EB-5 immigrant investor fraud

What it is

EB-5 is a US program that gives a foreign investor who puts money into a business that creates jobs a way to apply for conditional lawful permanent residency. According to the SEC and USCIS, business owners apply to be designated as regional centers, which offer investment opportunities in new commercial enterprises that may be securities offerings. EB-5 fraud is an investment fraud that uses that program as its hook. A developer or operator raises investor money for a project, collects administrative fees on top, and diverts the money for other purposes, while the investors wait for a project that stalls and for a green card that may not come.

How it actually works

1. The pitch

   A developer or regional center promises a project and a path to residency. In the Chicago case, according to a press report, the developer fabricated a marketing package to attract investments from Chinese nationals, and in the Utah case the SEC alleges a finder’s fee was paid to an entity that recruited investors.

2. The designation

   The offering sits inside the regional center framework. The SEC and USCIS warn that a regional center’s designation does not mean any government agency has approved the investments it offers.

   Where it could have stopped

   The investor alert says to confirm the regional center is designated by USCIS, to obtain the documents it gave USCIS, and to verify claims independently, for example by checking county records for permits. It also says guarantees about a visa or green card are warning signs of fraud.

3. The money goes in

   Each investor pays the investment, typically $500,000 to $1 million according to Construction Dive, and an administrative fee. In the Vermont project about 169 investors put in roughly $85 million, and about $8 million was paid in administrative fees.

4. The money goes somewhere else

   In the documented cases, investor money was used for purposes unrelated to the project. The IRS account of the Vermont case describes a $6 million payment to the IRS funded by a loan collateralized with investor funds, and the SEC alleges in the Utah case that about $5 million was spent on a personal residence, a vacation home, credit card bills, vehicles and a finder’s fee.

5. The project stalls

   The Vermont facility was never built, and a judge called the project a ghost. In the Chicago case a press report says the planned $900 million hotel and convention center never made it past the planning stages.

6. The visa clock

   Toward the end of the two-year period of conditional residency, an investor has to be able to establish that the job creation requirements were met. The SEC and USCIS’s alert says USCIS denies cases where eligibility rules are not met, and in the Washington case Bisnow reported that many investors had moved to the US on temporary visas and most had since been denied green cards.

7. Enforcement years later

   The SEC filed the Chicago case in 2013 and froze assets, and later returned $147 million of frozen principal to investors. The Vermont defendants were sentenced in 2022. The Utah case, filed in 2023, is an allegation with no outcome found.

Why it works

The visa is the lure. In the Washington case, Bisnow reported that investors sold their properties in China and many moved to the US on temporary visas. The SEC and USCIS warn that guarantees of a visa or its timing are a sign of fraud, because investors are not guaranteed a visa.

A government designation sounds like approval. The alert states plainly that regional center designation does not mean USCIS, the SEC or any other agency has approved the investments.

Fees are paid up front. Investors pay administrative fees on top of the investment, and in the Chicago case the SEC and USCIS alleged that more than 90 percent of them were spent before USCIS had decided the visa applications, despite a promise to return them if the applications were denied.

Layers of companies. The alert lists layers of companies run by the same individuals as a warning sign.

The documents look real. In the Vermont case investors received a use-of-funds chart that, according to the IRS account, misstated the money two defendants would receive.

Where it comes from

Domestic in who runs it, international in who is recruited: the documented cases involve US developers raising money from foreign investors, mostly Chinese nationals.

The earliest case here. The SEC filed the Chicago case in February 2013, and the SEC and USCIS issued their joint investor alert later that year, in October 2013.

A pattern across states. The documented cases span Vermont, Illinois, Washington and Utah. The Washington developer Lobsang Dargey, according to Bisnow, collected about $235 million from 280 Chinese investors and diverted $24.2 million, according to prosecutors, and was sentenced to four years after pleading guilty.

Large and small. The documented amounts raised range from $18 million in the Utah case to about $158 million in Chicago.

Real cases

Red flags

• A promise or guarantee of a visa or green card, or of when it will arrive.
• Guaranteed returns, or a promise that you will get some of your money back. The alert says EB-5 money must be at risk.
• Overly consistent high returns regardless of market conditions.
• An unregistered offering where management, products and finances are not disclosed.
• Unlicensed sellers or recruiters. The alert says regional center designation does not satisfy the licensing requirement.
• Layers of companies run by the same people.
• A claim that the project has permits or big-name partners that you have not confirmed independently.

If it’s happening to you

If you are considering an EB-5 investment, or think you were misled:

1. Confirm the regional center is designated by USCIS on its list, and understand that designation is not an endorsement.
2. Ask for the documents the regional center gave USCIS and the investment terms in writing.
3. Verify claims independently: check county records for permits, and go directly to any company said to be involved.
4. Be suspicious of any guarantee about a visa, returns, or refund of fees.
5. Report suspected fraud to the authorities. See where to report for agencies in the United States and in other countries.

Where the money goes

Entirely domestic once it arrives: from investors into the regional center or project company, then onward.

Investor money arrives in the project company’s accounts. In the documented cases, some of it went to uses the project did not call for: in the Vermont case, a loan collateralized with investor funds paid $6 million to the IRS; in the Utah case, the SEC alleges personal homes, credit card bills, vehicles and a finder’s fee; in the Washington case, prosecutors said $24.2 million was diverted. In the Chicago case, a court ordered $147 million of frozen principal returned to investors.

By the numbers

No published dataset breaks this scheme out as its own category yet, so there is no chart to show. The data page explains which agency categories exist and why some schemes are invisible in official statistics.