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Are EB-5 investors vulnerable to fraudulent schemes?

The EB-5 program is a way for overseas investors to obtain visas after contributing $500,000 or more of their own funds into a business project approved by the U.S. Department of Homeland Security. Historically, such projects have usually involved commercial real estate, such as luxury hotels or resorts.

The DHS’s approval may depend on other factors, such as the number of Americans that the business will employ. After project approval, the EB-5 investor visa authorizes the residents of foreign countries to live and work in the United States.

Unfortunately, the amount of money at stake may explain why EB-5 immigrant investors may be susceptible to fraudulent schemes. When the specter of investment fraud appears, the U.S. Securities and Exchange Commission gets involved. SEC investigators may look for several different angles, such as whether the investor legally obtained his or her funds, whether the funds were used appropriately, and whether the paperwork was complete.

A recent SEC investigation has resulted in an EB-5 fraud charge against a California couple. The pair reportedly raised $27 million, received from over 50 Chinese investors who were seeking EB-5 visas. The funds were supposed to go toward building a cancer treatment center. Instead, it appears that over two-thirds of the money was misused. Specifically, $7 million was diverted to the couple’s personal accounts, and another $11.8 million was transferred to three overseas firms.

The SEC obtained a court order that has frozen the couple’s assets and also prohibits them from collecting any additional investment funds. However, that order may have come too late. In the investigation leading up to the formal charges, the SEC subpoenaed one member of the couple. That prompted the couple to quickly transfer some of the funds before the court order was issued.

A foreign investor may have a lawful interest in obtaining an EB-5 immigration visa. However, this story should provide a cautionary warning. It may be safer to consult with an immigration firm, such as ours, before making a sizable EB-5 investment.

Source: Reuters, “SEC charges couple with fraud in Chinese investor visa scheme,” Suzanne Barlyn, June 3, 2016

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