EB-5 2.0: Can Account Transparency Save the Program?

Responding to mounting reports of securities and investor fraud involving the EB-5 Immigrant Investor Program (the “Program”), several bills that attempt to improve the integrity of the Program have been introduced in Congress in recent years. An EB-5 reform bill would not represent true reform unless it sought to deter the misappropriation of investor funds that was at the core of several recent SEC enforcement actions. Adding the “Account Transparency Requirement” to H.R. 5992, the most recent Congressional attempt to reform the EB-5 Program, demonstrates a commitment to truly restore integrity to the Program. As explained in this article, the Account Transparency Requirement may be the most important of the integrity and investor protections advanced by the bill.

The provision would impose new controls on the flow of EB-5 investor funds. Account Transparency addresses actual fund administration, the area where the recent abuses have surfaced. It aims to (1) deter principals of new commercial enterprises and related entities from misappropriating EB-5 investor funds; (2) promote early detection by USCIS, investors and thirdparty inspectors of any unlawful diversion; and (3) enhance government enforcement, discovery and recovery of the misappropriated funds.

The media’s reporting of the fraud perpetrated in the EB-5 arena has recently focused on Jay Peak in Vermont. However, Jay Peak is merely one of the many misappropriation cases. Within the past two years, the Securities and Exchange Commission (“SEC”) has filed EB-5 enforcement actions throughout the country. The projects have been located on the West Coast (from southern California to Washington), on the East Coast (from south Florida to Vermont), as well as in the nation’s midsection (Texas and Illinois).