One problem with the EB-5 (immigrant investor) program is that alien investors arguing that they have been swindled by States-side operators have to fight for years to get their money back.
We were reminded of that this week when the U.S. Supreme Court, rejected the second appeal for a hearing in a case that has been in and out of the courts for seven years. This was a denial of cert decision, with no comments and no recorded votes among the justices. That the developers managed to secure the first hearing before the court was unusual, as the court turns down such petitions in droves; that they could have secured a second hearing would have been beyond remarkable.
In a case that has been active since 2016, 50 or so Chinese EB-5 investors have charged that U.S. residents Charles C. Liu and his wife Xing Wong conned them out of large sums of money that were supposed to be used to construct a medical center in Southern California, one that has never been built.
The mis-use of the money has been confirmed, with the help of the Securities and Exchange Commission, by multiple courts — the remaining issue is how much is at stake. In a posting four years ago I used $35 million; in the Law360 item cited above, the SEC estimate was $65 million; following the developers’ win in an earlier Supreme Court case, lower courts set the number at $21 million. The couple, apparently not satisfied with a reduction of $44 million, went into the courts again seeking a further shaving of what they owed, claiming that certain costs had been misclassified by the courts. The Law360 article said:
The SEC countered that the “extraordinary salaries that fraudsters pay themselves” do not need to be included in the calculations for disgorgement and the equipment they bought only served to give the impression that they intended to build the treatment center.
An extra-careful reader will have noticed that both the $35 million and particularly the $65 million loss figures jar with the number of investors noted in the Law360 article, and that number was 50. At the time the minimum investment amount was $500,000 and 50 times that equals $25 million.
How do you move from $25 million to $65 million?
There are some governmental and legal fees involved, and some accumulating interest, to be sure, but this is not the only time that I have noted that the amount recovered in an EB-5 case may have exceeded the amount mishandled. I cannot see how the Raymond James brokerage house, for instance, in the long-running Vermont EB-5 cases could have possibly received a fraction of the $144.5 million it agreed to pay in a SEC-devised settlement.
So maybe Liu and Wang had a point as to the amount of money they owed.
In any case, the long story about the medical clinic never built and the millions lost in this and other scandals continues to provide negative headlines about the EB-5 program. If the wrongdoers would simply pay up and shut up it would be better for the industry, but this rarely happens.