Yet Another Multimillion Dollar EB-5 Scandal Comes to Light

Just as the backers of the EB-5 (immigrant investor) program drew a small sigh of relief — the program won a week's additional life from Congress — another multi-million-dollar scandal, this one involving a gold mine in Idaho, came to light.

The main part of the EB-5 program, which allows investors to essentially buy a family-sized set of green cards for $500,000, is set to sunset on Friday, May 5, unless the congressional leadership, yet again, secures another extension of the program.

As so often has happened in the past, this will involve inserting saving language in a continuing resolution — with none of the usual elements of legislating in a democracy, such as public hearings and floor votes. Using this maneuver prevents any messy discussions of the controversial program, and avoids forcing members of Congress to state their positions on the matter.

Last Friday (April 28) the Securities and Exchange Commission (SEC) announced that its investigation of two EB-5 operators, Serofim (Sima) Muroff and his sidekick, Debra L. Riddle, had led to an agreement in which the two agreed to pay back close to $9 million in restitutions, interest, and fines; they also must get out of the industry.

This fraud had many of the same ingredients as so many of these EB-5 scandals of the past, plus several new ones.

Familiar Scandal Ingredients. As always these include:

  • The Chinese investors, 280 of them, largely passive and trusting, though some of them filed an earlier civil suit against the promoters; they put up a total of $140 million;

  • The U.S.-based fraudsters, Muroff and Riddle;

  • A sleepy USCIS bureaucracy that keeps allowing these scandals to occur;

  • The much more alert SEC, playing the cop on the beat;

  • A middleman (Muroff) who played the stock market unsuccessfully with EB-5 funds (as also happened in a Vermont case);

  • The usual diversion of investor funds to buy houses and European-brand fancy cars (one BMW and one Range Rover) for the middleman; and

  • The use of a USCIS-licensed regional center as a part of the fraud. Muroff is the owner of the Idaho State Regional Center LLC (not to be confused with the similarly named Invest Idaho Regional Center, a completely different outfit).

New Ingredients. One new element, at least new to me in EB-5 cases, involved the classic, 19th century device of separating marks from their money and then "investing" in non-producing gold mines, in this case those run by Quartzburg Gold in Idaho. EB-5 schemes, both illicit and legit, tend to be based on urban schemes.

Another new element was Muroff's stunt of buying a property with investor funds though one firm and then, through other channels, selling that property at a higher price back to the investors, all done stealthily.

In a further burst of creativity, Muroff used the investment funds of earlier investors to pay brokers' fees to an outfit in Taiwan that recruited Mainland Chinese investors. Middlemen can pay such fees if they are secured from fees paid to them by the investors, but they are not allowed to dip into the investment funds themselves — routinely at $500,000 each — to make these payments.

Whereas a total set of investments of $140 million was involved in these various schemes, not all of this money was lost or stolen; the extent to which the investors, in fact, secured green cards was not spelled out in any of the government documents.

This April 28 announcement of Chinese investors being fleeced is not to be confused with a totally different scheme, involving a different set of Chinese investors and as much as $50 million, that I described in an April 6 posting. That one operated in California.