The Securities and Exchange Commission (SEC) has just published three new decisions in connection with administrative proceedings against two well known immigration lawyers, as well as against a third lawyer. One party has allegedly earned $450,000 in commissions from one EB-5 Offeror alone. This enforcement is not surprising. Last year, we saw several immigration lawyers subject to the same proceedings and sanctions. The allegations are resoundingly familiar: Violation of Section 15(a)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”). We expect even more SEC enforcement activity in this space. Why is the SEC targeting immigration lawyers? What implications are there for all parties in an EB-5 transaction and to the industry as a whole when an EB-5 Offeror pays finder’s fees to lawyers?

Immigration lawyers are EB-5 gatekeepers

The SEC has a strong interest in prosecuting civil violations of securities laws by gatekeepers of securities markets.

Immigration lawyers are viewed as gatekeepers to the EB-5 Program. What is a gatekeeper? In the securities law context, a gatekeeper is a professional that holds a position of trust who should be looking out for the interests of a specific securities market. The idea is that the integrity of markets is kept in check by professionals charged with executing their responsibilities. Accountants, lawyers and auditors are often gatekeepers of the securities marketplace.

The SEC has the objective of keeping gatekeepers accountable. The SEC expects gatekeepers — be they accountants, lawyers or auditors to name a few — to raise red flags when there are visible issues and problems in an offering of securities. This maintains the integrity of markets and protects investors. When gatekeepers violate securities laws or engage in conduct that turns the concept of protecting investors on its head, the SEC becomes very interested in holding those individuals accountable. The idea here is that gatekeepers are front-line protectors of a marketplace. Immigration lawyers in the EB-5 industry have often taken on this role. They are often the first to be able to spot an irregularity in an EB-5 transaction. And immigration lawyers often comment on or assist with drafting documents prepared in connection with an EB-5 offering.

The SEC likes to hold out gatekeeper-violators of securities laws as examples for an industry. This is no consolation for the attorneys facing sanctions and disgorgement, but it does explain to some degree how the SEC prioritizes investigations and why immigration lawyers are of interest. Attorneys with high profiles in the EB-5 industry who are involved in producing investors for regional centers or who engage in marketing should be concerned. And so should the attorney who takes a finder’s fee from a regional center one single time. The SEC also pursues “minor violations” particularly by gatekeepers to set an example for an industry. One of the attorneys in today’s proceedings had received $37,500 in finder’s fees. This was sufficient for the SEC to pursue administrative proceedings and sanctions.

Transaction-based compensation is often not difficult for the SEC to trace and later prove

The DNA of these three recent cases is virtually identical, with the SEC finding that each of the attorneys earned transaction-based compensation for steering clients to specific EB-5 regional center projects. The SEC ordered disgorgement of unlawfully earned commissions along with interest in all three cases. One of the three attorneys also incurred a civil monetary penalty of $30,000. He is alleged to have had commissions transferred to a foreign bank account despite the fact that his business is U.S. based. In the case of one of the other attorneys, he had a “Referral Services Agreement” in place with the EB-5 regional center that paid him compensation. This means that these attorneys left their fingerprints in very identifiable places, which SEC investigators love. Continue Reading Three Immigration Lawyers Sanctioned by the SEC for Brokering EB-5 Investments

On August 11, 2016, USCIS published new processing times for I-829 petitions. The news is not good for EB-5 investors. USCIS is now taking in excess of 21 months to adjudicate I-829 petitions. This means that EB-5 investors may wait more than one or even two years for final approval of an I-829 from USCIS. The delays are unconscionable.

For those less familiar with EB-5 terminology, the term I-829 refers to the form number of the petition that an EB-5 investor files within 90 days of the expiration of his or her conditional green card status. An investor’s I-829 is supported by proof that, among other things, there has been sufficient job creation to support his or her green card case. At the I-829 stage of the process, an investor must also evidence that his or her investment has been sustained. For thousands of investors, what should be a relatively ministerial process of verifying facts has turned into a bottleneck. Continue Reading I-829 Delays Reach All-Time Record: Thousands of EB-5 Investors in Limbo at USCIS

According to data recently supplied by USCIS, there are more than 20,000 I-526 petitions pending adjudication as of the end of March 2016. This is a massive backlog of cases. What are the implications of this backlog to investors, and will processing times improve?

What does this backlog mean for EB-5 investors?

The current I-526 backlog translates into long delays for I-526 decisions by USCIS. In other words, many if not most investors may wait close to or beyond 16 months for their I-526 cases to be approved.

This backlog of I-526 petitions is unprecedented in the short history of the EB-5 Investor Visa Program. If you contrast the current statistics with the data supplied for past fiscal years, the increase in the number of pending EB-5 cases at USCIS is striking. At the end of fiscal year 2015, there were more than 17,000 pending EB-5 petitions at USCIS. Fiscal year 2012 closed with just 5,000 pending EB-5 petitions in the hands of adjudicators. That is a massive increase in a compressed period of time.

USCIS simply isn’t properly staffed to manage this increase in the agency’s EB-5 caseload. The agency’s backlog has quadrupled since 2012. In light of this shift in I-526 backlogs, EB-5 investors need to be prepared to wait well beyond one year for a petition to even be assigned to an officer at USCIS. Continue Reading I-526 Processing Delays Expected to Continue into 2017

For alleged EB-5 fraudster Lin Zhong there is a cold winter ahead. A deep freeze. As we expected when news of the case recently broke, the Securities and Exchange Commission (SEC) obtained a court order freezing Zhong’s assets as well as those of her company EB-5 Asset Manager LLC. It is alleged that under the guise of the EB-5 regional center program, Zhong raised at least $8.5 million for EB-5 projects.  Zhong is accused of diverting nearly $1 million to purchase luxury personal items such as a boat, a BMW and a Mercedes. Zhong is the latest alleged EB-5 fraudster to be stopped in her tracks by the SEC.

