Attention Would-Be EB-5 Investors: Avoid Putting Your Money into Charter Schools

By David North on October 25, 2016

There is a new trend in the EB-5 (immigrant investor) visa program — placing those funds in charter schools.

The EB-5 program rewards rich aliens with a handful of green cards following a half-million-dollar investment into a government sanctioned, but not guaranteed, project. Charter schools are 99-percent-plus supported by local taxpayer funds and provide tuition-free education; they are usually private entities lightly regulated by local school boards. EB-5 is a federal program; charter schools operate at the local level and are not regulated by the federal government.

There are three main reasons for alien investors to avoid charter school investments:

  1. They are, by definition, organizations with a single client — the local school board. If they lose funding from the board, they have nowhere else to turn for ongoing support. And local school boards do terminate their relationships with charter schools, as we just reported.

  2. EB-5 is an essentially unstable federal program. Its key provision, for the $500,000 investments, was due for a three-year renewal by Congress on September 30, 2015; it was only renewed for one year, until September 30, 2016. Just before that extension ran out, the program was renewed again, but only for two months and nine days, and it is currently due to expire on December 9. The reason for its shaky status in the legislature is that the program is highly controversial and full of failures and fraud, as CIS has illustrated on a map of EB-5 scandals.

  3. Charter schools that must resort to the EB-5 program for funding are, by their very nature, those that cannot secure financial support elsewhere, otherwise they would not resort to this expensive, complex, and time-consuming way of raising money.

Further, charter schools have been determined to be legally eligible to receive EB-5 funds only through the most convoluted of administrative rationales by the Department of Homeland Security. EB-5 projects are supposed to be job creators — 10 new jobs for every half million dollar investment. But charter schools do not create more teaching jobs, they simply shift them from the regular public schools. Finally, in another stretch, DHS counts the jobs of the teachers — all of whom are 100 percent funded by local tax moneys in reality — as somehow related to the EB-investments. Does an investor want to depend on such machinations?

In addition to those basic, structural problems, there have been many quite specific financial problems with the small population of EB-5 funded charter schools. The following examples are taken from an examination of three of the 25 EB-5 assisted charter schools listed on the website of the Educational Fund of America, a new entity in this business.

In one extreme example, the charter school handled its finances so badly that it had to borrow $250,000 at a 20 percent annual interest rate. That sounds more like the finances of a loan shark victim, rather than those of an educational institution.

The charter school with that loan is the Thunderbird Preparatory Academy of Cornelius, N.C. Charter schools are tax-supported public schools, but many of them use elite-sounding names such as "preparatory" or "academy" to mask their true nature.

According to an article in the Charlotte Observer, Thunderbird was started with $3 million in EB-5 funds from Chinese investors. Shortly after it got underway, it had a falling-out with a business partner that was settled with the school paying a $450,000 settlement to break the contract; $450,000 that it did not have. Part of that sum, according to the Observer,


[C]ame from ALK Angel Holdings of Virginia, which gave Thunderbird a $250,000 line of credit with interest-only payments of $4,167 a month, or $50,000 a year. That's the one that really raised eyebrows among state officials.


Meanwhile, another of the schools assisted by EB-5 funds, the Charlotte Choice Charter, lost its tax-exempt status. Charter schools in North Carolina must have 501(c)(3) status or they lose their contracts with the boards of education, so it is in danger of going out of business. Whatever Charlotte Choice Charter was doing must have been quite interesting to attract the attention of the overworked and understaffed Internal Revenue Service.

The state's demand that charter schools be tax-exempt sets up an interesting dynamic. EB-5 programs cannot be used to directly fund a non-profit entity since EB-5 funds are supposed to be "at risk." So the charter school would have to subcontract much of its activities to the EB-5 supported, for-profit entity. This creates a management nightmare in which waste and fraud are both facilitated, if not made inevitable.

Moving right along down the list of charter schools funded by EB-5, we have the Paramount Charter School in Sunrise, Fla. According to a local TV station:

Despite the infusion of public cash, Paramount — an elementary-level school that, like all charters, is privately owned but publicly funded — is riddled with problems. According to a school board member, it's already had three principals, lost nearly all of its teachers after the first month due to firings and resignations and has some parents alleging their children aren't learning there.

The president of the company that owns the school, Jimika Williams Mason, drove away from a Local 10 News camera in her vehicle. It was discovered the listed vice president of the company, Ashley Challenger, is a 22-year-old Nova Southeastern University student who said she was given a spot on the school's board of directors through the college and had no idea she had even been listed as a corporate vice president of the Advancement of Education in Scholars Corporation. [This must be the entity that owns Paramount.]

She said she had met once with Mason but had no idea what was happening at the school and had yet to attend a board meeting.

More findings about the troubled charter school include:
  • Mason, the president, lists no experience in the education field in the application, instead noting that she spent six years in management at a ... company that specializes in unsecured home improvement loans.
  • Former NFL player and reality TV star Hank Baskett is listed in the application as a "non-voting board member" who will "aid in the Sports and Fitness program." But Baskett's agent, Jim Ivler, said Baskett is not affiliated with the school. "They reached out to us more than five years ago interested in establishing a relationship with Hank," Ivler wrote Local 10. "It never went anywhere and we haven't heard from them in years."
  • After promising at least two teachers who spoke to [the TV station] on condition of anonymity a salary of $36,000 and full benefits, the school after the first month instructed them that if they wanted to keep their jobs they would have to take a $6,000 pay cut and forego benefits. Both teachers were among those who resigned, while numerous teachers were fired. "I don't understand how you can give someone a school just based on paper," said one teacher.


Out of deference to our readers' eyes, and patience, we stop there for the moment, though there were plenty of other, similar examples of mismanagement.

So, if you, Mr. Alien Investor, are thinking of putting your $500,000, into charter schools — think again.







In a future posting we will examine the EB-5-related websites of the Education Fund of America and the Thunderbird School more closely.