EB-5 Gets 2 More Years, and Defrauded Millions Are Recovered in Vt.

By David North on February 8, 2018

The embattled, frequently looted, immigrant-investor (EB-5) program is apparently going to get two more years of its unreformed operations from the pending spending bill.

Meanwhile, more than $200 million in EB-5 related funds have been recovered — maybe more than recovered — following the massive EB-5 scandals in Vermont.

As to the program extension, the congressional habit has been to extend the heart of the program with each stop-gap spending bill; the latest one, at this writing (February 8), appears to be for two years; and if signed into law, we are told on good authority that EB-5 will continue to be authorized for the same period as the continuing resolution. (CR's have routinely been for shorter periods of time.)

There is a little-used, $1 million segment of EB-5, which carries with it a permanent legislative sanction; but it is the major part of the program, involving $500,000 investments (in return for a family-sized batch of green cards for the investor's family), that has been subject of the short-term extensions.

While the EB-5 picture on Capitol Hill remains (like so many other things) fluid, the remarkable recovery from the EB-5 mess appears to be pretty solid, with neither the U.S. Department of Homeland Security nor Vermont Ssate government, having much to do with the good news. DHS runs the program nationwide; Vermont is one of two states (along with South Dakota) where the main middleman entity for EB-5, the regional center, has been a state agency.

The latest good news for Vermont's economy is that the principal misuser of EB-5 moneys, the Florida-based would-be tycoon Ariel Quiros, has agreed to a settlement of $83,859,964, according to that state's lively news website, VTDigger. In the paragraph just before the one spelling out the settlement, there is this statement:

Ariel Quiros, a Miami businessman, allegedly misused more than $50 million in EB-5 investor funds.

We will get back to the apparent mismatch between the $84 million and the $50 million, something we have not seen discussed in print, in a minute.

Meanwhile, there have been two other major settlements in the case. The hard-charging court-appointed receiver in the case, Florida-based Michael Goldberg, has secured two other settlements from financial institutions that played roles in Quiros' Vermont activities; they are Raymond James Financial, the brokerage firm that put EB-5 funds into Quiros' margin accounts, and Citibank, which was also involved in the schemes.

Again, according to the previously cited VTDigger article, Raymond James has settled civil suits against it for $150 million, and Citibank, according to another VTDigger account, settled for more than $13.3 million.

Now, I am not a financial journalist, but I cannot begin to believe the two players, Raymond James and Citibank, made anything like $150 million and $13.3 million out of their dealings with Quiros.

Bear in mind that Goldberg obtained these funds through settlements, not judgments laid down by someone in a black robe. In each case the party coughing up the millions did so as a considered business judgment, thinking that the terminations of the court actions rather than continuing to fight the cases would be to their interest.

Both Raymond James and Citibank have extensive operations throughout the country, and presumably want to take care of their reputations. Quiros is a resident of this country and had substantial real estate holdings here. All three must want to avoid becoming defendants in criminal cases. So the three of them decided, one at a time, that the payments of many millions were in their best interest.

The three settlements come to $247 million and will go a long way to finish the projects funded by the EB-5 investors, pay off previously unpaid contractors, repay the investors (in some cases), and pay at least some of the lawyers' fees.

Whether this will make everyone whole again, or maybe a little more than whole, cannot be known at this juncture but it looks like there might be some money to spare.

Contrast, for a moment, this outcome with the situation in South Dakota, where at least as much EB-5 money went missing. No major receiver of missing funds has been located and penalized; none of the banks that played a role in the case have been identified; and with the exception of some piddling fines, all the missing money remains missing — or in the coffers of the middleman participants in such places as Cyprus, Hong Kong, and various other former British Empire tax havens, such as the British Virgin Islands.

There are several reasons for these differential outcomes. In South Dakota, for example, the U.S. attorney, appointed by Obama and continued in office by Trump for a year, squashed an FBI report whose contents are unknown. Nothing like that happened in Vermont.

While both state governments allowed the EB-5 scandals to occur, state officials in Vermont belatedly have tried to do something substantive about it, which cannot be said about South Dakota.

But perhaps the biggest difference between the two states is that Vermont's scandals were 1) reported in telling detail by Anne Galloway, editor of VTDigger; 2) the Securities and Exchange Commission entered the Vermont scene, but not the one further west; and 3) the SEC suit caused the appointment of Michael Goldberg as the gung-ho receiver.

There was a constant, however: DHS did not do much to head off the problems, but has since decided to oust the two state governments from their role as operators of the middleman agencies, the regional centers.

Another constant is that the Congress, yet again, is ignoring the EB-5 scandals in these two states, and in many others, and is about to give the program yet another interim extension.