SEC Investigations Into the EB-5 Program: What You Need to Know

Investors from around the world are continuously drawn to the EB-5 Immigrant Investor Program. Since its inception in the 1990s, the EB-5 program has obtained funding to create jobs across the United States.

What attracts investors the most about the EB-5 program is the opportunity to receive a U.S. green card—EB-5 investors can become eligible for U.S. permanent resident status and, eventually, citizenship. They can also include their immediate family members in their visa petitions. Due to its many benefits, the EB-5 program has enjoyed widespread popularity in recent years.

Changes in the EB-5 Investment Industry

The EB-5 industry went relatively unnoticed during the first few years following its inception in 1990. However, the Great Recession in the United States made the EB-5 investment program more popular than ever before; businesses were in sore need of funding.

Every EB-5 investment needs to meet the requirements set by United States Citizenship and Immigration Services (USCIS). Over time, many changes have been made to EB-5 investment regulations.

One of the most impactful changes was the EB-5 Modernization Rule, which came into effect in 2019. The rule increased the minimum EB-5 investment amount from $1 million to $1.8 million. For targeted employment area (TEA) projects, the amount increased from $500,000 to $900,000. However, a court ruling invalidated the Modernization Rule on June 22, 2021.

EB-5 Project Fraud

Unfortunately, EB-5 project developers have occasionally committed fraud and money laundering. This has resulted in the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) investigating certain EB-5 projects.

In recent years, many instances of EB-5 fraud have taken place in Texas. Here are some examples.

  • McAllen: In one of the first EB5 investment misuse cases taken to court, a McAllen, Texas, couple faced fraud charges in 2013. They were accused of using $5 million in EB-5 investment funds for personal gain.
  • Houston: In 2018, developers in Houston were accused of misusing EB5 investment funds totaling $49.5 million. The funds were eventually repaid.
  • Dallas: A developer in Dallas was accused of failing to pay its finders’ commissions. The SEC investigated this case.

While cases of this magnitude are rare, investors should be aware of the types of investigations underway concerning EB-5 projects and take steps to ensure the projects they invest in are legitimate.

How the SEC Fights Back

The SEC takes enforcement action to ensure the safety of the EB-5 program.

For instance, Charles Liu and Lisa Wang faced fraud charges in 2016 after the pair defrauded more than 50 Chinese investors out of approximately $27 million. The pair was found to be liable for the disgorgement of the full amount, setting a precedent for enforcement action in similar cases. The Supreme Court ruled that as long as a disgorgement “does not exceed a wrongdoer’s net profits,” seeking disgorgement is a reasonable remedy and should be awarded to victims.

Civil litigation, in which wronged EB-5 program participants become plaintiffs, is also becoming frequent. This usually results in federal enforcement action.

Stay Informed with EB5AN

The EB-5 industry continues to expand each year, and its regulations change. It is vital for EB-5 investors to stay informed about these changes. EB5AN will continue to keep investors informed of the latest news and developments in the EB-5 industry while helping foreign nationals find the most transparent and reliable EB-5 projects.