Earlier this year we wrote about the Justice Department’s continuing efforts to combat fraud in the EB-5 immigrant visa program, with the filing of several federal lawsuits seeking the forfeiture of nine real properties across Southern California that were allegedly purchased with proceeds generated by a fraudulent scheme that collected more than $50 million from foreign investors seeking “green cards” through the EB-5 program. Those suits alleged that much of the money collected from investors, who were primarily Chinese, either was refunded to the foreign nationals or was stolen by participants in the scheme.
This week the Securities and Exchange Commission continued its own crackdown on EB-5 fraud, by filing suit and obtaining an emergency court order to freeze the assets of a husband and wife in Arcadia, California, alleged to have defrauded investors in two EB-5 investment offerings. According to the SEC’s complaint filed in the U.S. District Court for the Central District of California, Edward Chen (a/k/a Jianqiao Chen, Jian Qiao Chen, and Jian Chen) and Jean Chen (a/k/a Jing Jiang and Jean Jiang) control several companies that raised more than $22.5 million from 45 investors in China for the development of an interior design center in Ontario, California, and a residential condominium building in Los Angeles.
The EB-5 visa program provides a pathway to lawful permanent residence – commonly known as a “green card” – to foreign nationals who invest at least $500,000 in a U.S. business that creates at least ten American jobs. If a project ultimately meets the visa program’s requirements, the investors are granted permanent legal residence in the U.S. The EB-5 program has been in existence since the 1990s, but its popularity increased following the financial crisis of 2008. During that crisis, many U.S. real estate developers ran out of sources for cash, and the EB-5 program helped meet that need by bringing in foreign investment. Interest in obtaining EB-5 visas has continued to increase, in large part because of demand from wealthy Chinese citizens. In 2015, the U.S. government granted nearly 10,000 EB-5 visas, and 85 percent of those went to Chinese nationals.
A 2013 report by the Department of Homeland Security Office of Inspector General found serious problems with the oversight of the EB-5 program. The Government Accountability Office published a study on fraud in the EB-5 program last year, which found that progress had been made in fraud detection, but improvements were still needed.
In the SEC’s suit, it is alleged that the Chens stole more than $12 million out of investor funds by issuing cashier’s checks to Jean Chen, transferring the money to affiliated entities, and purchasing residential real estate completely unrelated to the two EB-5 projects. The Chens allegedly misappropriated more than 91 percent of the money raised from investors in the interior design center project. The SEC’s complaint further alleges that the Chens and their companies provided investors a fake lease for the interior design center that changed the name of the real lessor to a Chen-controlled entity and overstated the true size of the leased space five-fold. According to the complaint, investors then submitted it to the federal agency that administers the EB-5 program, U.S. Citizenship and Immigration Services (USCIS), as part of their applications. According to the SEC’s complaint, the purported center is an undecorated, half-empty warehouse space with one apparent employee while reports submitted to USCIS represented that the project is fully functional and has generated 345 jobs.
On September 20, 2017, the district court granted the SEC’s request for a temporary restraining order against Edward Chen, Jean Chen, Home Paradise Investment Center LLC, GH Investment LP, GH Design Group LLC, Golden Galaxy LP, and Mega Home LLC. The court’s order also appointed a temporary receiver over the five corporate defendants and four affiliated entities controlled by the Chens: Four Star Realty Group Inc., Home Paradises LLC, US Grandhood LLC, and First Financial Investment Group LLC. The court also froze the assets of all of the defendants and the four affiliates. A court hearing has been scheduled for October 4, 2017, on the SEC’s motion for a preliminary injunction.