I am a principal in a regional center in the southeastern United States and represent a number of regional centers around the nation. Several years ago, I had just hung up on my umpteenth conference call with project developers interested in the EB-5 Program and using foreign investors’ capital when I had an epiphany. Why did project developers simply disappear after I told them about the costs of participating in the EB-5 Program? Simple. They called me to get money, not to spend money.
That’s why I developed what I call "EB-5 Lite". The basic approach is to persuade EB-5 economists, business plan writers and translators to cut their normal fees in half to keep the costs of "EB-5 Lite" to less than $10,000. For example, the EB-5 economist, for a project in a regional center, will run the direct jobs or capital investment through a "reasonable methodology", such as RIMSII or IMPLAN, and issue a letter guessing at the indirect and induced job creation. The EB-5 business plan writer will write a 15- to 20-page document, not a 40-page plan.
Project developers create an attractive brochure with some factual information about the project but heavily relying on photographs. Once completed, I turn this brochure over to translators to translate into Mandarin and Hangul for the Chinese and South Korean markets. I work with project developers on a termsheet that sets out the terms of the deal, including the capital raise from EB-5 investors, the ROI and takeout strategies for the investors.
Then I package the whole thing up in a merged portable document file and send it to registered investor recruiters I know in China and South Korea. It is the best way I have found to get valuable feedback from the investor recruiters in the marketplace.
I have been fortunate to be associated with some great EB-5 economists, business plan writers and translators. The greatest benefit of "EB-5 Lite", of course, accrues to the EB-5 project developers, who tell me they love this approach. It doesn’t cost a lot of money and they get something valuable for their money.
Basically investor recruiters will come back to us with "no, I can’t sell it" to "yes, it looks great", to "if you changed this term and bumped up the ROI, I think I can sell it." They know what sells in the marketplace. Chief among these are big real estate projects. Unfortunately the Chinese and Koreans do not know that the U.S. real estate market — both commercial and residential — will probably not fully recover for three or four more years. Some of these big real estate projects are too big to succeed, in my opinion.
I focus on small projects — $5 to $20 million, 10 to 40 investors — which produce a product or provide a service that is an absolute necessity in the U.S. marketplace and in today’s slowly recovering economy. Chief among these are assisted living facilities and the dairy industry. The former benefits from today’s demographics, i.e., the baby boomers are retiring and will soon need assisted living care if they don’t already. The latter benefits from a robust return of this industry as well as dairy contamination scares in China.
Today’s EB-5 world is all about the investors. There are lots of EB-5 investment projects out there. Some are good; some are bad, and it is hard for EB-5 investors and their legal counsel to divine the difference. Due diligence is key. To my colleagues, I say please consult a qualified financial services advisor or broker/dealer to examine the securities offering and business plan for your investors. It is the best money you can spend. I wouldn’t buy a house without paying a few hundred for a home inspection. You shouldn’t put your client into a project without first having it professionally evaluated. Everything from the regional center, to the regional center principals, to the project developer, to the project itself should be scrutinized.
With "EB-5 Lite" now a new tool in the toolbox, EB-5 project developers who call me no longer complain about the high cost of participating in the EB-5 Program. They now have a way to kick the tires or test the waters, if you will, and find out if their project is going to sell in the Chinese and South Korean marketplaces.
Note about the author: Boyd Campbell has practiced immigration and nationality law in Montgomery, Alabama, since 1988. He served on AILA's EB-5 Investors Committee for four years, one year as vice-chair and one year as the EB-5 Committee liaison to the California Service Center. He has served as an AILA mentor for many years and is a frequent speaker at AILA national and chapter conferences and seminars. He represents regional centers and is general counsel and director of America's Center for Foreign Investment, the largest regional center in the nation. He is included in The Best Lawyers in America in the field of immigration law, and his law firm is listed in Best Lawyers / U.S. News & World Report Best Law Firms. His website, the Immigration Law Center on the Internet — visaus.com — which provides information about immigration and U.S. visas, has been on the World Wide Web since 1994.
Saturday, February 9, 2013
SEC halts $150 Million scheme, charges it duped foreign investors
Read the complaint
Washington, D.C., Feb. 8, 2013 — The Securities and Exchange Commission (SEC) has announced charges and an asset freeze against an Illinois man and two companies behind an investment scheme it alleges defrauded foreign investors seeking profitable returns and a legal path to U.S. residence through a federal visa program.
