SEC freezes assets in south Florida EB-5 scam

http://www.sec.gov/litigation/litreleases/2015/lr23409.htm

EB-5-funded PhoenixMart HQ raided by FBI in securities fraud investigation

The PhoenixMart headquarters was raided by the Federal Bureau of Investigation on the morning of Nov. 19 in northeast Phoenix, Arizona.
FBI agents entered the building at 7:00 a.m. in what those close to the investigation said was a look into possible securities and investor fraud at the company.
Developers hoped that the multi-million-square-foot mixed-use project would have been a major economic asset for the Pinal County, Arizona, community. More than 500 acres were committed to the project, along with significant public improvements.

New EB-5 memo posted for comment

USCIS has published a new EB-5 memo for comment.  Comments are due no later than Sept. 8.  Get it here:

http://tinyurl.com/oh4fwxl

My take on Senate Bill 1501, affecting the EB-5 Program and regional centers

When it was SB 774, it was a good EB-5 improvement bill. With Sen. Grassley's participation, the bill has become an unmitigated nightmare!  I cannot support this bill, as written, and cannot encourage the senators in the five states where my regional center operates, to support it.

Summary by Boyd F. Campbell, 2015-07-15

The bill provides for a five-year extension of the regional center program.  I would rather see Congress make this oldest "pilot" program permanent.
It would rework TEA classifications to encourage more rural (towns under 20,000 population) development and not allow aggregation of census tract or commuting pattern configurations. OMB has cautioned Congress for years not to rely upon Metropolitan Statistical Areas, which is uses for statistical purposes only.  There are many rural areas within MSAs.
The bill increases investment amounts to $800,000 for TEA projects and $1.2M for non TEA projects. These increases are unnecessary and create confusion in the EB-5 marketplace.
It creates an extra-judicial framework so that DHS may, allegedly, have better oversight of regional centers. This extra-judicial framework does not affect independent EB-5 projects unrelated to regional centers, which are far more risky.  Finally, the bill requires regional centers to pay for this extra-judicial framework with a mandatory assessment of $20,000 per year.  This is disgusting and is beneath Congress's role.
It changes job creation calculations, requiring direct employees for a new commercial enterprise, only 30 percent of jobs may be created by non EB-5 capital.  This will make many EB-5 projects unattractive.
The bill provides for improvements in reliability of processing times.  Limit of 120 days on average for exemplars, limit of 150 days for I-526 and 180 days for I-924. This is a nice idea, but it won't happen. As more and more USCIS employees are hired for the EB-5 Program, processing times become longer and longer.
It introduces a premium-processing fee to expedite petitions and reduce processing times. This won't happen either.
Finally, the bill removes TEA determinations from the states and puts USCIS in charge of TEA determinations.  This is a REALLY bad idea.  Do the senators know how long it will take USCIS to make TEA determinations?  Months.  Many months.  I get them done in my states (five in the Southeast) in less than a week.
Unless SB 1501 is heavily revised in accordance with my comments above, I must urge the senators in the five states in which my regional center operates to vote no on this bill.

SEC charges San Francisco area company with running a $68 million Ponzi-like scheme

