What is EB-5 fraud? How to prevent it?
EB-5 fraud refers to any illegal or deceptive activity related to the EB-5 visa program. Fraud can be perpetrated by a regional center, the developer of the new commercial enterprise, the job-creating entity, promoters and agents, immigration lawyers, and investors.
Detractors of the EB-5 program, many of them politicians, have for years argued that the program has been rife with abuse and fraud. Sens. Chuck Grassley (R-Iowa), and Patrick Leahy (D-Vt.) have been among the most vocal critics of the program and the two were the architects behind the EB-5 Reform and Integrity Act of 2022 which was designed to help promote transparency, improve oversight, and curb abuse and fraud.
Misuse of investor funds has been one prevalent type of EB-5 fraud. Developers have been accused of using EB-5 funds for personal expenses or other non-approved uses, rather than investing them in the job-creating entity as required by the program. Notable fraud stories over the years have often single projects with dozens of investors and the misuse of tens of millions of dollars.
The Jay Peak and related Vermont projects spearheaded by developer Ariel Quiros are believed to be the biggest fraud in EB-5 history, misusing $200 million of capital raised by hundreds of investors.
On occasion, developers have been accused of operating Ponzi schemes, in which they use money from new investors to pay returns to earlier investors, rather than investing the money in the commercial enterprise as required by the program
Misrepresentation of the project is another type of fraud that hasn’t captured headlines but has been said to be prevalent in the industry. Some developers, regional centers, and agents have been accused of providing false information to investors about the details of the project, such as the expected return on investment, the number of jobs that would be created, or the status of the project's approval.
Ways that EB-5 investors can help identify and prevent fraud
Promises of a Green Card
Guaranteed investment returns or claims of no investment risk
Layers of companies run by the same people
The SEC offers these tips to EB-5 investors on how to reduce the opportunity for fraud:
Confirm that the regional center approval by USCIS
Obtain project documents given to USCIS
Receive all investment information in writing
Ask for proof of promoter fees
Seek independent verification
Examine structural risk
Consider the developer's motivation