US Securities and Exchange Commission (SEC) and USCIS guidelines to protect oneself from EB-5 fraud
January 6, 2021
The SEC and USCIS have jointly issued investor alerts to warn individuals about fraudulent investment scams in the EB-5 program.
The EB-5 program provides international investors, who can invest a certain minimum amount and create specified number of jobs in the country, to obtain lawful permanent residency (Green Card) in the United States. Business owners apply to USCIS to be designated as “regional centers” for the EB-5 program. These regional centers offer investment opportunities in “new commercial enterprises” that may involve securities offerings. The fact that a business is designated as a regional center by USCIS does not mean that USCIS, the SEC or any other government agency has approved the investments offered by the regional center or has otherwise expressed an opinion on the quality of the investment.
There have been a large number of frauds associated with EB-5 offerings. In view of this, SEC and USCIS have advised investors to take the following steps when deciding on an investment in the EB-5 program –
- Confirm that the regional center has been designated by USCIS : Check the list of current approved regional centers. Even if it is on the list, understand that USCIS has not endorsed the regional center or any of the investments it offers.
- Obtain copies of documents provided to USCIS : Regional centers must file an initial application (Form I-924) to obtain USCIS approval and designation, and must submit an information collection supplement (Form I-924A) at the end of every calendar year. Ask the regional center for copies of these forms and supporting documentation provided to USCIS.
- Request investment information in writing : Ask for a copy of the investment offering memorandum or private placement memorandum from the issuer. Examine it carefully & research similar projects in evaluating the proposal. If you do not understand the information in the document or the issuer is unwilling or unable to answer your questions to your satisfaction, do not invest.
- Seek independent verification : Confirm whether claims about the investment are true. For example, if the investment involves construction of commercial real estate, check county records to see if the issuer has obtained the proper permits and whether state and local property tax assessments correspond with the values the regional center attributes to the property. If other companies have purportedly signed onto the project, go directly to those companies for confirmation.
- Examine Structural Risk : Understand that you may be investing in a new commercial enterprise that has no assets and has been established to loan funds to a company that will use the funds to develop projects. Carefully examine documents and offering statements to determine if the loan is secured by any collateral pledged to investors.
- Consider the developer’s incentives : EB-5 regional center principals and developers often make capital investments in the projects they manage. Recognize that if principals and developers do not make an equity investment in the project, their financial incentives may not be linked to the success of the project.
Look for the following warning signs of frauds ;
- Promise of a visa or becoming a lawful permanent resident : Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.
- Guaranteed investment returns or no investment risk : If you are guaranteed an investment return or guaranteed that you will get your money back, be suspicious.
- Overly consistent high investment returns : Be suspicious of an investment that claims to provide, or continues to generate, high rates of return regardless of overall market conditions.
- Unregistered investments : Most new commercial enterprise investment opportunities offered through regional centers are not registered with the SEC or any state regulator. When an offering is unregistered, the issuer may not provide investors with access to key information about company’s management, products, services and finances that registration requires. In such circumstances, investors must obtain additional information about the company to help ensure that the investment opportunity is bona fide.
- Unlicensed sellers : Federal and state securities laws require investment professionals and their firms, who offer and sell investments, to be licensed or registered. Designation as a regional center does not satisfy this requirement. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms.
- Layers of companies run by the same individuals : some EB-5 regional center investments are structured through layers of different companies that are managed by the same individuals. In such circumstances, confirm that conflicts of interest have been fully disclosed and are minimized.
Migratesmart urges all EB-5 investors to make note of the above possible fraudulent practices. Please note that if your investment through the EB-5 program turns out to be a fraudulent securities offering, not only do you lose your investment but also your chance of becoming a lawful permanent resident of the United States.
Contact us to always be secure in the belief that you will never be subject to any fraud when you apply through us.