The Securities and Exchange Commission today charged a San Francisco Bay Area oil-and-gas company and its CEO with running a $68 million Ponzi-like scheme and affinity fraud that targeted the Chinese-American community in California and investors in Asia, including some solicited as part of the EB-5 Immigrant Investor Program.
The SEC alleges that Bingqing Yang knew that Luca International Group was earning no profits and sinking under a mountain of debt, yet she made presentations to investors portraying a successful oil-and-gas operation with millions of barrels of oil reserves and billions of cubic feet in gas reserves. Yang falsely projected outsized investment returns ranging from 20 to 30 percent annually. She allegedly commingled investor funds to prevent the scheme from collapsing, and used money from new investors to make sham profit payments to earlier investors. Yang also allegedly diverted $2.4 million in investor funds through her brother's company in Hong Kong purportedly for the purchase of an oil rig, but instead used it to purchase a 5,600-square-foot home in an exclusive gated community in Fremont, Calif. In addition, Yang allegedly spent investor funds on pool and gardening services, personal taxes, and a family vacation to Hawaii.
According to the SEC's complaint filed in federal court in San Francisco, Luca International conducted seminars for investors at the company's offices and hotel conference rooms in California. Besides targeting investors in the Chinese-American community through advertisements in Chinese-language television, radio, and newspaper outlets, Yang and Luca International allegedly zeroed in on Chinese citizens who sought permanent U.S. residence through the EB-5 program, which provides a way for foreign investors to obtain a green card by meeting certain U.S. investment requirements. Yang is alleged to have raised approximately $8 million from EB-5 investors purportedly to finance, through a loan to another Luca entity, jobs and development costs for eight oil-and-gas drilling projects. Yang allegedly told these investors that loan was fully secured, but the Luca entity the EB-5 investors funded was hopelessly in debt and contrary to the rosy representations Yang made to investors, had no realistic possibility of ever repaying the loan.
Others charged in the SEC's complaint include Luca International's former vice president of business development Lei (Lily) Lei, who allegedly sold securities to investors and helped Yang divert investor funds, and Yong (Michael) Chen, who allegedly raised investor funds for Yang through his company Entholpy EMC, which did business under the name Mastermind College Funding Group. Luca International's former CFO Anthony Pollace agreed to pay a $25,500 penalty to settle charges that he played a small role in the alleged fraud.
As part of a related administrative action instituted today, Hiroshi Fujigami and his company Wisteria Global agreed to settle charges that they acted as brokers to illegally sell securities of two Luca entities. Fujigami and Wisteria must disgorge allegedly ill-gotten gains of more than $1.1 million and Fujigami agreed to be barred from the securities industry and from participating in any penny stock offering.
The SEC's complaint charges Yang, Lei, Luca International, Luca Resources Group, LLC, and Luca Energy Fund, LLC with violating Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and charges Pollace with violating Section 17(a)(3) of the Securities Act. The complaint also charges Yang, Lei, and Luca International with violating Sections 5(a) and 5(c) of the Securities Act and charges Pollace with violating Section 5(c) of the Securities Act. The complaint further charges Yang, Luca International, Luca Resources Group, and Luca Energy Fund with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder. The complaint charges Lei, Chen, and Entholpy EMC with violating Section 15(a) of the Exchange Act. The SEC's administrative order finds that Fujigami and Wisteria Global violated Section 15(a) of the Exchange Act.
The SEC's investigation was conducted by Alice Liu Jensen and Michael D. Foley of the San Francisco office and supervised by Steven D. Buchholz. The SEC's litigation will be led by Ms. Jensen, Sheila O'Callaghan, and John S. Yun. The SEC appreciates the assistance of the U.S. Citizenship and Immigration Services, the Financial Industry Regulatory Authority, the Hong Kong Securities and Futures Commission, and the China Securities Regulatory Commission.

Read the full SEC complaint here:  http://tinyurl.com/pzbzjeo

SEC charges two firms with illegally brokering investments in EB-5 projects

The Securities and Exchange Commission has charged two firms with illegally brokering more than $79 million of investments by foreigners seeking U.S. residency.  The charges are the first against brokers handling investments in the government’s EB-5 Immigrant Investor Program and follow earlier SEC actions against fraudulent EB-5 offerings.

Ireeco LLC, originally of Boca Raton, Fla., and its successor Ireeco Limited, a Hong Kong-based company operating in the U.S., were charged with acting as unregistered brokers for more than 150 EB-5 investors.  The EB-5 program administered by the U.S. Citizenship and Immigration Services (USCIS) provides a path to legal residency for foreigners who invest directly in a U.S. business or private “regional centers” that promote economic development in specific areas and industries.

