Another Embezzlement and Three Other Developments in EB-5 Land

Another Embezzlement and Three Other Developments in EB-5 Land

EB-5 Visa, EB5 Visa, EB-5 Investment

Over the last few days yet another EB-5 swindle has emerged, along with three other developments in the world of EB-5 investor visas.

The latter three might be described as a deadlock in an unfortunate location, a small victory, and a deck stacked by the EB-5 program.

Swindle. The latest EB-5 scandal involves the all-too-familiar ingredients of Chinese-American middlemen being sued by Chinese aliens for embezzlement over an urban real estate venture. Ten Chinese investors have sued the brothers Chan (Terry and Gary) and a number of other players for misusing and wasting $5 million in EB-5 funds, plus $450,000 in fees.

There was supposed to be a nine-restaurant development in Cincinnati, but the moneys were spent, according to the complaint (1:15-cv-00790-SSB-SKB in the PACER system of court records), on other real estate and on useless salaries for members of the defendants' extended families. The 10 aliens said that they not only lost their money, but that their applications for green cards were rejected because their investments did not produce a project.

Although there had been earlier suits filed about this matter, the latest was filed February 12.

This case has some non-routine elements in it, however, including ethnic mix. One of the main players is named Martin Anguilli, the father-in-law of Terry Chan. Another is that USCIS, to its credit, has already terminated the regional center controlled by the defendants.

At this point a needless complication emerges over the name and the geographical jurisdiction of the regional center. The lawsuit calls it the Kentucky Regional Center, and implies that it had the ability to operate in both that state and in Cincinnati (across the river from Kentucky in Ohio). The list of terminated regional centers more-or-less maintained by USCIS calls it the Midwest EB-5 Regional Center, and the list indicates it can operate in one state, Kentucky. Both agree that it was terminated on February 13, 2015.

Deadlock. EB-5 funds to the tune of $20 million were supposed to play a major role in the funding of a new hotel in Des Moines, Iowa. There was also supposed to be a $75 million construction loan from Bankers Trust, a local bank, but neither the CMB Regional Center nor the bank were willing to "to put their money in first", according to a news report in the Des Moines Register. The project will go forward, however, with a complex $30 million loan from Polk County.

There are two things of interest in this case: First, the lack of EB-5 funding did not kill the project, and the substitution supported the position of the program's critics that its investments are not that crucial to the economy. Second, it is awkward for the program's boosters that this set of events took place where they did, in Des Moines, the capital of Iowa, the home state of the chair of the Senate Judiciary Committee, Sen. Chuck Grassley (R-Iowa), whose committee currently is contemplating what should be done with the program.

Minor Victory. EB-5 News, an industry website, carried a news item recently reporting that nine EB-5 investors had received full repayment of their (apparently only five-year-old) investments and had received green cards. The project was in Dallas and had been worked out with the municipal EB-5 center in that city.

While it is commendable that the nine aliens got their money back in such a short time, the fact that they did so should not be news. With a program that is more than 25 years old, and that has been taking on three thousand investments or so for each of the recent years, the number of aliens getting their money back should be in the high hundreds if not low thousands every year. But I defer to the judgments of the editors of EB-5 News; if they think that nine aliens getting all their money back is news, and promptly, then it probably is.

Stacked Deck. In the written testimony provided by GAO at the previously described House hearing on EB-5 there was a small item not discussed at the hearing. It dealt with a study of the program to be funded by the Department of Homeland Security.

I suspect that to make sure that the resulting report would be harmless, DHS chose another government agency, the Economic and Statistics Administration (ESA) of the Department of Commerce, to do the study; it also has been negotiating with ESA over the definition of the methodology to be used in the study. It was originally supposed to come out last November, but now is due in May.

GAO quietly made this observation:

However, the study was not intended to address the program's costs which are important for assessing a program's net economic impact. Both USCIS and ESA officials confirmed the study would be an economic valuation which, unlike an evaluation considers only the benefits of economic activity, and does not assess the program costs. (Emphasis Added.)

The slippery term "valuation" is a new one to me in this context, but it fits neatly with the way DHS manipulates things in defense of this program. I can assure you that two of the real costs of the program will not be mentioned by the Department of Commerce, one obvious, and one quite obscure.

The obvious cost of the program is the moral one of selling membership in our society for half a million a pop.

The more obscure one is that, given the workings of immigration law, for every visa sold to a rich alien, a visa is denied to an alien in the first or second employment-based categories — that's where the really skilled immigrants are found. Were there to be a reduction in the number of applications for the EB-5 visas, the unused visas would "fall down" into the categories where one truly finds the best and the brightest.

So among the faults of the program are that every fat cat (who may or may not have any real skills) or fat cat relative admitted under the program, one truly able alien, or his or her relative, is not admitted.

The EB-5 program has a 10,000 ceiling for its visas, and that allocation is part of the whole set of interacting ceilings within our numerically limited migration system. Will Commerce notice? We shall see.



  • New York

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