The SEC alleges that Anshoo R. Sethi created A Chicago Convention Center (ACCC) and
Intercontinental Regioal Center Trust of Chicago (IRCTC) and fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors primarily from China. The SEC alleges that Sethi and his companies duped investors into believing that by purchasing interests in ACCC, they would be financing construction of the World's first "Zero Carbon Emission Zero Platinum LEED certified" hotel and conference center near Chicago’s O’Hare Airport.
The SEC alleges that foreign investors were misled to believe their investments were simultaneously enhancing their prospects for U.S. citizenship through the EB-5 Immigrant Investor Pilot Program (aka, the EB-5 Program for regional centers), which provides foreign investors an avenue to U.S. residency by investing in domestic projects that will create or preserve a minimum number of 10 jobs per investor for U.S. workers.
The SEC alleges that Sethi and his companies falsely boasted to investors that they had acquired all the necessary building permits and that several major hotel chains had signed onto the project. They also provided falsified documents to U.S. Citizenship and Immigration Services (USCIS) — the federal agency that administers the EB-5 program — in an attempt to secure the agency’s preliminary approval of the project and investors’ provisional visas. Meanwhile, Sethi and his companies have spent more than 90 percent of the administrative fees collected from investors despite their promise to return this money to investors if their visa applications are denied. More than $2.5 million of these funds were directed to Sethi’s personal bank account in Hong Kong.
Swift coordination between the SEC and USCIS has brought the scheme to a halt in its application stage at USCIS. The SEC filed its complaint under seal earlier this week and obtained an emergency court order to protect the remaining $145 million in investor assets that were at risk of being similarly
misappropriated by Sethi and his companies.
“Sethi orchestrated an elaborate scheme and exploited these investors’ dream of earning legal U.S.
residence along with a positive return on their investment in a project that was not nearly the done deal that he portrayed,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement. “The good news is that working closely with USCIS, we intervened early and stopped him from getting very far, and the asset freeze preserves nearly all of the money invested.”
The EB-5 program enables foreign investors to possibly qualify for a green card if they invest $1
million (or $500,000 in a “Targeted Employment Area” with a high unemployment rate) in a project that creates or preserves at least 10 jobs for U.S. workers, excluding the investor and his or her immediate family.
The SEC alleges that Sethi and his companies used the lure of a pathway to U.S. citizenship to
convince investors to wire a minimum of $500,000 apiece plus a $41,500 “administrative fee” to U.S.
bank accounts. These administrative fees are separate from the investment capital that the EB-5 program requires to be deployed into a job-creating enterprise. More than $11 million in administrative fees were collected with the claim that they were fully refundable to investors if their visa applications are rejected.
Sethi and his companies have instead been spending those funds.
The SEC alleges that Sethi submitted false claims about the project to USCIS. Among the phony
documentation that he provided to the agency in seeking preliminary approval for the project under the EB-5 program were a comfort letter from Hyatt Hotels and a backup financing letter from the Qatar Investment Authority.
The SEC alleges that Sethi and his companies made a number of misrepresentations about the
project to dupe investors. Offering materials stated that investors’ funds would help build “a convention center and hotel complex, including convention and meeting space, five upscale hotels, and amenities including restaurants, lounges, bars, and entertainment facilities.” Sethi and his companies prominently featured in their marketing materials the purported participation of three major hotel chains in the project: Hyatt, Intercontinental Hotel Group, and Starwood Hotels. However, none of these hotel chains executed franchise agreements to include a brand hotel in the project as represented to investors in offering materials. Two of the chains actually terminated prior deals with other Sethi-related entities more than two years before offering materials were circulated to investors.
The SEC further alleges that offering materials falsely stated that construction would begin in summer 2012 and occupancy of the first tower would occur in early spring 2014. A search of the Chicago building permits database for the project address shows that the only recent permits are for a tent for a purported groundbreaking ceremony held in November 2012, a demolition permit, construction of a fence, and a minor electrical wiring permit.
According to the SEC’s complaint, Sethi, 29, misrepresented to investors in offering materials that he has “over fifteen years of experience in real estate development and management, specifically in the lodging area.” Offering materials also misleadingly state that the project’s developer Upgrowth LLC has “more than 35 years of experience.” Illinois corporate records show that Upgrowth was organized in 2010.
The SEC alleges that Sethi, ACCC, and IRCTC violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the temporary restraining order and asset freeze granted by the court, the SEC’s complaint seeks permanent injunctions and other monetary relief.
The SEC acknowledges the substantial assistance of USCIS.
Washington, D.C., Feb. 8, 2013 — The Securities and Exchange Commission (SEC) has announced charges and an asset freeze against an Illinois man and two companies behind an investment scheme it alleges defrauded foreign investors seeking profitable returns and a legal path to U.S. residence through a federal visa program.
