EB-5 Investment Fraud: One Project Promised, Another Bill Paid

EB-5 investment fraud deceives investors about the projects their money will finance, the jobs those projects will create or where their money will go. If you work inside a regional center, developer or project finance team, you may know when the construction budget and the investor pitch stop describing the same business. The offering names a project. The bank transfer pays for something else.

This page follows those project promises and the money behind them. Our broader discussion of securities fraud evidence connects investment representations to the business records that can test them.

What Did Investors Think Their EB-5 Money Would Fund?

Investors in an EB-5 offering may be financing a particular construction project while seeking a path to U.S. residency through job creation. The SEC and U.S. Citizenship and Immigration Services described that connection in their joint investor alert. USCIS administers the immigration program. The SEC pursues securities violations in the investments offered through it.

The financing can put more than one company between an investor and the building. The alert describes a new commercial enterprise established to lend money to a company developing the project. Offering statements and loan documents explain the promised use of the capital and any collateral pledged to investors. For someone inside the business, the useful question is which entity received the investment and what happened when the money left that entity.

That distinction was central to the SEC’s April 2016 allegations concerning Jay Peak. The agency said the operators raised more than $350 million to construct ski resort facilities and a biomedical research facility in Vermont. Investors were told their money would finance only the specific project they selected.

How Can EB-5 Investment Fraud Move Money Between Projects?

Money raised for a later project can cover an earlier project’s deficit while investors hear that their capital is reserved for their own development. That is the movement the SEC alleged at Jay Peak, describing it as occurring in Ponzi-like fashion. The SEC alleged that more than $200 million went to purposes other than those disclosed, including $50 million spent on an operator’s personal expenses and other undisclosed uses.

According to the agency’s account of its complaint, investor funds paid for a luxury condominium, the operator’s income taxes and other taxes unrelated to the investments, and the acquisition of an unrelated ski resort. The SEC said the diversions left little money for construction of the promised research facility. We see a remarkable construction budget in those allegations: it could accommodate the operator’s condominium while the research facility went short.

The SEC announced fraud charges and an asset freeze, and the court appointed a receiver to prevent further spending of investor assets. For an insider who handled transfers or project accounting, the connection is specific: the investor’s designated project, the account that received the money and the expense ultimately paid.

Which Records Can Show EB-5 Investment Fraud?

Offering documents, bank records and construction records can connect what investors were promised to how their money was used. We examine those records with the person who understands the project, including the instructions and approvals behind the transfers. A project ledger can identify a charge. The payment record and the underlying agreement explain what that charge bought.

The Offering and the Bank Account

The offering memorandum and subscription records identify the investment and the promised use of proceeds. Bank destinations, transfer instructions and project accounting show the subsequent movement of the capital.

Escrow terms add another comparison: the event that was supposed to permit release against the actual release of funds. In its joint alert, the SEC described allegations that USA Now regional center promoters promised to hold investor money in escrow until USCIS approved the business as eligible for the program. The SEC alleged that the promoters instead used investor funds for personal purposes, including their Cajun-themed restaurant.

Construction, Collateral and Developer Capital

A construction claim can be checked against permits, project spending and confirmation from businesses said to be participating. The joint alert specifically identifies county permit records, property tax assessments, loan documents and collateral as useful comparisons.

The developer’s own investment also matters to the financing story. The alert explains that principals and developers who contribute no equity may have incentives that are not tied to the project’s success. An insider who knows the ownership, capital contributions and authority to move funds can explain who had money committed and who controlled the investor money.

The People Controlling Both Sides

The alert also identifies structures with layers of companies managed by the same people and the importance of disclosing those conflicts. Ownership records and payment approvals can connect the company receiving a transfer to the people authorizing it. A finance employee may know who directed a transfer, while someone managing construction may know what the project actually received.

Other EB-5 Offerings Show the Same Project-to-Payment Gap

A Cancer Center With Money Sent Elsewhere

In its June 2016 announcement concerning Pacific Proton Therapy Regional Center, the SEC alleged that the operators raised $27 million from investors in China for a proton-beam cancer treatment center in Southern California. The agency said an operator transferred $11 million to firms in China and another $7 million to the operators’ personal accounts. At the time of the announcement, the SEC reported no construction at the proposed site.

