Approximately two weeks ago on April 5, authorities raided a business run by a California attorney and her father under suspicion of orchestrating a $50 million EB-5 visa scheme. The father and daughter owned a company called California Investment Immigration Fund LLC (“CIIF”). CIIF raised money from over one hundred Chinese investors for business projects. Under the EB-5 program, the Chinese investors would qualify for U.S. residency if the business projects created at least ten jobs. Instead the owners of CIIF hired high school students to pose as employees for fake projects and used the investor funds to buy luxury products for themselves.
According to court filings, the scheme began in 2008 and was not detected for many years. Some of the Chinese investors were able to fraudulently obtain U.S. residency despite neither investing in a legitimate business nor creating jobs. Three of the Chinese investors who were granted U.S. residency were fugitives wanted by the Chinese government. This situation demonstrates the issues with the EB-5 program and the high potential for fraud. This potential was further demonstrated with last week’s settlement for $150 million for misusing EB-5 investments by a Vermont ski resort owner. Additionally in March, the company of President Trump’s son-in-law and senior adviser Jared Kushner faced scrutiny for the use of $850 million in investment from Chinese investors through the EB-5 program.
Whistleblowers play a critical role in bringing to light these instances of EB-5 fraud through the SEC Whistleblower Program. In 2013, the SEC released an investor alert regarding EB-5 fraud and opened multiple emergency enforcement actions to attempt to rein in the issue. The most common type of EB-5 fraud is what is present in both the CIIF scenario and the Vermont ski resorts case, misuse of EB-5 investments and improper granting of U.S. residency. Multiple SEC enforcement actions have yielded penalties in the hundreds of millions of dollars total. In many of these cases, EB-5 projects ended in failure, disappearing money, and U.S. residency issues.
Whistleblowers that bring to light information on EB-5 fraud can help avoid the scenario in the CIIF matter where fraud goes undetected for years before federal authorities are made aware. Furthermore, whistleblowers have incentive to bring the information forward because of the potential for a reward through the SEC Whistleblower Program. Ultimately the EB-5 program may need to be reworked to combat the potential for fraud but in the meantime; whistleblowers can play the critical role of exposing fraudulent schemes.
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