Wednesday, February 6, 2019

How to invest in the US and not lose all the money

Despite the somewhat tarnished image of the American dream, a tight tax regime and serious consequences that threaten to violate the US are not diminishing, and the green card continues to be the cherished dream of many people on the planet.

Those who were interested in the question of possible ways to obtain a residence permit in America know that one of the prepared options that immigration attorneys offer to potential clients at the first consultation is an EB5 investment visa. For a busy person who does not want to drastically change their way of life and part with sources of income at home, the attractiveness of EB5 is obvious: it is a passive investment that does not require investor efforts in running a business in the United States.

The idea of ​​buying and selling green cards is not new: the EB5 program appeared back in 1990 when the US Congress aimed to stimulate the economy, spur foreign investment, create additional jobs, and EB5 seemed to be an excellent mechanism to achieve it. Until 2008, it was not very popular, but after the collapse of the markets and the banking crisis, it became very popular as a saving straw for developers suffocating from the lack of financing.

How it works

The program really works. It is safe to say that the construction boom of recent years, which has engulfed megalopolises like New York, Miami, Los Angeles, is not the least of America's responsibility for affordable foreign investment, through which the most ambitious projects are implemented.

For a million dollars invested in a new commercial enterprise and created 10 jobs, a foreign investor is rewarded with the opportunity to quickly become a permanent resident of the United States, beating a huge number of years of waiting for people. The level of investment is reduced to five hundred thousand if the project is located in a territory that is particularly in need of attracting new jobs (in this case, as a rule, this is a deaf province and economically lagging areas of the country).
Equity must be acquired legally, and the investment cannot be guaranteed but must be at risk. According to approximate estimates, since 2012, through such investments, about $ 8.7 billion has flowed into the American economy.

The annual quota for EB5 is 10 thousand applications, about 90% of which are now accounted for by investors from Asia, where the process of attracting potential customers is put on a bigfoot. Echelons of representatives of real estate companies, who estimated the possibilities of practically free EB5 capital, are constantly moving east to China and Vietnam.

In such marketing, even relatives of President Trump, the Kouchner family, who were very successful in real estate development, were noticed. Jared Kushner’s sister, the president’s son-in-law, recently personally visited Beijing and advertised a potential investor audience to a New Jersey construction project, which again attracted attention to the program from the press and the legislative branch of government.

Green Card Scandals

Russia, although not leading in terms of the number of EB5 investments, is also not avoided by the concern of project owners. Their representatives, often in a team with lawyers specializing in the processing of an investment visa, regularly visit Moscow and the regions in search of those who want to obtain a relatively cheap green card in America. Presentations, conferences, advertising brochures - lawyers and developers willingly spend considerable money on all this marketing. But a series of scandals that erupted over the past few years around the EB5 industry exposed the shortcomings of the current system.

The largest of these is associated with the Vermont project Jay Peak, which has long been considered the "gold standard", an exemplary example of the effect of the investment program and enjoyed a high degree of trust from immigration lawyers. Jay Peak was patronized by Vermont Governor Peter Shumlin and Senator Patrick Leahy, talking about the project in the press and promoting it at various events. The governor even personally appeared in a promotional video, where he assured investors that Jay Peak had been successfully audited.
The project turned out to be a pyramid. The thread that triggered the investigation was a complaint from an investor, whose share was suddenly converted into debt without an agreement with him.

This car dealer from London proved to be a competent person, having shown miracles of perseverance in searching for information and analyzing the current situation. About $ 200 million owned by the same foreign investors have disappeared.

Urgently organized checks revealed that Jay Peak’s bookkeeping was conducted negligently, without proper control by state supervisors, and much of the money was used for the personal needs of the owners. One of them, a businessman from Miami, Ariel Quiros, according to the charges, bought a plane and real estate for investors' money. The prospect of depositors receiving immigration status, which was the main purpose of their participation in the project, was put at risk. The project itself was in bankruptcy proceedings and could have been buried under a mountain of unpaid bills if a competent trusted manager had not been appointed by a Florida court. Various individuals, organizations and even the state of Vermont, who, like an avalanche, covered with lawsuits, were involved in the outbreak of scandal.

Particularly noteworthy is the story of the investment company Raymond James, which recently agreed to put an end to litigation by paying the plaintiffs $ 150 million for servicing the accounts with which fraudulent operations were conducted. The settlement was reached after the battles that broke out in the federal court of South Florida, where a group of investors, represented by a team of experienced lawyers, attacked the position of a financial company. Despite the fact that the role of “Raymond James” in this case was limited (the company did not participate in advertising the project, attracting capital and did not have direct contact with investors), the plaintiffs insisted that she entered into a criminal conspiracy with Jay Peak co-owner Ariel Quiros , and that the fact of this conspiracy made it possible for him to build a financial pyramid of the Ponzi type.

“Cherry on the cake” was certainly served by the fact that the manager of the Raymond James office in Florida was Kviros's former son-in-law, Joel Burstein, who also became the target of the suit. By order of the judge, a special fund of $ 25 million was established, from which all thirteen law firms participating in the case will be paid due to fees.
Along the way, it turned out that some immigration attorneys who sent their clients to Jay Peak received a “kickback” of $ 25,000 each from the project owners.

By itself, this fact did not shock anyone, since lawyers had been whispering about EB5 commissions for a long time, and there was even a certain presumption that a lawyer, besides the fee paid by a client for visa support, had the right to apply for “encouragement” from the project.

