‘INVESTOR VISA’ PROBE

Federal program trading foreign finance for citizenship comes under scrutiny

By Sarah Ryley Monday, September 10, 2012


A burgeoning immigration program that gives wealthy foreigners and their families a chance at citizenship if they lay down big cash is under scrutiny by Homeland Security and the Securities and Exchange Commission, The Daily has learned.

The agencies are looking into the EB-5 “investor visa,” a program that has generated at least $2.3 billion in financing for hundreds of construction projects nationwide, from a ski resort in Vermont to strip malls in California.

Foreigners both in the U.S. and abroad must generally invest at least $500,000 to receive a temporary visa. If the investment creates 10 jobs after two years, the investors and their family members can apply for permanent residency, and eventually citizenship. If not, they face deportation. Regardless of the outcome, there is no guarantee of repayment.

Since the program was established 22 years ago, immigration officials have approved 12,904 investment visas; the investments have created an estimated 46,810 jobs.

Developers and immigration attorneys have turned the once-obscure EB-5 into a lucrative industry since the recession caused construction financing to dry up, drastically stepping up their recruiting efforts in far-away places, particularly China. The number of foreigners applying for the visa since the start of fiscal year 2008 totaled 12,201, compared with 9,475 in the previous 17 years combined, according to U.S. Citizenship and Immigration Services (USCIS), the visa granting arm of Homeland Security.

Jay Peak Resort in Vermont has used $200 million to transform itself into a year-round destination. And the developer of a new basketball arena for the Brooklyn Nets has collected $228 million to replace costly conventional financing.

But many projects have gone bust and some are in legal disputes that allege fraud, casting doubt on the immigration agency’s ability to effectively monitor the program. Lawsuits target, among others, a redevelopment effort sponsored by the city of New Orleans, a dairy farm in South Dakota, and a Chinese restaurant in California.

Last month, Homeland Security’s Office of Inspector General launched an investigation to determine if the program is “effectively administered and managed to detect and deter fraud, waste, abuse, while avoiding national security threats,” according to the internal announcement obtained by The Daily.

The inspector general has received at least one complaint this year asserting management routinely quashed concerns about fraud, according to a copy of the complaint.

And the SEC has requested “some 500 files” related to the program, said one immigration official, who requested anonymity for fear of reprisal.

“The goal is sanctions and penalties,” the official said, adding that the SEC requested the documents as USCIS attorneys were conducting their own review of whether the EB-5 program had been following securities regulations.

Attorneys discovered “a pattern of not following the rules,” the official said. “This is huge; this shuts down everybody.”

A confidential internal memo drafted by the attorneys, also obtained exclusively by The Daily, acknowledges the immigration agency is making no effort to determine whether these projects are adhering to securities law, and therefore “is potentially granting [investor visa] petitions based on patently illegal investments and/or investment schemes.”

USCIS spokesman Christopher Bentley declined to comment on the program or any aspect of the reviews, including the memo, saying “it’s deliberative work product, so it wouldn’t be appropriate for us to discuss it.”

A top enforcement official in the SEC, Stephen Cohen, would only say in a statement, “We have a cooperative working relationship” with USCIS.

The vast majority of EB-5 money is funneled through what’s termed “regional centers,” which are private companies or government development authorities that USCIS has authorized to pool foreigners’ money to finance projects within a geographic area. There are 226 regional centers, up from 11 in 2007.

The USCIS memo acknowledges a brief review showed regional centers “are not even making good-faith attempts to conform their offering documents to basic securities regulations,” which could open them up to fines and penalties, and would mean that the investors could sue to recover money.

Only in the past few years, experts say, has there even been an acknowledgement that the entities offering investments either have to register with the SEC or qualify for an exemption, and also follow rules about how they market investments and who can do the marketing.
The congressional deadline to renew authorization for regional centers is Sept. 30. Jason Oleet, of the investment banking firm Oleet & Co., thinks legislators should send “a strong statement that says the EB5 program in all respects is subject to securities law.”

Oleet and other critics contend the lack of SEC involvement sometimes leads to unscrupulous brokers making unfounded claims to convince wealthy foreigners to choose one project over another.

Michael Gibson of the investor advisory firm EB5info.com told The Daily he has complained to the SEC about more than a dozen unlicensed brokerages that he claims are collecting a sky-high commission — more than $100,000 sometimes — for each of the investors they recruit.
Brokers who receive commission or success-based fees must by law be registered.

“They’re saying whatever they want to say and they’re making claims which are not true in order to persuade the investor to sign with them,” said Gibson, EB5info.com’s managing director.

Florida-based Rapid USA Visas, for example, recruited hundreds of investors for the Jay Peak Resort on behalf of the state of Vermont and still promotes another state EB-5 project on its website, Gibson said.

The firm, which the SEC’s website confirms is unlicensed, sent emails to more than 100 immigration attorneys in March announcing that it was severing its relationship with Jay Peak because it “no longer has confidence in the accuracy of representations made by Jay Peak, Inc.”

Rapid USA Visas CEO Douglas Hulme declined to discuss charges that his firm was unlawfully accepting commission to recruit investors.

“We’re not brokers actually,” he said, adding, “at this point in time, we don’t” recruit investors.

Jay Peak CEO Bill Stenger responded that Gibson “is not a credible source.” Officials with the Vermont Agency of Commerce and Community Development did not respond at press time.

“This is so pervasive,” Gibson said. “You have nearly every single regional center using unregistered brokers to raise funds for them.”
‘INVESTOR VISA’ PROBE - The Daily