In the past two years alone, more than Rs. 240 crores have raised from India under the EB-5 visa program, most of which were raised by what is known as Regional Centers.A Regional Center is defined by the United States Citizenship and Immigration Services (USCIS) as any economic entity, public or private, which is involved with the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment. In other words, akin to a closed end mutual fund, Regional Center is an entity that facilitates the pooling of capital from multiple EB-5 investors into various multimillion-dollar projects.
As more Regional Centers approach India to market their projects and raise funds, it is important for the Indian investor to exercise extreme caution and perform the necessary due diligence.
In addition to the technical issues associated with job creation in Regional Centers, there have been multiple cases of outright fraud and misconduct by the project principals. Here is a brief list of some of the cases filed against Regional Centers:
* The Intercontinental Regional Center Trust of Chicago: The investors were made to believe that by investing with the Regional Center they would be financing construction of a hotel. The Regional Center falsely conveyed the investors that all the necessary licenses were obtained and Hyatt hotel had signed for the project. They also falsified documents to the USCIS to obtain preliminary permissions and investors provisional visas. More than $145 million of securities had been sold and $11 million had been collected in the form of administrative fees from more than 250 investors, mainly from China. Such fraud has not only lowered chances of investors getting back their money but also shattered the dreams of hundreds of applicants of obtaining the Green Card.
* Noble Outreach: An ongoing lawsuit against a Regional Center in New Orleans is another example of the unscrupulous activities by the Regional Center. The contract of New Orleans EB-5 program was signed with a Company called NobleOutReach. The Company wooed investors by claiming that they had opened eateries and hotels and will eventually end up creating 1,500 jobs. This attracted 31 investors with a sum of $15.5 million for the pooled investment. The project began in 2006 and till date no work has been initiated. This resulted in the deportation of the investors and theirtheir families.
* USA Now: A recent release of an investor alert to warn potential EB-5 investors by the USCIS led to an investigation by the Securities and Exchange Commission in Texas of a company called USA Now. Despite being far from it, the Company began attracting investors under the pretense that all the Regional Center approvals were already granted. The couple diverted the investors funds to their own businesses for personal use, paying legal liabilities of unrelated cases, and paying-off the existing investors.
* DC Regional Center: The Maryland EB-5 Visa project, which is being promoted by the DC Regional Center, is currently stalled due to an ongoing litigation against the project. The charges filed were that the State of Maryland failed to follow its procurement rules in hiring a developer for the project by not opening the process to competitive bidding. The suit also claimed that the proposed project would withdraw the State Government jobs, which would leave the Central Business District with more vacancies. The continues to be marketed despite on-going litigations. Moreover, the marketing materials for the project have no mention of its legal issues. An unfavorable verdict would be disastrous for the investor as they would lose both the invested capital and the conditional Green Card he may have received
The number of ongoing lawsuits and cases of fraud is a serious cause for alarm for the EB-5 Regional Center investor. The sheer size and scope of most Regional Center projects adds to the number of unknowns and potential pitfalls for the investor. Although there are certain Regional Centers with a strong track record, the investor has to watch out for constantly evolving regulatory environment and increasingly sophisticated levels of fraud. The investor need to evaluate other EB-5 options like directly investing into a business and having an expert on ones side never hurts.
By Yurop Shrestha, Vice President, South Asia, Aginsky Consulting Group