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“Your only opportunity to get rich in America”: Inside LA’s deceptively simple $50M EB-5 scam

“Your only opportunity to get rich in America”: Inside LA’s deceptively simple $50M EB-5 scam

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

It’s a paint-by-numbers approach to defrauding real estate investors.

Federal agencies raided the homes and office of a California attorney and her father Wednesday, amid an investigation into whether the two perpetrated a multi-million-dollar fraud scheme. Victoria and Tat Chan allegedly took money from roughly 100 Chinese investors through the EB-5 visa program — but never actually invested it on their behalf.

Instead, the Chans allegedly used the funds to buy luxury homes for themselves throughout Southern California. The list of investors involved included fugitives on China’s 100 most wanted list, some of whom were allegedly complicit in the scheme. At least three of the investors successfully obtained green cards.

The scandal is just the latest case of fraud related to the EB-5 program, which provides green cards to foreign investors who plow $500,000 or more into U.S. projects, including real estate, thereby creating at least 10 U.S. jobs.

At first glance, the Chans appear to have masterminded an intricate web of deceit in a bid to get rich. The scheme allegedly defrauded EB-5 investors of $50 million over the course of nearly a decade.

But EB-5 insiders say the scheme was based on a simple formula and is emblematic of just how susceptible the program has become to fraud. The investigation will likely fuel arguments in favor of nixing the controversial program, which is up for renewal in Congress April 28. Changes to the program would have an outsized impact on real estate developers who rely on EB-5 funds to fill financing gaps in their projects.

“It’s remarkable just how unremarkable [this case] is,” said Michael Gibson, managing director at the Miami-based USAdvisors.org, an EB-5 investment-advisory firm. “These people are not rocket scientists. These are a bunch of jokers that figured out that they can recruit enough investors too stupid to verify their investments.”

Scamming 101

To understand how the Chans pulled off the alleged hoax, it’s important to understand how the Eb-5 program actually works. People who want to solicit EB-5 money for a project must petition the government to establish a so-called “regional center,” which acts as an intermediary between developers and investors — a de facto clearinghouse for immigration documents and investor capital.

Regional centers have made bank by charging developers between 5 percent and 8 percent of the total capital raised as well as charging each investor an administrative fee of $25,000 to $60,000 on top of the $500,000 minimum commitment they are making to the project, The Real Deal previously reported.

In the case of the Chans, the alleged scheme began nine years ago, when Victoria submitted a request to United States Citizenship and Immigration Services in early 2008 to designate her organization, the California Immigration Investment Fund, as a regional center. USCIS approved Chan’s request that same year, and the CIIF became official.

While Victoria ran the American operations of CIIF out of the San Gabriel Hilton Hotel at 225 W Valley Boulevard, her father Tat led the Chinese side in Guangzhou, a major city in southern China.

CIIF operated through at least 14 affiliating companies and service providers, the biggest of which the Chans dubbed the Harris Group USA. According to its tagline in Chinese, the Harris Group “is your only opportunity to get rich in America.”

On its website, CIIF claimed that it was worth more than a whopping $1.6 billion and provided ancillary services such as immigration assistance, consultation for elite school applications, luxury car importing, and guiding pregnant Chinese women through childbirth and raising children in the U.S.

But the Chans’ regional center appears to have been a not so elaborate con. The father-daughter team allegedly staffed it with high-schoolers, who they paid $10 an hour to pose as full-time employees, according to an FBI affidavit.

They weren’t subtle when it came to peddling faux projects, either.

In one ad posted to the CIIF Facebook Page in 2014, the Chans boasted “another successful project using EB-5 investment” — Harris Gardens, a new Chinatown plaza in North Los Angeles. They said they’d raised more than $10 million in EB-5 investments for the project, which does not exist.

“We promise you three things,” the CIIF Facebook reads in Mandarin. “Investment project success, and full investment return on time; successful immigration — we’ll get you a green card no matter what; and provided housing, as well as assistance in finding permanent housing and moving.”

Indeed, the FBI affidavit names at least six developments that the CIIF pursued, including a hotel and restaurant in Ontario and the San Gabriel Valley Chinese Cultural Center. CIIF associates had met with planning officials in multiple cities, according to the affidavit, but no project ever came to fruition.

When FBI agent Gary Chen visited alleged sites of development based on several visa applications for CIIF investors in 2015 and 2016, he found nothing but undeveloped plots of land, he claimed in the affidavit.

“To date, nothing has been built, nor construction commenced,” even though some applications were filed years prior, he wrote.

