own money in the project? If the developer or other major figures in the project have not invested their own funds, the project’s success is not tied to their own investments, and that’s a warning sign.
Consequences of EB-5 Fraud
Discovery of fraud may negate an investor’s I-829 application, “Petition by Entrepreneur to Remove Conditions on Permanent Resident Status,” which requires filing within 90 days’ prior to the expiration date of the temporary Green Card. Fraud is one of the most common reasons the USCIS denies this application.
If the I-829 application is denied, the USCIS will send a Notice to Appear. Once this notice is received, it means the USCIS deems the investor removable from the country, with removal proceedings beginning.
How Lightstone Can Help
One of the best ways to ensure you are not involved in a fraudulent project is by choosing a company with a strong track record of legitimate Regional Center project results. As one of the largest private real estate companies in the United States, Lightstone provides individuals with an opportunity to invest in high-quality projects in growing American cities such as New York City, Miami, and Los Angeles.
Lightstone has hired a third party accountant to audit the trail of funds and make sure they are invested in accordance with the offering documents.
Lightstone currently has US $6 billion assets under management and development and over US $400 million of EB-5 capital raised over seven past and present projects. We collaborate with major brands including Marriott and TAO Group in the heart of Manhattan, Miami Beach and other prestigious real estate locations