The EB-5 “Immigrant Investor” program was originally conceived as a way of attracting funds for real estate development projects in needy areas in return for visas permitting immigration to the USA. As first enacted in 1990, it allowed a foreign investor who put $1 million into a project that created at least ten jobs to be granted a visa, with up to two more visas granted to family members. The maximum number of visas that could be given under this program in any year was 10,000. The program was modified to require only $500,000 for investment in rural areas or areas of high unemployment.
Half a million dollars is not a lot of money in relation to projects that can make a real difference to employment in deprived areas. The program was therefore modified once more, this time permitting investors to be joined together in “regional centers”. The intention was that these centers would identify the targeted employment areas most in need of new job creation. Developers would apply to be part of a center and investors’ money would be “pooled” in order to reach the level needed to get the proposed development off the ground. It is this aspect that has caused lawmakers and others to question whether the expiring EB-5 program should be renewed in its present form – or, indeed, at all.
Until recently, there was not enough EB-5 activity to warrant investigation. In 2007, for example, only seven hundred EB-5 visas were issued. However, as other routes to immigration have become more difficult or even closed, interest in EB-5 has risen and 2013 was the first year in which the full quota of ten thousand visas was issued. This has brought a closer look at how the system works, and those doing the looking don’t like some of what they see.
There are two areas of concern. One is that EB-5 money is not going to the places government intended. Audrey Singer, a senior fellow at Brookings who studies immigration, pointed to the number of projects in wealthy areas of New York that had been funded with EB-5 money while places without the resources and cachet of a New York project were unable to attract investors at the same rate.
The other activity that troubles observers is the amount of fraud EB-5 has attracted. 85% of EB-5 investors are Chinese. English is not their first language, they frequently don’t understand the details of the projects they are investing in, and they place their trust in people who don’t always deserve it. This blog has already covered the case of Lily Zhong whose assets were seized by the US District Court for the Southern District of Florida until an investigation into her activities by the Securities and Exchange Commission is completed. She is accused of diverting nearly $1 million of funds received from investors and intended for real estate projects to buy a car, a boat and other luxury goods. Ms Zhong is by no means the only aggregator of investment funds to be under investigation in this way and the SEC has begun a number of enforcement actions against lawyers across America who are accused of defrauding investors.
Not all EB-5 investment is bad, however; Angelique Brunner, president of EB5 Capital, points to the rehabilitation of the area behind Washington DC’s Union Station centered on what used to be the Uline Arena. ‘Without EB-5 money, this project would likely never have happened.’
The most likely outcome of the current re-examination of EB-5 is that the program will be renewed, but with tighter control over the direction of funds.
If you would like legal consultation or more information about the EB-5 Immigrant Investor Pilot Program, please get in touch with Lyttle Law Firm for assistance. Contact us today via our website or by calling 512-215-5225.