EB-5 Program: U.S. Citizenship For Sale For $1M, Or Only $500K With Loophole Discount

Posted: 1:02 am EDT
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The EB-5 visa program was designed to provide entry visas–and a path toward American citizenship–to immigrants who invest at least $1 million, or $500,000 in high unemployment or rural areas, to create or preserve at least 10 jobs.

Early this year, the Seattle Times asks, “how does downtown Seattle, the job center of the nation’s fastest-growing big city, become Detroit on paper?” The report says that the EB-5 rules has a loophole that cuts the price of a green card to $500,000 if foreigners invest in a rural area or urban one with high unemployment. “The rules allow them to string together several areas of high unemployment with one of low unemployment, like Manhattan or downtown Seattle, then build their project in the more prosperous area.” The Seattle Times which did a series on the EB-5 program in the Pacific Northwest says that  “EB-5 capital backs at least $2 billion in current projects in the Puget Sound region.”  

In 2013, the SEC alleged that a McAllen, Texas, company with government approval to participate in the EB-5 program pocketed investors’ cash and never got anyone a visa. Judge Randy Crane of the U.S. District Court for the Southern District of Texas issued an injunction restricting the company, USA Now, from raising funds from prospective immigrants.

That same report notes that the SEC had also filed a lawsuit against a Chicago developer who allegedly duped dozens of Chinese investors out of close to $150 million by pretending to build a hotel and convention center through an EB-5 regional center.

This past August, Lobsang Dargey, reportedly an impoverished Tibetan monastery student once who has become a well-to-do real-estate developer in Washington state faced civil fraud charges related to the EB-5 program. The Securities and Exchange Commission (SEC) accused him of misappropriating anywhere from $17 million to more than $50 million of the would-be Chinese immigrants’ money for his personal use or unapproved expenditures.

Early this month, the National Law Review reported that a civil action was also filed by the SEC against EB5 Asset Manager, LLC and its owner Lin Zhong in the United States District Court of Southern Florida. The SEC alleges that since at least March 2011, Zhong has used several entities that she owns and controls to exploit the EB-5 program, defrauding at least 17 investors out of $8.5 million.

Excerpt from LAT:

 [T]he private firms that get federal permission to create regional centers design their own districts, which Feinstein’s office argues has led to gerrymandering by tethering high-unemployment neighborhoods to wealthy ones. Remember, EB-5 visas are available for $500,000 invested in high-unemployment or rural areas; otherwise, the investment must be $1 million. So the gerrymandering allows wealthy immigrants to gain Legal Permanent Resident status by making what amounts to a two-year, $500,000 loan to an investment pool building a high-end hotel in a ritzy part of town that is connected, on paper, to a neighborhood with more risk and a higher need for investment. It’s hard in that scenario not to see the program the way Feinstein does — as selling citizenship.

The EB-5 program will expire on December 11 unless extended by Congress.  On November 4, Sen. Dianne Feinstein (D-CA) penned an op-ed saying the program should not continue.  “The bottom line is that the EB-5 regional center program sends a message that American citizenship is for sale, and the program is characterized by frequent fraud and abuse.”

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Asset Freeze Against Former Monk Accused of Defrauding Chinese Investors Highlights EB-5 Visa Program

Posted: 12:38 am EDT
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Via Securities and Exchange Commission:

Washington D.C., Aug. 25, 2015 —The Securities and Exchange Commission today announced an asset freeze obtained against a man in Bellevue, Wash., accused of defrauding Chinese investors seeking U.S. residency through the EB-5 Immigrant Investor Pilot Program by investing in his companies.

The SEC alleges that Lobsang Dargey and his “Path America” companies have raised at least $125 million for two real estate projects: a skyscraper in downtown Seattle and a mixed-use commercial and residential development containing a farmers’ market in Everett, Wash.  But Dargey diverted $14 million for unrelated real estate projects and $3 million for personal use including the purchase of his $2.5 million home and cash withdrawals at casinos.

“We allege that Dargey promised investors their money would be used to develop specific real estate projects approved under the EB-5 program, but he misused millions of dollars to enrich himself and jeopardized investors’ prospects for U.S. residency,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.

According to the SEC’s complaint filed yesterday in U.S. District Court for the Western District of Washington:

  • Under the EB-5 program, foreign citizens may qualify for U.S. residency if they make a qualified investment of at least $500,000 in a specified project that creates or preserves at least 10 jobs for U.S. workers.
  • Dargey and his companies obtained investments from 250 Chinese investors under the auspices of the EB-5 program.  Path America SnoCo and Path America KingCo operated as regional centers through which EB-5 investments could be made.
  • Dargey told U.S. Citizenship and Immigration Services (USCIS) and EB-5 investors that he would use investor money only for the Seattle skyscraper and Everett, Wash., projects.
  • Dargey and his companies misled investors about their ability to obtain permanent residency by investing in the Path America projects.  For example, Dargey knew that USCIS can deny investors’ residency applications if investor money is used for a project that materially departs from the approved business plan presented to USCIS.  Dargey failed to tell investors that he and his companies had departed from the business plan by using investor money for personal expenses and unrelated projects.

Late yesterday, the court granted the SEC’s request for an asset freeze and issued an order restraining Dargey and his companies from soliciting additional investors.  The SEC also was granted an order expediting discovery, prohibiting the destruction of documents, and requiring Dargey to repatriate funds he transferred to overseas bank accounts.

The SEC’s investigation was conducted by Brent Smyth and Michael Foley of the San Francisco office and supervised by Steven Buchholz.  The SEC’s litigation will be led by Mr. Smyth and Susan LaMarca.  The SEC appreciates the assistance of the USCIS.

According to the Seattle Times, citing a civil fraud suit filed Monday by the Securities and Exchange Commission (SEC), Dargey, a former monk, allegedly diverted millions to spend on a $2.5 million home, other real-estate investments and gambling at 14 casinos across the West. The report notes that the EB-5 visa program allows wealthy foreigners to invest at least $500,000 in a commercial enterprise that creates at least 10 full-time jobs, in exchange for a permanent-residency visa or green card. China dominates the list of countries from which immigrant investors hail.

Department of Homeland Security’s USCIS administers the Immigrant Investor Program, also known as “EB-5,” created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. Under a pilot immigration program first enacted in 1992 and regularly reauthorized since, certain EB-5 visas also are set aside for investors in Regional Centers designated by USCIS based on proposals for promoting economic growth. As of August 3, 2015, USCIS had approved approximately 697 regional centers. Regional centers can operate in multiple states.

In its adjudication policy memorandum dated May 30, 2013, USCIS writes on how adjudication of EB-5 petitions and applications must only adhere to the “Preponderance of the Evidence Standard“:

As a preliminary matter, it is critical that our adjudication of EB-5 petitions and applications adhere to the correct standard of proof. In the EB-5 program, the petitioner or applicant must establish each element by a preponderance of the evidence. See Matter of Chawathe, 25 I&N Dec. 369, 375-376 (AAO 2010). That means that the petitioner or applicant must show that what he or she claims is more likely so than not so. This is a lower standard of proof than both the standard of “clear and convincing,” and the standard “beyond a reasonable doubt” that typically applies to criminal cases. The petitioner or applicant does not need to remove all doubt from our adjudication. Even if an adjudicator has some doubt as to the truth, if the petitioner or applicant submits relevant, probative, and credible evidence that leads to the conclusion that the claim is “more likely than not” or “probably true”, the petitioner or applicant has satisfied the standard of proof.

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