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Tuesday, July 23rd, 2024

Chicago EB-5 fraud cases put pressure on Senate Judiciary Chairman Durbin

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U.S. Senate Democratic Whip Dick Durbin (D-IL), chairman of the Senate Judiciary Committee, potentially has an EB-5 program fraud problem in his Chicago backyard.

The EB-5 Immigrant Investor Program, named for the employment-based fifth preference visa that participants receive, is an immigration program, as well as a jobs and investment program that permits qualified foreign investors the ability to obtain a U.S. green card in exchange for a specific investment in an American business, either $900,000 under the regional center option, or $1.8 million under the direct investment option. Some 10,000 visas are made available yearly under the program to foreign investors and their family members to come to the United States. 

While hugely successful since its inception in 1991, the EB-5 program also has been plagued by fraud and abuse.

For example, in Durbin’s home state of Illinois, a federal judge on Feb. 4 gave final approval to a class settlement in a securities fraud case, reimbursing a total of some 88 Chinese EB-5 investors who helped fund an unbuilt $50-million Chicago skyscraper project.

The planned mixed-use, 40+ story project was to be built by project owners Carillon Tower L.P. and developer Symmetry Property Development in the neighborhood of River North in Chicago’s premiere commercial district known as the Magnificent Mile. The project was slated to include hotel rooms, timeshares, a variety of businesses, and luxury condominiums, among other uses. The Chinese nationals invested in the project in late 2015 and early 2016 and then applied to the EB-5 program for green cards.

In November 2018, the EB-5 investors filed a lawsuit alleging violations of both federal and state securities laws, fraud and breach of fiduciary duty, and mismanagement of the invested monies by Carillon and Symmetry, among other violations, according to the settlement agreement.

Under the federal judge’s approved settlement, the companies will return $550,000 each to more than 50 of the investors, while more than 30 other project investors opted to retain their investments in the construction project. While the settlement also gives Carillon time to satisfy its lenders’ funding conditions, the EB-5 investors may bring back their claims to court if Carillon fails to do so.

Many such challenges to the EB-5 program exist that range from annual congressional reauthorization requirements and delayed processing times, with the most critical being compliance and investor security, according to Ray Lahoud, an attorney with Norris McLaughlin and chairman of its Immigration Law Practice Group.

“There is a significant amount of fraud in the EB-5 program, including in project risk assessments, tracing of investor funds, flawed methodologies in calculating employment creation as a result of investments, and most importantly, misappropriation of investor funds,” Lahoud told Homeland Preparedness News.

For example, in another Chicago EB-5 fraud case, local immigration attorney Seyed Taher Kameli and his two corporations in May 2020 lost their bid to dismiss U.S. Securities and Exchange Commission (SEC) allegations they defrauded 226 EB-5 Chinese and Iranian investors who contributed $88.7 million toward building senior living facilities.

The ruling sets up a battle between Kameli and the SEC, which charges that beginning around 2009, Kameli began offering foreign nationals an opportunity to obtain EB-5 visas by investing in the creation and development of four facilities providing memory care and/or assisted living services for senior citizens in Illinois. 

A separate fund was created to lend money to each project, according to the SEC, and each fund used investors’ money to make a loan to its associated project for the development and construction of its affiliated senior living facility. 

To date, however, only one of the senior living facilities in Illinois is up and running, though several years behind schedule and at double the projected cost, according to the SEC, which also alleges that the other Illinois projects are behind schedule and have run out of money. 

David North, a fellow at the Center for Immigration Studies and an internationally recognized authority on immigration policy, pointed out that the EB-5 program “is a tiny shadow of its former self” due to the onslaught of such fraud cases.

In addition, the program is challenged by the raised investment amount – from a $500,000 minimum to a $900,000 minimum – as well as the new and tighter definition of where EB-5 aliens can invest, and the general lack of interest in investing in projects that would be discouraged during COVID-19, North said. 

“There is little investment these days in shopping centers and office buildings – typical EB-5 investments,” North told Homeland Preparedness News. 

Integrity measures

Congressional legislators hope to enact integrity measures designed to improve transparency and accountability for the EB-5 program, action that several sources say is much needed.

