EB-5 Problems Proliferate – Here are Three New Ones

By David North on June 6, 2016

I was about to write a posting about two new black eyes suffered by the EB-5 program when a third, and much more significant body blow, appeared on the wire. All are California-based.

The latest news item is that the Securities and Exchange Commission has, yet again, sought to heal a nasty situation that the Department of Homeland Security allowed to fester.

This one involves the raising of $27 million for the support of a cancer center in southern California that would, the promoters said, use proton therapy on patients and create 4,500 new jobs. The EB-5 money, however, did not produce even the start of a building. What it did do was add $7 million to the accounts of Charles C. Liu and his wife, the EB-5 promoters, while another $11 million was sent off to three firms in China.

SEC asked for, and a federal judge agreed to, the freezing of the assets of Liu and his wife, Xin "Lisa" Wang. They were also ordered to stop raising any more money

The investors were, as usual, from China; they may lose some to all of their investments and their green card petitions may be rejected.

One of the other two EB-5 items involves a new player in the clean-up-EB-5 game, the Financial Industry Regulatory Authority. This is the agency that Sen Elizabeth Warren (D- Mass.) more or less created.

FINRA called for "monetary sanctions" against Jim Jinkook Seol, who had once worked for Ameriprise Financial, Inc., but who was fired by that outfit for "failing to disclose the $100 million EB-5 solar investment business" he was running while, apparently, still on the Ameriprise payroll.

According to FINRA, "he didn't disclose his activities to Ameriprise, violating the National Association of Securities Dealers' rule requiring written notice to a FINRA-registered broker-dealer employer before participating in any private securities transaction."

As EB-5 matters go, this was a lesser violation; further, there were no charges of the misuse of EB-5 money in this situation.

The remaining case is a civil one that may or may not turn out to be interesting. It involves a former NBA player, Theo Ratliff, and the plaintiff, a film studio, Open Pictures Media Group. The film studio says that Ratliff steered a $45 million EB-5-funding package away from Open Pictures. The court filing, however, was said by a federal judge to be confusing, and the plaintiffs were told to rewrite and re-file the complaint.

One has to feel some sympathy for the EB-5 industry publicists. Presumably they would like to try to balance the constant flow of bad news about the program.

Their fundamental problem is that the only good news they could possibly produce is not all that heart-warming. It is the steady issuance of visas for rich Chinese as they subsidize rich American developers building glitzy structures in already rich big-city neighborhoods.

That's the main thing that the EB-5 program does when the overseas money is not being filched.