Despite the absence of actual developments, some investors with CIIF successfully obtained visas and green cards, the affidavit suggested. In interviews with former CIIF/Harris Group employees, one attested to the fact that Chan’s clients acquired green cards because he or she had scanned green card approval notices as part of the job, the affidavit states.

But without any real projects, what were these employees actually doing?

They were teenagers doing absolutely nothing, according to the parents of an employee that took a CIIF “office-type” gig in 2012, during his last summer before college.

The father recalled that his son complained “he did not do anything at work, and was just sitting there all day looking at Facebook,” per the affidavit.

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

Screenshot from the Harris Group website

Evidence does not support the existence of ancillary services either, though at least a dozen pages on the Harris Group’s website focus on childbirth, including contact information for pediatricians in the San Gabriel Valley and a guide on what Chinese cuisine is appropriate for infants: green cucumber rice soup, coconut milk porridge, and stir-fried sweet celery (as long as it’s not spicy).

In reality, the Chans and their associates were allegedly using investor funds to go on a property shopping spree.

As of 2016, they’d bought at least a dozen homes, according to the affidavit.

Victoria acquired a single-family home in Diamond Bar for $994,000 in 2011. Around the same time, an associate of Tat’s bought a property at 728 Carriage House Drive for $3.2 million.

National fallout

The revelations about the Chans come at a particularly sensitive time for the EB-5 program, as Congress debates its future, and considers raising the minimum investment from $500,000 to $1.35 million for investors to qualify for visas.

For opponents of EB-5, the Chan case could be viewed as a case study in how dirty money flows through the program without oversight. The Chans allegedly liaised with Chinese fugitives, including a former Chinese government employee accused of accepting bribes and abuse of power, in putting together the scheme.Two of those fugitives’ green cards were still active as of March 2017, the affidavit claims.

“Anything that happens in the world of EB-5 right now is going to be interesting because the program is about to sunset,” said Sal Picataggio, an immigration attorney based in Orlando, Florida whose practice largely focuses on EB-5. “But critics of the program will always use any bit of information against it.”

Still, Picataggio isn’t too worried. Those in the industry expect the program to be extended in a continuing resolution come April 28, he told TRD.

Thus far, President Donald Trump has not articulated any official position on the program, but sources said they’re optimistic he will be in favor of keeping it, given his and his son-in-law Jared Kushner’s use of the program in their own real estate projects. Developers small and big have tapped into the EB-5 program over the years to raise money. For his Beverly Hills Waldorf Astoria project, developer Beny Alagem sought to raise $150 million from Chinese investors, for instance. In New York, Related Companies secured $600 million in EB-5 funds for Hudson Yards.

Some lawmakers, however, advocate for killing the program entirely.

At a House Judiciary Committee hearing on immigration last month, Rep. Louie Gohmert asked if the program could be used as a tool for money launderers or even terrorists.

“America has degenerated to the point that our soul is for sale,” Gohmert said. “…Give us your immoral, your degenerate, as long as they have money, the message is we want them in America and we’ll give them a visa to get their money.”

One real estate attorney in New York called it the “crack cocaine” of real estate financing. Its opponents are quick to point out that other examples of abuse abound.

“[The Chans] were not are not super scheming, smart, or devious,” Gibson said. “They just got people to invest. It seems like we’re getting a new case of EB-5 fraud every week.”

Late last year, a Newport Beach EB-5 attorney defrauded more than 130 investors and squandered at least $9.5 million of their funds on personal expenses, a lawsuit filed by the Securities and Exchange Commission alleges. The most famous example of fraud is still the Jay Peak ski resort in Vermont, for which its developers raised more than $350 million from over 700 investors in at least 74 countries. At least $200 million of those funds were misused, regulators alleged, in what appears to be a complex, “Ponzi-like” scheme starting in 2008.

The Chan case shows how easily fraudulent regional centers can still slip through the cracks, even years after the Jay Peak incident.

“What is unique about [the Chan] case is that the father daughter team were allowed to operate as an EB-5 regional center,” said Paul Yace, a real estate broker with ties to a regional center in Orange County. “The [EB-5] program could have major transparency by installing an oversight and compliance standard that all regional centers must be a part of in order to publicly display their projects that are out for potential investors.”

But Gibson is skeptical that such regulations could ever be approved.

“The problem here is that there is fraud in the industry, but the industry itself is not interested in transparency,” he said.


Source: https://therealdeal.com/la/2017/04/10/your-only-opportunity-to-get-rich-in-america-inside-las-deceptively-simple-50m-eb-5-scam/

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