The Fox and the Cat, as drawn by Enrico Mazzanti, The Adventures of Pinocchio

Do you remember the story of Pinocchio? At one point, after being given the gift of five beautiful gold coins, the cat and the fox convince Pinocchio to bury his gold coins in the Field of Miracles, so that his money will multiply from five to two thousand five hundred. They advise him, after burying his five coins, that when he gets up in the morning he will have “a beautiful tree laden with as many gold pieces as a good ear of corn has grains in the month of June”. The fox tells him that he will have two thousand five hundred “shiny, clinking gold pieces in your pocket”. “Oh, how wonderful!” shouts Pinocchio, dancing for joy.

As we all know, things did not turn out the way Pinocchio had expected…Of course, foreigners wanting to live in the U.S. do not invest in the EB-5 program to grow their money, but to get a green card. Unfortunately, certain unscrupulous US developers have beguiled naïve foreign investors into giving them not only half a million dollars for the investment required by the EB-5 program, but also additional administrative fees, attorneys fees, accountants fees and various other fees and costs, and then cheated them out of not only their money but also when the projects do not go through, losing their chance to get a green card.

In April 2016, the SEC (Securities and Exchange Commission) filed a federal complaint against Ariel Quiros, William Stenger, Jay Peak, Inc., and various other companies, alleging that they had conducted a massive eight-year fraudulent scheme during which they looted more than $50 million of more than $350 million raised from hundreds of foreign investors who had been hoping to get their green cards through the EB-5 program. These scam artists misused more than $200 million of these foreign investors’ money. The most recent project was for a purported $110 million biomedical research center which was a complete fraud. The SEC concluded that the investors in these projects were in “grave danger of losing their investments and having their immigration petitions denied”. Securities and Exchange Commission v. Ariel Quiros, et al., Civil Action No. 1:16-cv-21301-DPG (U.S. District Court for the Southern District of Florida).

Shortly after, on May 26, 2016, the SEC announced fraud charges and froze the assets of a couple accused of misusing money raised from EB-5 investors to build a cancer treatment center. The SEC alleged that the two had raised $27 million for the cancer treatment center from 50 Chinese investors through the EB-5 program. After more than 18 months of gathering funds, there still was no construction at all at the proposed site for the cancer center. Apparently, the couple had diverted $11 million to Chinese businesses and put another $7 million into their own personal bank accounts. SEC v. Charles C. Liu, Xin Wang, et al., Docket No. 8:16-cv-00974-CJC-AGR (U.S. District Court, Central District of California).

Even assuming the regional center project you invest in is run by honest people, there is still a high risk involved and you may either not get your green card or not get your money back, or lose both. One risk factor is that the number of jobs anticipated may not actually be created. Remember, these projects continue to solicit EB-5 investors over a period of time, and jobs may be created at one point in time during the life of the project, but not at other points in time. So another risk is that while there are ten jobs created, there is a pool of investors over a number of years, and investors who got in too early will not have the jobs created in time, while those investors who got into the project too late, the jobs had already been created and then there are not enough more jobs created after these late investors sign on.

There are many factors beyond your control as a passive investor investing in one of the regional centers. Because of the long time it takes to adjudicate the petitions, and because of the backlogs in the Chinese EB-5 preference, many things can change over time which are unpredictable.

One factor relating to the foreign investor himself or herself is that you must show the lawful source of your funds. USCIS wants to be assured that you did not get your money through illegal or criminal means. So, for example, if you raised the money for your investment by selling assets, you also need to prove the prior purchase of those assets. If you received an inheritance from your parents, you have to show how your parents earned those funds. As you see, constructing a paper trail of long-ago events may end up being very difficult if not impossible. If you are unable to do so, your immigrant petition may be denied and you will not get your green card.

Like any area where business people think there is much money to be made, and where individuals are desperate to get their green cards and happy to be talked into believing in money trees growing in their Field of Miracles, the investor must beware and proceed cautiously, if at all, in investing in the EB-5 regional centers program.