According to the SEC’s order, Ireeco LLC and Ireeco Limited used their website to solicit EB-5 investors, some of whom were already in the U.S. on a temporary visa.  While Ireeco LLC and Ireeco Limited promised to help investors choose the right regional center to invest with, they allegedly directed most EB-5 investors to the same handful of regional centers, ones that paid them commissions of about $35,000 per investor once USCIS approved an investor’s petition for conditional residence (“green card”).

“While raising money for EB-5 projects in the U.S., these two firms were not registered to legally operate as securities brokers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “The broker-dealer registration requirements are critical safeguards for maintaining the integrity of our securities markets, and the SEC will vigorously enforce compliance with these provisions.”

Without admitting or denying the SEC’s findings, Ireeco LLC and Ireeco Limited agreed to be censured and to cease and desist from committing or causing similar violations in the future.  They also agreed to administrative proceedings to determine whether they should be ordered to return their allegedly ill-gotten gains, pay penalties, or both based on their violations.

Read the SEC order:  http://tinyurl.com/o5z6pc4

There is positive movement in the cutoff date for Chinese EB-5 investors

The July 2015 Visa Bulletin published by the U.S. Department of State shows positive movement in the May 1, 2015, cutoff date for Chinese EB-5 investors.
The cutoff date is now September 1, 2015.  When a new allocation of 10,000 visas becomes available on October 1 (the beginning of the federal fiscal year), the cutoff date may move substantially in a positive way or be eliminated entirely.

Why examination of future viability of EB-5 projects is very important

Future viability is a concept -- and a concern -- I would like to bring to the EB-5 world.  My friend Michael Gibson's latest report on EB-5 projects around the nation is disturbing and troubling because so many of them are failing or are wrapped up in lawsuits and doing nothing, least of all job creation.
Future viability of EB-5 projects is something I have been thinking about for a long time.  If I've said it once, I've said it a thousand times:  "The first step you take in developing an EB-5 project puts you on the road to success or failure."
And so many are failing.  But we don't see the failures, usually, until the projects are three or four years old, sometimes sooner, sometimes later.
To say that you need to be forward-leaning when considering an EB-5 investment project is probably an understatement.  My regional center decided many years ago not to adopt an EB-5 project that produces a product or provides a service that people don't absolutely have to have.  This rule has served ACFI well.
We are engaged in assisted-living projects and manufacturers of hurricane-, tornado-, seismic-, and fire- resistant modular homes made from steel and hardy plank.  Insurance companies and the Federal Emergency Management Agency (FEMA) are driving the latter industry.
Unfortunately, I think you will see many more failures of EB-5 projects and regional centers.  There is a lack of judgment out there that dooms some EB-5 projects before they even get started.

Why the cutoff date problem for Chinese EB-5 investors?

Because Congress never intended immigrant investor visas to go to immediate relatives (normally spouse and children younger than 21).
Now we have a cutoff date of May 1, 2013, because the Department of State has been allocating a large number of EB-5 visas to spouses and children of EB-5 investors.  It's that simple.

Cutoff date appears for Chinese EB-5 visa petitioners for first time

I predicted late last year that the U.S. Department of State would issue a cutoff date for EB-5 visa petitioners from China sometime this spring.  The department did not disappoint.
The May Visa Bulletin establishes a cutoff date for Chinese EB-5 petitioners of May 1, 2013.
What does this mean?  According to the Visa Bulletin:
"Heavy applicant demand has required the implementation of an Employment Fifth preference cut-off date to hold number use within the maximum level of numbers which may be made available for use by such applicants during FY-2015. No specific prediction regarding movement of this date is possible at present. Future visa availability will depend on a combination of demand for numbers being reported each month, and the extent to which otherwise unused numbers may become available. An increase in visa demand by applicants with relatively early priority dates COULD make necessary a retrogression of this cut-off date prior to the end of the fiscal year; retrogression is NOT being predicted but it cannot be ruled out. It is extremely likely that this category will remain subject to a cut-off date indefinitely."
So, suddenly there are no EB-5 visas for Chinese who filed their I-526 petitions after May 1, 2013!
I am afraid the nightmare scenario is here.