The U.S. Securities and Exchange Commission (“SEC”) filed a civil fraud suit on August 24, 2015 against a Seattle developer, who had raised $125 million under the EB-5 program.  The developer is also the Chief Executive Director of an approved Regional Center under the EB-5 program.  The Regional Center targets investments into real estate development around the Seattle, Everett, Kirkland, and Shoreline areas of Washington State.

Federal officials allege that the developer utilized $17.6 million of EB-5 capital for his own personal use, including the purchase of a home, personal investments, and for gambling purposes.  Judge James Robart in the U.S. District Court ordered a temporary injunction freezing the developer’s assets.

The SEC’s complaint alleges that the developer had plans to raise an additional $95 million under the EB-5 program, and that the asset freeze was necessary because he had been diverting money to foreign bank accounts.  The SEC order also required that any of the developer’s offshore assets to be transferred to the court’s custody.

The SEC has been targeting alleged misconduct by Regional Centers since the 2012. Following a high profile case in Chicago involving $145 million in investments and more than 250 investors, the SEC has stepped up inquiries into possible securities violations by Regional Centers.  The SEC’s increased involvement is essential in maintaining the strict compliance with applicable laws and regulations necessary for an effective program.

As intended by Congress, the EB-5 program has increasingly proven to be a significant resource for the U.S. economy with a growing number of well-established companies turning to it for financing.   The program is meant to create U.S. jobs, infuse capital into the U.S. economy, and fund projects to assist areas in developing and growing local economies.  In exchange for the at-risk capital and creation of ten U.S. jobs, immigrant investors receive “conditional” permanent resident status, meaning that after two years, the immigrant investor must prove that the capital is still at-risk, and that the jobs were indeed created.  Only after these two checks, and after meeting other program requirements, will the immigrant investor receive permanent resident status.

The EB-5 program continues to be a true resource for the U.S. economy.  The program is meant to create U.S. jobs, infuse capital into the U.S. economy, and fund projects to assist areas in developing and growing. Please see recent study on the benefits of the EB-5 program: here.   In exchange for the at-risk capital and creation of ten U.S. jobs, these immigrant investors receive “conditional” permanent resident status, meaning that after two years, the immigrant investor must prove that the capital is still at-risk, and that the jobs were indeed created.  Only after these two checks will the immigrant investor receive permanent resident status.

Three bills introduced in the 114^th Congress, H.R.616, H.R.3370, and S.1501 all contain strong measures to screen regional center operators, investors, and provide additional tools to USCIS to maintain program integrity.  For example, both S.1501 (introduced by Senators Charles Grassley and Patrick Leahy) and H.R. 3370 (introduced by Representatives Zoe Lofgren and Luis Gutiérrez) would require that Regional Centers conduct oversight and annually certify compliance with applicable securities laws and regulations.