U.S. Sens. Chuck Grassley (R-IA) and Patrick Leahy (D-VT), for instance, have cosponsored the bipartisan EB-5 Reform and Integrity Act, which would extend the program through September 2024; increase the authority of the Department of Homeland Security (DHS) to deny or terminate applications involving fraud, criminal misuse, or threat to public safety or national security; require more disclosures to investors regarding business risks and conflicts of interest; and establish an EB-5 Integrity Fund into which regional centers and investors would pay fees to be used by DHS to perform audits and site visits and to investigate fraud, among other provisions.

Invest in the USA (IIUSA), the national not-for-profit industry trade association for the EB-5 Regional Center Program, recently assembled 425 supporters of the bill, said Lahoud, adding that the proposed EB-5 Integrity Fund would hopefully increase the detection of fraud in the program. 

However, “while a fund of this sort would increase the DHS enforcement budget, it may not be enough to provide the investor security the EB-5 program needs,” Lahoud said, noting the complexity of the EB-5 program, which involves “significant and detailed investment and project-related documents that are actively marketed across the globe to many uncertain investors, and leading to the movement of millions of dollars through multiple banks and intermediaries for any single project.” 

North agrees that members of Congress must work together to pass bipartisan legislation to extend the EB-5 program for at least five years, rather than requiring the program’s reauthorization with each new fiscal year. 

“A long-term reauthorization will allow for more program integrity as well as investor, regional center, and developer confidence in the future of the program, their investments, and projects,” said North. “With this, however, must come necessary background checks for project and regional center principals, required disclosures to potential investors about the full scope of the investment risk and conflicts of interest, legitimate employment projections, and more oversight by both [DHS] and the Securities and Exchange Commission.”

Andy Semotiuk, a U.S. and Canadian immigration attorney with the Toronto-based Pace Law Firm, thinks rising expectations exist under the Biden administration for “the dysfunctional state of U.S. immigration [to] finally be addressed and reforms adopted to repair what is not working.”

Semotiuk also thinks the integrity measures included in the Grassley-Leahy bill address these issues and “need to be adopted” because they would make it “far more difficult for such frauds to take place” in the EB-5 program.

Semotiuk also noted that while it’s “virtually impossible to catch every single fraud on earth,” lawmakers have to try. “Let’s hope the new administration takes it upon itself to deliver on this key area of concern,” he said.

Federal plans

Sen. Durbin did not respond to a request for comment from Homeland Preparedness News. However, the lawmaker on Feb. 25 spoke with DHS Secretary Alejandro Mayorkas about the Biden administration’s immigration priorities, as well as the need for Congress to fix the nation’s damaged immigration system.

“Secretary Mayorkas and I share a vision that America is a nation of immigrants and we must have an immigration system that reflects this value,” Durbin said in a statement, adding that he plans to work with Mayorkas “to finally fix our broken immigration system.”

The Senate Judiciary Committee Durbin chairs oversees DHS, which is overseen by U.S. Citizenship and Immigration Services (USCIS). The EB-5 program is overseen by USCIS. In essence, Congress will play a major role this year in what happens to EB-5, which has a sunset provision that could force its expiration at the end of June without congressional action to renew it.

Earlier in February, in fact, Sen. Durbin joined several colleagues to introduce the bicameral, bipartisan U.S. Citizenship Act of 2021, President Joe Biden’s sweeping reform framework for the U.S. immigration system that includes measures potentially related to the EB-5 program. 

Among numerous provisions, for example, the roughly 350-page proposed Senate bill and its House companion bill (S. 348 / H.R. 1177) include Subtitle D “Reforming Employment-based Immigration” under Title III — Reform of the Immigrant Visa System. If enacted, Subtitle D provisions of the bill would address visa backlogs, eliminating employment-based per country levels, and flexible adjustments to the employment-based immigrant visa program, according to the text of the measure.

However, in reviewing the bill, there is no mention of any corresponding integrity measures, which numerous sources claim will help decrease fraud and abuse in the EB-5 program.

In the end, according to Semotiuk, the chances that the Senate will pass either the Durbin immigration bill or any EB-5 legislation by the end of June will be limited by a variety of competing, partisan objectives. “And that brings us back to the central problem of the EB-5 program, that to be renewed it will need to be passed as an independent measure apart from appropriations,” he said.