SEC Cracks Down on Foreign Investor Visa Fraud

A new government crackdown is targeting lawyers abusing an investment visa program.

The United States Securities and Exchange Commission announced it is pursuing an investigation against business owners and lawyers who the SEC claims are running “fraudulent investment scams” to exploit a little-known visa program that awards U.S. residency to wealthy foreigners.

A new government crackdown is targeting lawyers abusing an investment visa program.

The United States Securities and Exchange Commission announced it is pursuing an investigation against business owners and lawyers who the SEC claims are running “fraudulent investment scams” to exploit a little-known visa program that awards U.S. residency to wealthy foreigners.

The program, titled the Immigrant Investor Program, offers an immigration visa and residency permit known as an EB-5 to qualifying investors who invest in a sole proprietorship, partnership, holding company, corporation, joint venture, or business trust that qualifies under the program.

To qualify, the foreign investor needs to invest a minimum of $500,000 in a “targeted employment area” and the venture must “create or preserve at least 10 full-time jobs for qualifying U.S. workers within two years” or “a reasonable time after the two-year period,” according to the U.S. Citizenship and Immigration Services.

The program has been the source of criticism in the past, many pointing out that targeted employment areas are often in high-demand areas such as New York City or downtown Miami, and that the enterprises fail to offer the stimulative effect that the EB-5 program originally entailed. Additionally, some critics argue the scheme is unfair, effectively increasing an inflow of wealthy foreigners who may have gained their wealth from corrupt means, and encouraging them to launder and park their funds in the United States.

Additional criticism is coming from the SEC, who now says lawyers and corrupt business owners in the United States, who are charging large fees for fraudulent investment scams that promise foreign investors an EB-5 as well as a strong return on their funds, are targeting many foreigners.

The SEC highlights one such case in which accuses an American based couple of falsely promising a 5% return and EB-5 visas to investors who would fund a project.  Defendant accusations include misusing the funds for their own personal use, and failing to obtain conditional visas for their clients.

In a separate case involving $156 million, the SEC claims several investors were defrauded with a scam that promised to build a hotel and convention center in Chicago. The fraudsters offered a money-back guarantee for investors, but they had already spent most of the investors’ money.

The EB-5 visa program began in 1990, during a recession in which the program promised to attract foreign investment in the country. Since then, it has gotten easier to get a visa from the program, although economists note the benefit to the U.S. economy has been minimal and difficult to measure.

Over 10,000 EB-5 visas were issued to foreigners in 2014, after over 8,000 were issued in the prior year. Chinese investors accounted for over 85% of the total EB-5 visa winners in 2014.