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States Called to Shut Down EB-5 Program Amidst Concerns of Fraud

July 20, 2016

The investment world is fraught with opportunities for wrongdoing. As a result, critics of the EB-5 program have voiced concerns that tying green card availability to investments in business opportunities in the United States would lead to problems.

What is the EB-5 program?

Essentially, the EB-5 program encourages foreign investors to provide funds for projects in the United States. Qualifying projects must generally result in 10 permanent jobs in a portion of the country that is struggling economically.

In exchange for their investment of $500,000 or more for rural locations or $1 million for urban areas, investors also receive a green card to enter the United States.

Are concerns of using the EB-5 program to commit fraud justified?

There are some cases that support these concerns. Most recently, a piece in a popular Vermont publication has highlighted a case being pursued by the SEC as an example of why the state should shut down the EB-5 program.

The entire state.

Why shut down the program? The piece focused on the fact that the Vermont Department of Commerce had taken on the responsibility of promoting the program. The problem? In addition to promoting the program the state promised to oversee the program as well.

Unfortunately, the state agency’s efforts to oversee the program did not go well.

What went wrong in Vermont?

Most notably, a program in the Northeast portion of the state has allegedly led to millions in misappropriated funds. The Securities and Exchange Commission (SEC) is investigating a venture that is accused of illegally transferring over $200 million in foreign investor funds.

The funds were donated by foreign investors with the belief that they would be enrolled in the EB-5 program.

What can investors learn from this debacle?

This case highlights the importance of carefully reviewing a proposal before moving forward. Both investors in the United States looking to put together an EB-5 venture and foreign investors looking to be a part of such a venture can benefit from having the plans reviewed by legal counsel.