Investor Alert – Investment Scams Exploit Immigrant Investor Program

The U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy and U.S. Citizenship and Immigration Services are jointly issuing this Investor Alert to warn individual investors about fraudulent investment scams that exploit the Immigrant Investor Program, also known as “EB-5.”

The U.S. Securities and Exchange Commission’s (“SEC”) Office of Investor Education and Advocacy and U.S. Citizenship and Immigration Services (“USCIS”) are aware of investment scams targeting foreign nationals who seek to become permanent lawful U.S. residents through the Immigrant Investor Program (“EB-5”).  In close coordination with USCIS, which administers the EB-5 program, the SEC has taken emergency enforcement action to stop allegedly fraudulent securities offerings made through EB-5.

The EB-5 program provides certain foreign investors who can demonstrate that their investments are creating jobs in this country, with a potential avenue to lawful permanent residency in the United States. Business owners apply to USCIS to be designated as “regional centers” for the EB-5 program.  These regional centers offer investment opportunities in “new commercial enterprises” that may involve securities offerings.  Through EB-5, a foreign investor who invests a certain amount of money that is placed at risk, and creates or preserves a minimum number of jobs in the United States, is eligible to apply for conditional lawful permanent residency.  Toward the end of the two-year period of conditional residency, the foreign investor is eligible to apply to have the conditions on their lawful permanent residency removed, if he or she can establish that the job creation requirements have been met.  Foreign investors who invest through EB-5, however, arenot guaranteed a visa or to become lawful permanent residents of the United States.

The fact that a business is designated as a regional center by USCIS does not mean that USCIS, the SEC, or any other government agency has  approved the investments offered by the business, or has otherwise expressed a view on the quality of the investment. The SEC and USCIS are aware of attempts to misuse the EB-5 program as a means to carry out fraudulent securities offerings.  As with any investment, it is important to research thoroughly any offering that purports to be affiliated with EB-5. Take these steps:

Confirm that the regional center has been designated by USCIS.  If you intend to invest through a regional center, check the list of current regional centers on USCIS’s website at www.uscis.gov.  If the regional center is not on the list, exercise extreme caution. Even if it is on the list, understand that USCIS has not endorsed the regional center or any of the investments it offers.

Obtain copies of documents provided to USCIS.  Regional centers must file an initial application (Form I-924) to obtain USCIS approval and designation, and must submit an information collection supplement (Form I-924A) at the end of every calendar year.  Ask the regional center for copies of these forms and supporting documentation provided to USCIS. Request investment information in writing.  Ask for a copy of the investment offering memorandum or private placement memorandum from the issuer.  Examine it carefully and research similar projects in evaluating the proposal.  Follow up with any questions you may have.  If you do not understand the information in the document or the issuer is unwilling or unable to answer your questions to your satisfaction, do not invest.

Ask if promoters are being paid.  If there are supposedly unaffiliated consultants, lawyers, or agencies recommending or endorsing the investment, ask how much money or what type of benefits they expect to receive in connection with recommending the investment.  Be skeptical of information from promoters that is inconsistent with the investment offering memorandum or private placement memorandum from the issuer. Seek independent verification.  Confirm whether claims made about the investment are true.  For example, if the investment involves construction of commercial real estate, check county records to see if the issuer has obtained the proper permits and whether state and local property tax assessments correspond with the values the regional center attributes to the property.  If other companies have purportedly signed onto the project, go directly to those companies for confirmation.

Examine structural risk.  Understand that you may be investing in a new commercial enterprise that has no assets and has been established to loan funds to a company that will use the funds to develop projects. Carefully examine loan documents and offering statements to determine if the loan is secured by any collateral pledged to investors. Consider the developer’s incentives.  EB-5 regional center principals and developers often make capital investments in the projects they manage.  Recognize that if principals and developers do not make an equity investment in the project, their financial incentives may not be linked to the success of the project.

Look for warning signs of fraud.  Beware if you spot any of these hallmarks of fraud: Promises of a visa or becoming a lawful permanent resident.  Investing through EB-5 makes you eligible to apply for a conditional visa, but there is no guarantee that USCIS will grant you a conditional visa or subsequently remove the conditions on your lawful permanent residency. USCIS carefully reviews each case and denies cases where eligibility rules are not met. Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.
Guaranteed investment returns or no investment risk.  Money invested through EB-5 must be at risk for the purpose of generating a return.  If you are guaranteed investment returns or told you will get back a portion of the money you invested, be suspicious. Overly consistent high investment returns.  Investments tend to go up and down over time, particularly those that offer high returns.  Be suspicious of an investment that claims to provide, or continues to generate, high rates of return regardless of overall market conditions.

If your investment through EB-5 turns out to be in a fraudulent securities offering, you may lose both your money and your path to lawful permanent residency in the United States.

The Katsman Law Firm