One of the key findings cited by the USCIS as justification for taking away South Dakota’s access to EB-5 visa investment is the diversion of EB-5 investment dollars from job creation to other expenses, including the still unexplained transfer of $1.7 million from Northern Beef Packers to a Cyprus-based account held by a Russian rail company.
What happens when EB-5 money is used for expenses not authorized by USCIS and the EB-5 rules? Well, nothing has happened to South Dakota’s EB-5 former czar Joop Bollen yet, but in other states, EB-5 fund diverters get whacked for securities fraud by the SEC. Consider the case of Justin Moongyu Lee:
U.S. District Judge R. Gary Klausner ruled that the SEC satisfied the requirements for default judgment and sufficiently demonstrated that Justin Moongyu Lee and several entities he controlled misled investors by saying their funds were being used to build an ethanol plant in Kansas, which was never built, and that their investments would qualify them to obtain U.S. resident status or citizenship.
…Lee’s wife, Rebecca Taewon Lee, and law firm partner Thomas Edward Kent… raised $11.4 million from 24 investors to purportedly construct an ethanol plant in Kansas, but instead used nearly $4 million to finance an unrelated project in the Philippines and about $2.4 million to pay off investors in other offerings, according to the SEC [Y. Peter Kang, “Ex-Immigration Atty Must Pay $8M in SEC Investor Fraud Suit,”].
…and Lobsang Dargey:
Through his companies, Dargey obtained the money from 252 Chinese nationals hoping to get permanent U.S. residency visas under the controversial EB-5 program by investing in two of his Seattle area real-estate projects.
But according to a civil fraud suit filed Monday by the Securities and Exchange Commission (SEC), Dargey diverted millions to spend on a $2.5 million Bellevue home, other real-estate investments and gambling at 14 casinos across the West.
Authorities are seeking to force Dargey to forfeit the Bellevue home and a $6.5 million Shoreline commercial property they allege were improperly bought with immigrant investors’ funds. A temporary injunction freezing the assets of Dargey and his firms was issued late Monday by U.S. District Court Judge James Robart [Sanjay Bhatt, “SEC Says Local Developer Cheated Immigrant Investors, Spent Money on Himself,” Seattle Times, 2015.08.24].
Last month the SEC doubled its tally of Dargey’s diversions, and a judge kept Dargey’s assets frozen:
SEC attorney Susan LaMarca said during a hearing before U.S. District Judge James Robart that after reviewing a nearly 1,000-page accounting ordered by the court, the agency concluded that only $17 million of the $63 million in immigrant-investor funds received for the tower was spent on “legitimate” purposes.
The rest was used to pay other companies Dargey controls, sales commissions to investor-recruitment agents and expenses unrelated to the 40-story Seattle project, she said.
Robart later denied Dargey’s request to unfreeze the bank accounts of his company, Path America, and its subsidiaries, rejecting the argument that giving Path America unfettered access to the bank accounts was in the best interest of its investors [Sanjay Bhatt, “SEC Adds Millions to Developer’s Alleged Fraud,” Seattle Times, 2015.10.06].
The SEC is also going after a firm that moved from Florida to Hong Kong for pushing EB-5 investments without legally registering to operate as securities brokers. Say, Joop, did you guys ever register with the SEC, the way Patrick Duffy said you had to?
Maybe USCIS dropped the first shoe on South Dakota’s corruption-plagued EB-5 program; maybe the SEC is unlacing the second one right now.