Federal Crackdown On EB-5 Visa Fraud Continues With Filing Of Multiple Asset Forfeiture Lawsuits In California

In its continuing effort to fight fraud in the controversial EB-5 immigrant visa program, the Justice Department announced last week that it had filed federal lawsuits seeking the forfeiture of nine real properties across Southern California that were allegedly purchased with proceeds generated by a fraudulent scheme that collected more than $50 million from foreign investors seeking “Green Cards” through the EB-5 visa program. The suits allege that much of the money collected from investors, who were primarily Chinese, either was refunded to the foreign nationals or was stolen by participants in the scheme.

The EB-5 visa program provides a pathway to lawful permanent residence – commonly known as a “Green Card” – to foreign nationals who invest at least $500,000 in a U.S. business that creates at least ten American jobs. If a project ultimately meets the visa program’s requirements, the investors are granted permanent legal residence in the U.S.

The EB-5 program has been in existence since the 1990s, but its popularity increased following the financial crisis of 2008. During that crisis, many U.S. real estate developers ran out of sources for cash, and the EB-5 program helped meet that need by bringing in foreign investment. Interest in obtaining EB-5 visas has continued to increase, in large part because of demand from wealthy Chinese citizens. In 2015, the U.S. government granted nearly 10,000 EB-5 visas, and 85 percent of those went to Chinese nationals.

A 2013 report by the Department of Homeland Security Office of Inspector General found serious problems with the oversight of the EB-5 program. The Government Accountability Office published a study on fraud in the EB-5 program last year, which found that progress had been made in fraud detection, but improvements were still needed.

Earlier this year, a hotel developer in Chicago was sentenced to three years in prison for using the EB-5 program to fraudulently raise capital from Chinese nationals seeking U.S. residency. The defendant in that case told investors he was building a hotel and convention center near O’Hare International Airport. He solicited Chinese nationals to invest $500,000 apiece in the project, plus $41,500 in administrative fees to his company. Each Chinese national who participated in the project also applied for an EB-5 visa. While soliciting investors, the defendant made several false statements, including lies about funding and tax credits from the State of Illinois and the City of Chicago, none of which materialized. The $900 million project never got off the ground, and no EB-5 visas were ever granted to investors. In addition to the three-year prison term, the Court also ordered the defendant to pay $8.85 million in restitution to the victim investors. According to a Justice Department press release, this case represented the largest EB-5 criminal case in U.S. history to date. In all, the defendant raised approximately $158 million from more than 290 investors. The Securities and Exchange Commission brought a civil lawsuit against Sethi and was able to restore approximately $147 million to Chinese investors.

The asset forfeiture suits filed last week in California allege that attorney Victoria Chan and her father, Tat Chan, operated a business called California Investment Immigration Fund, LLC (CIIF) from 2008 until this year. CIIF allegedly convinced more than 100 Chinese nationals to invest over $50 million in CIIF and related companies. Rather than investing those funds into U.S. businesses – as required by the EB-5 program – CIIF either refunded the funds to the investors while their EB-5 petitions were pending, in direct violation of program requirements, or stole millions of dollars to use for personal expenditures, including the purchase of luxury homes.

In April 2017, federal agents raided CIIF’s offices and homes of its executives. According to an affidavit filed in federal court as part of those search warrants, CIIF sought money from more than 100 Chinese investors, and in the process helped many of them to obtain U.S. green cards through the EB-5 program. Several of the investors who received green cards were fugitives wanted by the Chinese government.

In seeking approval for their investment fund in 2008, the father and daughter said their projects would focus on real estate developments, especially in the restaurant and hotel industries. As part of the investigation, agents found 72 bank accounts linked to the investment fund or one of many holding companies affiliated with it. From 2009 to 2016, approximately $50 million was wired or deposited into the accounts, the affidavit said. Most of the money originated from accounts in mainland China or Hong Kong.

About $15 million of the money was used to purchase several personal homes as well as business properties, but agents found no significant work was ever done on any of the proposed business projects. Approximately 30 of the investors received some or all their money back — amounting to about $10 million — but did not disclose the refunds to U.S. officials and have continued to pursue legal permanent residence in the country. In June, investigators sent an undercover informant into the office to meet with Victoria Chan. Chan stated that his $500,000 investment would be returned within five years, according to the search warrant affidavit.

The civil lawsuits filed last week allege that the properties named in the asset forfeiture lawsuits were purchased with proceeds derived from mail fraud, wire fraud, or visa fraud and that the purchases themselves constituted money laundering. The lawsuits seek the forfeiture of the following real properties:

• a commercial property in the City of Industry valued at over $3 million;
• five residences in the cities of Rancho Cucamonga, Arcadia (worth approximately $4 million), Diamond Bar, Riverside and Duarte (valued at $5.5 million); and
• parcels of land located in Ontario, Indio (worth nearly $6 million) and Rancho Cucamonga (valued at more than $7.7 million).
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To date, no individuals have been arrested or charged in this investigation, but the raids conducted in April and the asset forfeiture lawsuits filed last week strongly suggest that criminal charges will be forthcoming in the near future. In the meantime, the EB-5 program has been extended through September 30, 2017, while many in Congress are seeking to reform the program to prevent recurrences of the type of fraud illustrated by these cases.

http://www.jdsupra.com/legalnews/federal-crackdown-on-eb-5-visa-fraud-84037/

Mentions

• California Investment Immigration Fund (CIIF)
• Fox Rothschild LLP

States

• California