The SEC alleges that Anshoo R. Sethi created A Chicago Convention Center (ACCC) and
Intercontinental Regioal Center Trust of Chicago (IRCTC) and fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors primarily from China. The SEC alleges that Sethi and his companies duped investors into believing that by purchasing interests in ACCC, they would be financing construction of the World's first "Zero Carbon Emission Zero Platinum LEED certified" hotel and conference center near Chicago’s O’Hare Airport.
The SEC alleges that foreign investors were misled to believe their investments were simultaneously enhancing their prospects for U.S. citizenship through the EB-5 Immigrant Investor Pilot Program (aka, the EB-5 Program for regional centers), which provides foreign investors an avenue to U.S. residency by investing in domestic projects that will create or preserve a minimum number of 10 jobs per investor for U.S. workers.
The SEC alleges that Sethi and his companies falsely boasted to investors that they had acquired all the necessary building permits and that several major hotel chains had signed onto the project. They also provided falsified documents to U.S. Citizenship and Immigration Services (USCIS) — the federal agency that administers the EB-5 program — in an attempt to secure the agency’s preliminary approval of the project and investors’ provisional visas. Meanwhile, Sethi and his companies have spent more than 90 percent of the administrative fees collected from investors despite their promise to return this money to investors if their visa applications are denied. More than $2.5 million of these funds were directed to Sethi’s personal bank account in Hong Kong.
Swift coordination between the SEC and USCIS has brought the scheme to a halt in its application stage at USCIS. The SEC filed its complaint under seal earlier this week and obtained an emergency court order to protect the remaining $145 million in investor assets that were at risk of being similarly
misappropriated by Sethi and his companies.
“Sethi orchestrated an elaborate scheme and exploited these investors’ dream of earning legal U.S.
residence along with a positive return on their investment in a project that was not nearly the done deal that he portrayed,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement. “The good news is that working closely with USCIS, we intervened early and stopped him from getting very far, and the asset freeze preserves nearly all of the money invested.”
The EB-5 program enables foreign investors to possibly qualify for a green card if they invest $1
million (or $500,000 in a “Targeted Employment Area” with a high unemployment rate) in a project that creates or preserves at least 10 jobs for U.S. workers, excluding the investor and his or her immediate family.
The SEC alleges that Sethi and his companies used the lure of a pathway to U.S. citizenship to
convince investors to wire a minimum of $500,000 apiece plus a $41,500 “administrative fee” to U.S.
bank accounts. These administrative fees are separate from the investment capital that the EB-5 program requires to be deployed into a job-creating enterprise. More than $11 million in administrative fees were collected with the claim that they were fully refundable to investors if their visa applications are rejected.
Sethi and his companies have instead been spending those funds.
The SEC alleges that Sethi submitted false claims about the project to USCIS. Among the phony
documentation that he provided to the agency in seeking preliminary approval for the project under the EB-5 program were a comfort letter from Hyatt Hotels and a backup financing letter from the Qatar Investment Authority.
The SEC alleges that Sethi and his companies made a number of misrepresentations about the
project to dupe investors. Offering materials stated that investors’ funds would help build “a convention center and hotel complex, including convention and meeting space, five upscale hotels, and amenities including restaurants, lounges, bars, and entertainment facilities.” Sethi and his companies prominently featured in their marketing materials the purported participation of three major hotel chains in the project: Hyatt, Intercontinental Hotel Group, and Starwood Hotels. However, none of these hotel chains executed franchise agreements to include a brand hotel in the project as represented to investors in offering materials. Two of the chains actually terminated prior deals with other Sethi-related entities more than two years before offering materials were circulated to investors.
The SEC further alleges that offering materials falsely stated that construction would begin in summer 2012 and occupancy of the first tower would occur in early spring 2014. A search of the Chicago building permits database for the project address shows that the only recent permits are for a tent for a purported groundbreaking ceremony held in November 2012, a demolition permit, construction of a fence, and a minor electrical wiring permit.
According to the SEC’s complaint, Sethi, 29, misrepresented to investors in offering materials that he has “over fifteen years of experience in real estate development and management, specifically in the lodging area.” Offering materials also misleadingly state that the project’s developer Upgrowth LLC has “more than 35 years of experience.” Illinois corporate records show that Upgrowth was organized in 2010.
The SEC alleges that Sethi, ACCC, and IRCTC violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the temporary restraining order and asset freeze granted by the court, the SEC’s complaint seeks permanent injunctions and other monetary relief.
The SEC acknowledges the substantial assistance of USCIS.
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