The fate of the EB-5 visa program, which qualifies wealthy individuals and their families with instant Green Cards, by merely investing $500,000 minimum into designated projects in the United States, will now be decided by Wednesday, December 16, after it got a reprieve for an extension.
The program, which is popular with developers in many states, and has seen a deluge on Chinese investors, has also seen plenty of fraud, to give pause to lawmakers.
The 25-year-old program, which is coming up for reauthorization before Congress, allows foreign investors to gain permanent U.S. residency in exchange for investments that create American jobs, preferably in rural areas and neighborhoods with high unemployment.
Renewal of the program – which awards a U.S. green card to foreigners who invest $500,000 into the U.S. economy – was part of a short-term spending bill approved by the House of Representatives Friday, reported The Real Deal. The bill, approved by the Senate on Thursday, will keep the government running through Dec. 16 while lawmakers negotiate the $1.15 trillion budget, of which EB-5 is a small component.
The EB-5 program, which offers 10,000 U.S. visas annually, was initially up for renewal in September, when lawmakers passed a stopgap measure to keep the government operating through Dec. 11.
In recent months, lawmakers have been considering various changes to the program, such as raising the minimum investment amount. Currently, investors are required to invest $1 million or a discounted amount of $500,000 in “targeted employment areas,” or zones designated as having high unemployment. Other changes could place restrictions on TEA designation.
The EB-5 legislation currently contains 40 pages of changes, according to Ron Klasko, a managing partner at Klasko Immigration Law Partners.
For New York developers, proposed changes to TEAs are particularly worrisome since many of them have taken advantage of the discounted investment amount by creating special districts linking their projects to low-income neighborhoods.
“From the point of view of New York developers, almost all of them have, in the past, qualified for the $500,000 reduced investment amount of the TEAs,” Klasko told The Real Deal, a portal on real estate development. “Many of them will not qualify for that under this new law, meaning investors would have to invest $1 million. That’s an issue.”
The legislation would also allot a certain number of visas to different investment categories, such as 2,000 visas for projects in rural areas and 2,000 visas for people who invest $1 million.
“There have been long waiting lists for investors in China when they were competing for 10,000 visas,” Klasko said. “Now many of them for the New York projects will be competing for 4,000 visas.”
There’s little chance the bill will not pass, he said, since it’s part of the government’s omnibus bill. Meanwhile, developers and investors are sitting tight. “Until we have the final law,” said Klasko, “There won’t be a lot of activity.”
PBS reported on the EB-5 visa program, saying proponents have touted the program as a job creator with no cost to the U.S. taxpayer, but the fraud element is a worry. Critics question the ethics of selling visas and say that the program is prone for corruption. In one particularly egregious case, a man fraudulently raised $160 million from nearly 300 Chinese investors in Chicago, siphoning off a portion of the funds for personal use.
PBS reported from Vermont’s Jay Peak Resort, where a showdown has been brewing between the developer and CEO of Jay Peak, Bill Stenger, and 20 of the resort’s earliest EB-5 investors, who fear they won’t ever see the half a million dollars each they invested in Jay Peak.
VT Digger, an investigative Vermont news website, has been following the controversy and reported in June that Jay Peak was under a Securities and Exchange Commission investigation.
A group of immigrant EB-5 investors are incensed that Stenger seized ownership of the Tram Haus Lodge and turned their half-million dollar equity stakes in the property into IOUs. Investors had no knowledge of Stenger’s actions until five months after they were executed.
Stenger and his partner at Jay Peak, Miami-based Ariel Quiros, dissolved the company on Aug. 31, 2013, turned the investments into unsecured loans and “waived” investors’ legal rights, according to documents obtained by VTDigger. Stenger says he sent an email to investors with the promissory note on Jan. 24 of this year, but he did not mail official, paper copies until May.
Earlier this month, The Los Angeles Times reported that for a dozen Chinese investors, the building at Martin Luther King Boulevard and Norton Avenue in Lynwood was supposed to be a ticket to the United States.
However, a Redlands doctor turned developer promised to use their combined $6 million to convert the former adult day-care center into a nursing home, one that would get the investors green cards through a federal program aimed at boosting foreign investment.
Instead, nearly two years after construction was supposed to be finished, the building remains a tattered shell, walls down to the studs, no windows or doors, and no sign of ongoing work.
Now federal regulators say those and other investors were duped by physician Robert Yang and his associate, Claudia Kano of Pomona, who are accused of misspending funds raised through the EB-5 visa program.
The Securities and Exchange Commission has filed civil fraud charges against the pair and frozen their assets in the agency’s latest enforcement action involving the program, which has been swept up in controversy and scandal.
The SEC has filed five EB-5 fraud cases this year after filing just one in 2014 and two the year before.
“There’s been increasing SEC involvement. They’ve done more this year than in prior years combined. I would expect them to have more still,” said Michael Homeier, a Sherman Oaks attorney who works with developers using EB-5 investments to fund projects, according to the Times.