By Patricia Uceda, Fall 2014 Graduate Research Assistant
The SEC recently charged three L.A.-based immigration attorneys with conducting an investment scheme to defraud foreign investors trying to gain residency in the U.S. The U.S. has an EB-5 Immigrant Investor Program which offers immigrants an opportunity to apply for U.S. residency by investing in new commercial enterprises that will generate jobs for U.S. workers. Attorney Justin Moongyu Lee, along with his wife Rebecca Taewon Lee and partner Thomas Edward Kent, are charged with allegedly wrongly misinforming investors that they would be EB-5 eligible if they invested in an ethanol production plant being built in Kansas.
Commercial enterprises have certain job-creation requirements that they must meet in order to qualify for the EB-5 program, and in this case it appears that they were not met. The ethanol production plant project experienced financial hardship and by 2008 it was apparent that it was no longer economically feasible. However, instead of returning to investors their original investment, the attorneys allegedly misappropriated the funds for personal use as well as for uses on other unrelated projects.
As a result of their actions, the SEC has charged Lee and his cohorts with violations of Sections 17(a)(1), (2), and (3) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 as well as Rule 10b-5(a) and (c). The U.S. Attorney’s Office for the Central District of California has also announced criminal charges against Lee.
Unfortunately investment scams targeting foreign nationals interested in the EB-5 Immigrant Investor Program are very common. In another recent case, the SEC halted a Texas-based investment scam run by a married couple, Marco and Bebe Ramirez. The defendants had falsely promised investors the opportunity to obtain a residency visa, as well as a 5% return on their investment, if they invested in their commercial enterprise. They told investors that their money would be held in escrow until the business was approved as eligible for the EB-5 program, however the defendants misused investor funds for their own personal use.
What Can You Do?
In response to the rising surge of these scams, the SEC issued an Investor Alert listing several steps that foreign investors can take to guard against this danger. These steps include the following:
- Confirm that the regional center has been designated by the United States Citizenship and Immigration Services (USCIS) – Business owners must apply to USCIS to be designated as “regional centers” for the EB-5 program. You can check a list of current regional centers here.
- Ask for copies of documents provided to USCIS – Regional centers must file an initial application (Form I-924) to obtain USCIS approval and must submit an information collection supplement (Form I-924A) at the end of every year.
- Request investment information in writing – Ask for a copy of the investment offering memorandum or private placement memorandum from the issuer. Follow up with anything you may not understand. If the issuer is unwilling or unable to answer your questions, do not invest.
- Seek independent verification – Confirm whether claims made about investment are true. For example, if investment involves construction of a commercial factory, check county records to see if the issuer has obtained the proper permits.
- Verify registration – Any investment professional who sells investments must be licensed or registered; designation as a regional center does not satisfy this requirement. Check that the broker or firm is registered with FINRA here.
- Lastly, look for these warning signs of fraud –
- Promises of a guaranteed visa or residency are false, as investing through EB-5 only makes you eligible to apply for a conditional visa.
- Money invested through EB-5 must be at risk for the purpose of generating a return, therefore if you are promised a guaranteed return, be suspicious.
- Be wary of investments that claim to provide high rates of return regardless of overall market conditions; investments tend to fluctuate over time.