BY DILLON COLUCCI
The Securities and Exchange Commission (“SEC”) recently announced fraud charges against a husband and wife for stealing foreign investor funds under the auspices of the EB-5 program. Marco and Bebe Ramirez operated the USA Now Regional Center, which received approval from USCIS in March 2011.
According to the SEC complaint unsealed today, the Ramirez’s operated USA Now Regional Center as a Ponzi scheme, had been soliciting investors prior to approval of their regional center designation and have continued to solicit investors after the Federal Bureau of Investigations served a search warrant and seized the Ramirez’s assets. The U.S. District Court for the Southern District of Texas has granted the SEC’s request to freeze the assets and accounts of the Ramirez’s, USA Now LLC, USA Now Energy Capital Group LP, and Now Co. Loan Services. However, USA Now Regional Center still has a functioning webpage and remains an approved regional center listed on United States Citizenship and Immigration Services’ (USCIS) website.
The Ramirez’s are alleged to have accepted investment funds that were supposed to remain in escrow until I-526 approval and diverted those funds for other uses, including the purchase of personal vehicles, settling an unrelated lawsuit and, in one case, to repay a previous EB-5 investor. No investors who invested with the Ramirez’s have had their I-526 petitions approved.
This complaint is also notable in securities law because the SEC’s third claim against the Ramirez’s was for aiding and abetting each other’s securities law violations, in addition to charging the Ramirez’s with fraud. This continues the SEC’s trend of using the aiding and abetting theory to tack on charges to individuals already charged with fraud.
In conjunction with the unsealing of this complaint, USCIS and the SEC issued a joint investor alert that provides additional information about the EB-5 program and seeks to inform prospective EB-5 investors about fraudulent schemes (reposted on the American Immigration Lawyers Association InfoNet). The alert stresses that merely because USCIS has granted designation to a regional center, does not mean that USCIS, the SEC or any other government agency has approved the investments offered by that regional center. Prospective EB-5 investors should be aware of regional centers or any other entities or individuals who promise returns on their investment. In the Ramirez case, USCIS found information on the website of USA Now Regional Center promising investors a 5 percent return on their investment. In fact, if an investment was able to guarantee a return on a prospective EB-5 investors investment, that EB-5 investor would be disqualified from receiving conditional permanent residency because the EB-5 investor’s funds would not truly be “at risk,” within the meaning of the regulations.
The alert recommends prospective EB-5 investors take these steps before deciding to make an EB-5 investment: (i) confirm the regional center has been designated by USCIS at www.uscis.gov; (ii) obtain copies of regional centers Form I-924 and I-924A; (iii) request investment information in writing and review carefully; (iv) ask about the compensation being paid to lawyers, agents, consultants and any other individuals who are recommending the investment; (v) seek independent verification of claims made by an EB-5 investment; (vi) consider the amount of equity the EB-5 investment developer or project manager has in the EB-5 project; and (vii) look for warning signs of fraud, such as promises of a visa, guarantees on investments, overly consistent or high investment returns, unregistered investments, unlicensed individuals directing EB-5 investments and confirm conflicts of interest have been disclosed and minimized.
It is important for prospective EB-5 investors to complete their own due diligence before deciding to invest in an EB-5 project. Oftentimes, a simple Google search can produce false or misleading information. Therefore, it is important for EB-5 investors to ask the questions listed in the alert before investing. Additionally, it may be helpful for EB-5 investors to retain specialized EB-5 counsel, individuals with experience in the EB-5 area and are unaffiliated with specific EB-5 investments.