The EB-5 Visa Program: How It Functions

Essentially, the EB-5 Program provides a way for foreign nationals to obtain a green card by investing in a U.S. “business.” In return for investing in a business that creates jobs for American workers, foreign nationals and their family members eventually qualify for permanent residency in the United States.

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Investment Pathways:

Since its establishment in 1990, the program has undergone significant changes. Currently, there are two primary routes for foreign investors to acquire an EB-5 visa:

Direct Investment: Investing capital in a new or existing business that generates jobs; or

Regional Center Investment: Investing capital in a “Regional Center,” which is a government-approved entity that actively manages investor funds and the immigration approval process. A Regional Center is defined as “any economic unit, public or private, that is involved in promoting economic growth, including increased export sales, enhanced regional productivity, job creation, and increased domestic capital investment.” 8 C.F.R. § 204.6(e) (2015).

Advantages of Investing in a Regional Center:

Investing capital through a Regional Center provides several advantages to EB-5 investors, including:

• Ability to Count Both Direct and Indirect Jobs for Job Creation: When opting for Direct Investment, only direct jobs qualify to meet the job creation criteria specified by the EB-5 Program. Direct job creation refers to the creation and maintenance of at least ten new identifiable jobs over a two-year period as a direct result of the investment. However, under the Regional Center Program, investors can also meet the job creation requirement by demonstrating indirect job creation from the collective investment funds of all participating investors.
• No Requirement for Management Participation: By investing in a Regional Center, a foreign national pursuing an EB-5 visa does not need to engage in the daily management of the business.

Minimum Investment Requirement for EB-5 Investors:

• $1,000,000: Regardless of whether the EB-5 investor opts for a Direct Investment or invests in a Regional Center to obtain a permanent residence visa, the investor must make a qualifying capital investment of at least $1 million;
• Targeted Employment Area / $500,000: The $1 million investment requirement is reduced to $500,000 if the investment is made in a Targeted Employment Area (TEA) within the U.S. and in a new commercial enterprise that fulfills the job creation criteria;

Note: Definition of TEA: A Targeted Employment Area is defined as a location that, at the time of investment, is either in a rural area or has an unemployment rate that is at least 150 percent of the national average.

How Does EB-5 Investment Fraud Work?

Entrepreneurs seek designation for their businesses as “regional centers” under the EB-5 program. These regional centers sponsor capital investment ventures for EB-5 investors. Foreign investors rely on these regional centers to provide legitimate investment opportunities that qualify for EB-5.

However, these businesses may not undergo vetting by U.S. government agencies to ensure their legitimacy. Some enterprises market themselves as EB-5 eligible investments without being designated as regional centers. These fraudulent entities collect funds from foreign investors and misuse them for personal gain. Consequently, the funds fail to contribute to job creation or economic growth in the United States, rendering them ineligible for the EB-5 immigration program. Foreign investors are left without their investments and without a pathway to obtain U.S. residency.

Warning: Beware of EB-5 Investment Scams

The United States Securities and Exchange Commission (SEC) has released a cautionary advisory regarding EB-5 investment scams, urging foreign investors to exercise vigilance against deceptive investment schemes. The SEC advisory delineates indicators of EB-5 Investment Fraud:

• Assurances of a certain Visa or permanent residency status
• Assurances of guaranteed investment returns/Claims of zero Investment Risk
• Consistently high investment returns with unwavering predictability
• Investments lacking registration as regional centers
• Unlicensed sellers (Being designated as a regional center does not imply seller licensure)
• Multiple layers of companies managed by the same individuals

If you are an EB-5 investor and have encountered any of these red flags, you may be a victim of EB-5 investment fraud.

Class Action Lawsuits Against EB-5 visa Fraud

In recent years, certain EB-5 Fraud cases have garnered public attention. Two prominent examples are:

Investigation into Jay Peak, Inc.

The lawsuit against Jay Peak, Inc. was initiated by the SEC on April 12, 2016. Under the control of Ariel Quiros and William Stenger, the Vermont ski resort, Jay Peak, amassed $350 million from investors since 2006. Over 700 investors worldwide contributed to Jay Peak through the EB-5 Immigrant Investor Program. These investments were intended for projects associated with Jay Peak Ski Resort or a biomedical facility in Vermont.

