Immigration policy is front and center in the news.  But little attention is being paid to the EB-5 visa program.

Ariel Neuman
Bird Marella
Los Angeles, California

The EB-5 program allows citizens of foreign countries to obtain permanent residency in the United States – and eventual citizenship – in exchange for an investment of $500,000 or $1 million.

The program was created in 1990 to encourage growth in rural areas and in depressed urban areas. Over the past five years, the program has been riddled with corruption and the federal government has begun cracking down.

“The program has not in reality turned out quite what it was hoped to be,” Bird Marella principal Ariel Neuman told Corporate Crime Reporter last week. “There are a lot of development projects that are being approved that are not in the types of neighborhoods and locations originally intended. You may have a project that somehow gets built in the middle of Manhattan. That qualifies for EB-5 funds. Many people would say that the middle of Manhattan is not the type of area that was originally targeted.”

“As is inevitable in this kind of situation, there has been a lot of fraud in the program as well. The vast majority of fraud involves people taking money from unsuspecting foreign investors and essentially stealing it with programs that are not real or that will never qualify.”

“The other controversial side is how it has caught up immigration attorneys. And this is where I have had cases. There are a number of areas where this program has some issues that need to be addressed if it is going to be extended again and again as it appears to be.”

What did you mean by stealing?

“This would be the most common EB-5 fraud. Somebody sets up a project. Let’s say they are going to develop a shopping mall in some area in Oklahoma. And they get all kinds of foreign investors to put in their money in the hopes of qualifying for the immigration relief that comes with the EB-5 program. And they essentially walk away with the funds. It’s all a scam.”

“In the most basic fraud, it’s a project that doesn’t exist. They never put the money toward making it happen.”

How are immigration attorneys getting into trouble?

“Immigration attorneys are getting into trouble in an odd way. Immigration attorneys traditionally have been advising foreign investors on how to navigate the program, where to put their money and how to work their way through the system.”

“In 2015, for the first time, the Securities and Exchange Commission definitively came out and said EB-5 investments are securities that are regulated by the SEC. They had never said that before. The program had been ongoing for almost two decades at that point. And they hadn’t said anything. They suddenly came out and said – these are securities that are regulated under our jurisdiction. And by the way, all of your immigration attorneys who are helping your clients navigate the system – whenever you recommend a particular program that is most likely to qualify and get you the visa – when you do that, you are acting as an unregistered broker and we are going to come after you.”

“That is how they have been caught up. They see their role as helping these foreign nationals find the best way to get a green card. That’s the goal. Whereas the SEC says – no, no, no, these are actually investments and you have to register as a broker.”

What led the SEC, after two decades of not intervening, to intervene and say these are investments and the lawyers are unregistered brokers?

“My guess is as the program came under increasing scrutiny and as the types of fraud became more and prevalent and got more attention, the SEC said – we need to pay attention to this too. We have never issued any sort of definitive guidance on whether these are securities or not. So, we are going to step in.”

“Unfortunately, the SEC did it without any announcement and they came after a number of immigration attorneys. With some they settled. With others, they took them to court. It was an increased scrutiny on the EB-5 program that is continuing. Congress is continually looking to revising the program – or getting rid of it.”

There is a fundamental question as to whether people should be able to buy a pathway to citizenship.

“Sure. That’s a big policy question. That’s for the Congress to decide. That’s an important piece of the conversation.”

Do you have a position on that?

“It’s not my role to make those decisions. The program has been taken advantage of by a lot of people on all sides. I don’t think the original purposes of the program are being met in the execution. My view is at this point that the program needs to be reformed. The fundamental question is –  should we be doing this or not? I don’t have a view on that.”

Do we have a sense as to how many foreigners are taking advantage of the program per year? I read where 90 percent of the projects now occur in major cities and 80 percent of the visas go to Chinese citizens.

“That sounds right to me.”

How many cases are there of the first type of fraud that you spoke about — foreigners being taken advantage of by U.S. citizens?

“It’s probably in the dozen to two dozen range of actually filed cases. But that doesn’t mean there haven’t been more prosecutions out there. When we look at filed cases, it’s someone who was under investigation, refused to settle with the government and then an indictment was filed. Most fraud type cases are usually settled without an indictment.”

“My sense is that it is in the dozens of cases that have been brought over the past five years. The enforcement has really ramped up over the past five years. This was not an area that was getting a lot of attention before that.”

How many cases have been brought against immigration attorneys?

“There was an initial hit in 2015, where there were five settlements. And then a case filed against one of my former clients. That was the first case I had in the area. And then there have been a trickle of these – probably two to three since then. Immigration attorneys are attorneys. They are paying attention to this. They are trying to navigate the system. The danger is that if you take them out of the system, it may just create more incentives for the other type of fraud. If they are not getting programs for the foreign national client, that may make the foreign client more susceptible to the first type of fraud we have been talking about.”

Since the SEC crackdown on immigration attorneys, have the immigration attorneys started to register as brokers?

“I haven’t seen that. I think they just try to step out of this role. I’m sure there are plenty of people still doing it, just trying to conceal what they are doing – that would be my guess because it is such a lucrative area. Most immigration attorneys are not familiar with the securities laws. My guess is that they will step back from the role with making real investment recommendations.

It would be interesting to find out whether the SEC is recommending that immigration attorneys register as brokers.

“The SEC sees this as an investment. The reality is that the foreign national sees this as a way to buy their way into America. The SEC says – no, no, no. This is an investment for profit. And so the SEC is telling immigration attorneys – if you are going to get involved in recommending this, then you need to register as a broker. Otherwise, stay away from this role – you may want to outsource this to a registered broker. But don’t try to take this on. That’s not your role.”

[For the complete q/a format Interview with Ariel Neuman, 32 Corporate Crime Reporter 6(12), Monday February 5, 2018, print edition only.]