By: Alexandra Hughes, Spring 2016 Clinic GRA
In an April 14, 2016 press released titled SEC Case Freezes Assets of Ski Resort Steeped in Fraudulent EB-5 Offerings, the SEC announced “fraud charges and an asset freeze against a Vermont-based ski resort and related businesses allegedly misusing millions of dollars raised through investments solicited under the EB-5 Immigrant Investor Program.” The charges alleged that Ariel Quiros, William Stenger, and their companies fraudulently raised in excess of $350 million from investors saying the money would be used to build a ski resort and biomedical research facility in Vermont. Instead, it appears that some of the money from these investors was used to pay off losses from earlier projects, reflecting a “Ponzi-like” scheme (an explanation of Ponzi schemes can be found at the SEC’s website). Quiros also allegedly fraudulently used investor funds to: purchase a condo, pay his income taxes, pay other taxes, and acquire another ski resort. Essentially, as Andrew Ceresney, Director of the SEC’s Division of Enforcement stated, “the defendants diverted millions of EB-5 investor dollars to their own pockets, leaving little money for construction of the research facility investors were told would be built and thereby putting the investors’ funds and their immigration petitions in jeopardy.” To read the entire SEC complaint, click here.
The EB-5 Immigrant Investor Program, administered by the U.S. Citizenship and Immigration Services (USCIS), allows entrepreneurs to be eligible to apply for a green card if they (1) “make the necessary investment in a commercial enterprise in the United States” and (2) “create or preserve 10 permanent full-time jobs for qualified U.S. workers.” To learn more about the EB-5 Immigrant Investor Program, click here.
Unfortunately, the EB-5 Immigrant Investor Program is no stranger to investment fraud claims. In October 2013, the SEC issued Investor Alert: Investment Scams Exploit Immigrant Investor Program, which cautioned investors to “research thoroughly any offering that purports to be affiliated with EB-5” as the program was and continues to be used to carry out investment scams. The Investor Alert advised investors to take the following steps before investing:
- Confirm that the regional center has been designated by USCIS. A list of current regional centers can be accessed here and a list of terminated regional centers here.
- Obtain copies of documents the regional center has filed with USCIS.
- Request investment information in writing.
- Ask if promoters receive any benefits for recommending the investment.
- Seek independent verification to confirm whether the investment and claims made about the investment are true.
- Examine the structural risk of the investment.
- Consider the developer’s incentives in ensuring the success of the investment.
- Look for the warning signs of fraud. Such signs could include: (1) promises of a visa or lawful permanent residence, (2) guaranteed returns or no investment risk, (3) high investment returns, (4) unregistered investments, (5) unlicensed sellers, and (6) layers of different companies managed by the same individuals.