However, a significant portion of these funds were dispersed among Jay Peak’s subsidiaries. Approximately $50 million of the EB-5 investors’ funds were misappropriated by Jay Peak’s owners for purchasing luxury condos, settling the owners’ income taxes, and repaying loans.

Investigation into Cancer Treatment Center

On June 2, 2016, another EB-5 Investor Fraud case was disclosed by the SEC. The SEC filed a complaint against Xin “Lisa” Wang and Charles C. Liu for the misapplication of investors’ funds intended for constructing a cancer treatment center. Wang and Liu collected over $27 million from Chinese EB-5 investors for establishing a facility specializing in cancer treatment using proton beam radiation.

However, after 18 months, no construction has commenced at the proposed site, and Liu has transferred $11 million of investor funds to entities in China, while diverting an additional $7 million of investor funds to his wife’s personal account.

Ways to Prevent EB-5 investment scams

In this context, the SEC advised prospective EB-5 investors to stay vigilant against possible fraudulent schemes and implement the following measures as a precaution:

• Confirm Regional Center Designation: Before investing in a Regional Center, foreign investors should initially verify the center’s presence on USCIS’s website. Even if listed, investors should exercise caution as USCIS does not endorse the regional center or its investments.
• Obtain USCIS Documents: Regional Centers must file Form I-924 for USCIS approval and designation, along with an information supplement (Form I-924A) annually. Investors should request copies of these documents from USCIS.
• Request Investment Details in Writing: Investors should solicit a copy of any investment offering or private placement memorandum (PPM) from the issuer. If investors find the information unclear or if issuers refuse to address questions adequately (preferably in writing), reconsidering the investment is prudent.
• Inquire About Promoter Compensation: Investors should inquire about the compensation arrangements for consultants, promoters, attorneys, or agencies endorsing the investment. Any discrepancies between offering documents and promoter-provided information should raise skepticism.
• Seek Independent Verification: Investors should independently verify investment details. For instance, in commercial real estate construction projects, checking county records can confirm permit acquisition and alignment of local property tax assessments with issuer and Regional Center claims.
• Evaluate Structural Risk: Particularly in new ventures or businesses, investors should scrutinize loan and offering documents to understand associated assets, debts, and collateral.
• Assess Developer Incentives: Investors should consider whether EB-5 Regional Center principals and developers have made capital investments in managed projects. Projects lacking principal and developer investments may indicate misaligned financial incentives.

Search for Indicators of Fraud: An investor should exercise caution regarding the investment if any of the following telltale signs of fraud are evident –

• Assurances of a visa or guaranteed lawful permanent residency: Although investing through the EB-5 Program renders one eligible to apply for a conditional visa, there exists no assurance that USCIS will grant a conditional visa, or subsequently remove the conditions on an investor’s lawful permanent residency;
• Guaranteed investment returns or absence of investment risk: Investors should approach with skepticism any claim of guaranteed return on investment or assertions of no investment risk;
• Consistently high investment returns: Given the fluctuating nature of investments, investors should be wary of claims about investments offering consistent and high returns irrespective of market conditions;
• Unregistered investments: Despite many Regional Centers being designated by USCIS, most new investment opportunities offered through Regional Centers are not registered with the SEC or any state securities regulator. In such cases, investors may lack access to crucial information about a company’s management, products, services, and financial condition. Therefore, investors should seek additional information about the company and exercise caution;
• Unlicensed sellers: Compliance with federal and state securities laws mandates that investment professionals and their firms be appropriately registered and licensed to sell securities products. It’s important to note that Regional Centers do not meet this requirement. Moreover, investors should be aware that many fraudulent investment schemes involve unlicensed individuals and/or their unregistered firms;
• Complex corporate structures: Some EB-5 Regional Centers have intricate corporate frameworks comprising multiple layers of companies managed by the same individuals. In such instances, investors should ascertain that any conflicts of interest have been fully disclosed and appropriate safeguards are in place to mitigate such conflicts.

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