It is clear that the SEC is now focused on prosecuting EB-5 market participants and issuers who violate the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The allegations here are similar to those alleged in recent cases – the SEC has alleged material misrepresentations and omissions to investors by Zhong.  According to the SEC’s website and recent press release, the Commission also obtained a court order appointing a receiver to administer and manage the business affairs and assets of the company and its subsidiaries for the protection of investors. Continue Reading SEC freezes assets of EB-5 Asset Manager LLC and Alleged Fraudster Lin Zhong

USCIS updated its online list of terminated EB-5 regional centers on October 22, 2015. In the coming two months, regional centers are required to comply with the requirement to file their Forms I-924A in order to update USCIS on relevant job creating activity over the past year. We expect that USCIS will terminate more regional centers in the next six months where there are credibility issues over data supplied by regional centers in these filings, or where regional centers simply fail to update the agency through filing a Form I-924A. It would be fully within the realm of reasonable expectations to see at least 100 or more terminations initiated within the coming year. As USCIS uses more resources to tighten up administration of the EB-5 regional center program, and with lawmakers looking closely at the program, dormant or non-compliant regional centers may find their designations revoked. Continue Reading Don’t End Up on a USCIS List of Terminated EB-5 Regional Centers: Be Creative and on Time with your I-924A Filing

What do a $175,000 Sea Ray yacht, a brand new $100,000 Mercedes Benz S-550 and a $55,000 BMW X5 SUV all have in common? According to the SEC, they were all items purchased by one Lin Zhong (a/k/a Lily Zhong) with money she fraudulently obtained from investors who were told that their funds were being invested in EB-5 real estate development and construction projects. Zhong also purchased with investor funds homes for herself in Poinciana Florida and Worcester, Massachusetts – all while telling investors that 100% of their funds would be used in construction projects and that all investments would be held in escrow until their EB-5 immigration petitions were approved. Continue Reading Life is Larger than Fiction in EB-5 Litigation: SEC Moves For Asset Freeze, Accounting, and Receiver Appointment in Civil Fraud Action in Florida

Private placement offerings are an increasingly active part of the securities business. One especially complicated and emerging area of private placements is the EB-5 Investor Visa Regional Center Program. Under the current rules of the program, an investor interested in a U.S. green card may place $500,000 or $1 million into an at-risk investment, issued by or affiliated with a United States Citizenship and Immigration Services (USCIS) designated regional center. Under current law, the per investor minimum for participation in the EB-5 Program is $500,000 for an investment in a new commercial enterprise capitalizing or facilitating a project based in a rural area or in a specific geographic location of high unemployment known as a “Targeted Employment Area” (TEA). This is a downward adjustment from the $1 million that is required in any area outside a TEA. See Immigration and Nationality Act (INA), Section 203(b)(5)(B).  If job creation requirements are met as anticipated in the investment deal, an investor will be eventually eligible to secure lawful permanent residence in the U.S. Continue Reading EB-5 Due Diligence Matters: Industry at Point of Inflection Regarding Securities Compliance

There is speculation on the Hill that lawmakers will not take on reforming or improving the EB-5 Program until January 2016. But don’t think for a second that lawmakers will simply pass an extension of the Program and indefinitely shelve refashioning EB-5. Last month, the General Accounting Office (GAO) published a report on the Program (Immigrant Investor Program: Additional Actions Needed to Better Assess Fraud Risks and Report Economic Benefits). Congress is reading this report, which is a 58 page “gotcha” on EB-5. With recent SEC actions targeting EB-5 fraud, the EB-5 industry is at a point of inflection. Continue Reading GAO Report on EB-5 a Possible Blueprint for Lawmakers and New Legislation

The Wall Street Journal recently published two articles about the EB-5 Regional Center Program: a blog entry and a front page editorial-like review of the program. Both articles highlight gerrymandering of targeted employment areas, purported use of the EB-5 Program as cheap financing, lobbying and special interests, and abuses of the Program. This picture is both incomplete and cluttered. The EB-5 Regional Center Program brings millions of dollars of foreign investment into the US. The Program’s positive attributes counterbalance its challenges.

Let’s set the EB-5 record straight

The EB-5 Regional Center Program is good for the US economy.

Here are five points that were overlooked and that give a more robust view of the EB-5 Program: Continue Reading EB-5 Financing Matters: 5 Things The Wall Street Journal Did Not Mention about Real Estate Finance and the EB-5 Program

On August 25, 2015, the U.S. Securities and Exchange Commission (SEC) filed a civil fraud suit against Lobsang Dargey, a Bellevue, Washington-based real estate developer and alleged fraudster, who also happens to be a brother-in-law of tennis star Andre Agassi. Dargey had ventured into the EB-5 Program as a developer and regional center owner, securing designation by United States Citizenship and Immigration Services (USCIS) for two regional centers, Path America SnoCo and Path America KingCo. The complaint is relevant to both investors and regional centers in the EB-5 industry, as well as to lawyers advising issuers in EB-5 offerings. Continue Reading Failure to Investigate Could Mean “Game-Set-and-Match” for EB-5 Investors: SEC Case against Brother-in-Law of Tennis Star Andre Agassi Shows Risk for Would-be Immigrant Investors