The SEC said promotional materials claimed the project would create more than 4,500 new jobs. For someone working on the project, the investor presentation, the construction activity and the overseas transfers describe different parts of the same transaction.

Senior Living Projects With Competing Uses for the Cash

In its June 2017 announcement concerning Chicagoland Foreign Investment Group and American Enterprise Pioneers, the SEC alleged that investors were promised a specific senior living project in the Chicago area or Florida. The agency alleged that the operator diverted millions to other projects and unrelated payments, and used investor proceeds for himself, his brother and companies he owned.

An employee responsible for allocating costs across projects may know when another development or an owner’s expense consumed that project’s funds. That knowledge connects the accounting entry to the investor representation.

What Does an EB-5 Regional Center Designation Tell You?

Regional center designation identifies a business designated by USCIS for the immigration program, but it does not approve the investments that business offers. The joint SEC/USCIS alert states that neither designation nor a place on the agency’s regional center list represents a government endorsement of an investment. An insider reviewing sales materials can recognize when a promoter turns that designation into a claim about the quality or safety of a particular project.

The Pacific Proton announcement gives a concrete example of claimed government support. The SEC alleged that a promotional website displayed photographs of a former president and a former governor alongside letters supporting proton therapy generally. In the SEC’s account, the endorsement had arrived before the project existed.

The joint alert also identifies promises of certain immigration outcomes, risk-free investments and consistently high returns as fraud indicators. Sales scripts and investor communications can show what the promoter promised beyond the offering memorandum. If your concern includes immigration status, we can discuss that concern with you alongside the investment evidence.

Promoter Payments Have Their Own Paper Trail

Compensation for selling an investment can explain why someone recommended it and who benefited when the investor committed funds. The joint alert specifically addresses payments to consultants and agencies presented as unaffiliated advisers or endorsers. Commission agreements and payment records let us compare that financial relationship with what investors heard.

The SEC’s 2018 CMB Export announcement described a settlement of registration charges involving limited partnership interests sold through the program. According to the agency’s account of its order, CMB Export paid transaction-based compensation for soliciting foreign investors.

In a separate 2018 action concerning Edwin Shaw LLC, the SEC alleged unregistered brokering of investments in a Queens, New York, taxi and limousine company. The agency said the broker received a fee for each successful investment and improperly used investor fees for its own expenses and its principal’s personal expenses. Those fee records give someone handling investor payments another concrete transaction to explain.

Can an EB-5 Insider Report Investment Fraud to the SEC?

An insider can bring information about an EB-5 securities offering to the SEC. The useful information connects the investor representation, the movement of funds and the decisions inside the project. We work with you on that connection through the securities fraud reporting process.

The agencies’ 2013 investor alert said most new commercial enterprise investments offered through regional centers were unregistered. Investors could lack the management and financial information that registration requires, making the records inside the business especially useful for testing the pitch.

A study of occupational fraud in the Journal of Forensic & Investigative Accounting found whistleblowing was the most common detection method in its sample. The Significance of Whistleblowing as an Anti-Fraud Measure, published in 2018, reported that 35.9% of cases with complete detection data were detected through a whistleblower, compared with 21.4% through internal controls. The study also found that schemes involving more participants were more likely to be detected through whistleblowing. Knowing who approved a transfer or what an investor was told can give an account entry the explanation it lacks.

Eligible SEC whistleblowers can receive awards totaling 10% to 30% of qualifying money collected in an action with monetary sanctions exceeding $1 million. We assess how your information fits the SEC award program with you. A person reporting from outside the United States can also qualify, and we can discuss the overseas records or communications you understand.

You Know Which Project the Money Paid For

If you know why an investor’s project money paid another development’s bills or an owner’s expenses, speak with our whistleblower experts about the transfers and the promises behind them. We work beside you to build the strongest case your evidence supports and bring in securities fraud whistleblower lawyers who understand EB-5 offerings. Your knowledge of the accounts, construction and internal decisions is where that work begins.