In 2015, the Securities Commission harshly tightened a whole group of EB5 lawyers with fines and penalties, qualifying them as illegal brokerage. In addition to violations of federal laws requiring that any person engaged in attracting investments for EB5 be registered as a broker, the problem in this scenario is the abuse of client confidence in light of the apparent conflict of interest. This is especially acute in cases (and their absolute majority) when the client is not aware of the financial relationship between his lawyer and the company with which the client enters into a partnership.

Profound investment and deception customers

The role of lawyers in the design of EB5 has recently become the object of close attention. Recently, the already mentioned federal court in South Florida filed a lawsuit by a Russian investor against Mona Shah, a well-known and successful lawyer and speaker in the EB5 field at numerous international conferences. The essence of the claim is the waste of investment funds held in the trust account of her company, or rather, the unauthorized transfer of the entire amount of the investment by the Mona Shah to the account of the beneficiary company without the permission of the depositor and prior to receiving a positive decision from the immigration authority.

The case is a Russian-speaking lawyer from Brooklyn, Vladislav Syrota, whose firm has collaborated with the company Mona Shah. The facts presented in the lawsuit raise many questions to the competence and powers of the fiduciary persons and should make potential EB5 investors alert.

A few months earlier, Tet and Victoria Chen, father and daughter (the latter is a lawyer), were searched in California for being accused of laundering their clients' money, as well as stealing more than $ 50 million of their investments. Federal prosecutors petitioned for the confiscation of 9 real estate properties owned by Chen and affiliated structures for an amount close to $ 30 million. An enterprising family worked smoothly between the United States and China, actively “recruiting” investors.
The list of their clients even included people on the lists of dangerous criminals who were wanted in the country and escaped from justice.

In 2016, another California lawyer, Emilio Francisco, was brought to justice for deceiving investors. According to the accusation made by the Securities Commission, Francisco appropriated more than $ 9.5 million, which he sent to his own business and for personal expenses, instead of the cafes and homes promised to investors for the care of the elderly.

Prior to that, in 2014, another California attorney, Justin Lee, was accused of embezzling investor funds. Investments that were intended to be placed in a biofuel plant in Texas, he willfully led into a mining enterprise in the Philippines.

Constant vigilance

The American Immigration Lawyers Association (AILA) is seriously concerned about the state of affairs in EB5. At various specialized forums and publications for immigration lawyers, the emphasis is placed on discussing issues of deception, pyramids, and possible conflicts of interest. A memorandum was recently published, in which lawyers were urged to be more careful and strictly follow the rules of ethics, which would be beneficial and seductive if there were no options under which a conflict of interest is possible.

A classic example of such a scenario is the possession of a lawyer of a regional center / EB5 project, in which a client’s investment is placed, and simultaneous legal support of a transaction involving fiduciary duties. Of course, the client itself must be vigilant and feel free to ask questions, no matter how awkward they may appear.

It is difficult to consider reinsurance to obtain an additional legal opinion or even control of the process by an independent lawyer.

The cost of such a service may in the future seem very insignificant compared to the fees of lawyers working at the stage of judicial proceedings. It should also be extremely critical to the proposals of persons with limited experience in organizing EB5 projects, even if they come from close friends or relatives. The EB5 fever that has engulfed the US in the last 8-9 years is associated with some people living in America with the ability to easily improve their affairs and get the maximum profit with the help of someone else's, easily accessible capital.

Unfortunately, the lack of clear agreements, a carefully planned structure, legal support, and strict control often leads to a loss of funds. Court registers abound in cases of this kind, and participation in them further convinces us that transactions on trust here are unacceptable.

In 2016, the Florida authorities arrested a certain Igor Tikhonov on charges of embezzling more than $ 500,000 from a Russian citizen Sergey Danilchenko under the pretext of placing an EB5 investment. Tikhonov’s scheme of work was simple: under the name of Harry, on behalf of his company Alcor Service, registered in South Florida, placed ads of various concierge services on the Internet, including receiving a green card through EB5 investments.
A resident of Sochi, Danilchenko, hoping to relocate to the United States and treat his sick child, transferred the company more than $ 500,000 in exchange for promises of a green card and 60% of the profits from managing real estate, into which Tikhonov allegedly intended to put the capital of his victim.

In response to a request for corporate documents confirming the fact of purchase, Danilchenko received a pile of postcards. The scammer transferred all the money to a personal account. The investor, in this case, was able to achieve the intervention of criminal justice, but the proceedings of this kind can take years. The list of such cases can be continued.

Transition period

Weak control mechanisms, coupled with the temptation to make quick money, create fertile ground for fraud. Legislators are well aware of the costs and adverse effects of the EB5 program. There are discussions in Congress about the complete abolition of the program, as well as its reform. The most irreconcilable position is occupied by Democratic Senator from California Dian Feinstein. She insists that it is not for America to sell citizenship, but her voice is in the absolute minority.

Once having tasted the charms and amenities of EB5, it will be difficult for America to abandon attractive and affordable foreign investment. The most likely is a compromise option in which the minimum amount of investment will be increased and control tightened.

In the meantime, during the transition period, the fate of investors wishing to use EB5 at the old price depends on their own vigilance and awareness. America does not lack talented and honest lawyers, in whose competent hands the investment program can be an excellent strategy for the client.