Choosing a Regional Center: Strategies to Avoid Fraud

While the EB-5 Immigrant Investor Program provides foreign investors with an excellent opportunity to gain permanent residency in the United States, it is important for potential investors to exercise caution and seek external advice when choosing which regional center project to entrust with their hard-earned investment funds.

 

Over the past year there have been instances of fraudulent regional center projects, such as Texas-based “USA Now LLC”, which raised at least $5 million from investors by falsely promising that their money would be invested as part of the EB-5 Program, then diverting investor funds to other undisclosed businesses and for personal use.[1] As a result of such cases, the U.S. Securities and Exchange Commission (SEC) and U.S. Citizenship and Immigration Services (USCIS) recently issued a joint Investor Alert warning foreign investors about the existence of fraudulent scams that advertise misleading regional center projects.[2]

 

Although such abuses of the EB-5 program are rare, foreign investors and their advisors should take certain precautions in analyzing the viability of potential regional center projects. In the above-mentioned Investor Alert, the SEC and USCIS provided the following guidance for evaluating potential regional center projects:

 

  • Confirm that the regional center has been designated by USCIS;
  • Obtain copies of documents provided to USCIS;
  • Request investment information in writing;
  • Ask if promoters are being paid;
  • Seek independent verification of claims made about the investment;
  • Examine structural risk of the new commercial enterprise;
  • Consider the developer’s financial incentives; and
  • Look for warning signs of fraud, such as promises of a visa or becoming a lawful permanent resident, guaranteed investment returns or no investment risk, overly consistent high investment returns, unregistered investments, unlicensed sellers and layers of companies run by the same individuals.

 

Taking preliminary measures such as these will help ensure that foreign investors do not fall victim to fraudulent securities offerings.

 

Taken as a whole, the benefits of becoming an EB-5 investor through a regional center project outweigh the minimal risk of fraud. These include benefitting from pre-approved economic methodologies, having the ability to remain a passive investor while obtaining conditional permanent residency, and taking advantage of a “hands-off” management approach. By consulting with financial and legal advisors and taking the above-mentioned precautions, foreign investors can invest in a regional center project with confidence and thus become one step closer to gaining legal permanent residency in the United States.

 


[1] “Press Release: SEC Halts Texas-Based Scheme Targeting Foreign Investors Seeking U.S. Residency Through EB-5 Visa Program” U.S. Securities and Exchange Commission: Oct 1, 2013, available at

<http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539854731#.Unff6OAkf8s>

[2] “Investor Alert: Investment Scams Exploit Immigrant Investor Program.” U.S. Securities and Exchange Commission: Oct 9, 2013, available at <http://www.sec.gov/investor/alerts/ia_immigrant.htm>

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