Critics and some supporters of the EB-5 investment and immigration program agree it needs improvements in oversight to avoid fraud. Yet with the passing of the Congressional omnibus spending bill in December, the program was extended without changes for the next nine months. This is in spite of the fact that the Government Accounting Office raised doubts about regulators’ ability to keep up with “constantly evolving” schemes to defraud investors.
However, according to one business publication there is rejoicing. Congress’ extension without changes is welcome news for all participants of the program— investors, regional centers, developers, and marketing agents alike—for the time being.
The Immigrant Investor Program grants permanent residency to foreigners who are willing to invest $500,000 in certain approved businesses that promise to create at least 10 jobs. Vermont’s Regional EB-5 Center has several such programs, including developments at Mt. Snow, the Trapp Family Lodge, and Sugarbush. The largest by far is Bill Stenger’s $750-million Northeast Kingdom Economic Development Initiative which includes Jay Peak, AnC Bio and Q-Burke.
A year ago this February, the state of Vermont was sufficiently worried about security fraud allegations that they shifted oversight of the program (in VT.) to the Department of Financial Regulation. Nationally, the SEC reportedly subpoenaed Jay Peak’s EB-5 records and conducted interviews with development associates.
Alarms and warning bells have been going off nationally for a while.
As of May 2015, the Securities and Exchange Commission and other federal law enforcement agencies had 59 open investigations relating to EB-5 projects, 35 of which “primarily involved securities fraud issues,” according to the report. The SEC received more than 100 “tips, complaints and referrals related to possible securities fraud violations” between January 2013 and January 2015.
EB-5 supporters Senators Chuck Grassley and Patrick Leahy hoped a proposed series of reforms would tune up potentially fraud-ridden programs. Among the changes that made it to a compromise bill (but which eventually proved to be sticking points) were rules to narrow definitions of employment areas, closer supervision of regional centers, impose filing fees for investors and increase the investment requirement to $800,000. The powerful US Chamber of Commerce and the Real Estate Roundtable, along with large developers, opposed the changes.
But none of that was destined to happen. And EB-5 developers, lawyers, and marketing agents now have until September 2016 to drive stakes into future reforms. Are they really the stakeholders, or are they the vampires sucking in money from investors seeking a return in addition to green cards?