The most disastrous EB-5 (immigrant investor) project to date – a sham hotel complex near O'Hare Airport in Chicago – is described in stunning and comprehensive detail in a long article published this morning by Fortune. (It will appear in the August 11 issue of the magazine's paper edition.)
It was written by Peter Elkind, the publication's editor-at-large, well known for his exposé on the Enron scandal, and a colleague, Marty Jones. It carries this headline:
"The dark, disturbing world of the visa-for-sale program".
Months in the making, the article in America's most prestigious business publication takes an appropriately dim view of the program as a whole:
But because the EB-5 industry is virtually unregulated, it has become a magnet for amateurs, pipe-dreamers, and charlatans, who see it as an easy way to score funding for ventures that banks would never touch. They've been encouraged and enabled by an array of dodgy middlemen, eager to cash in on the gold rush. Meanwhile, perhaps because wealthy foreigners are the main potential victims, U.S. authorities have seemed inattentive to abuses.
Elkind recounts in fascinating detail how one young and devilishly creative Indian scammer, Anshoo Sethi, managed to con nearly 300 rich Chinese into investing $147 million in EB-5 funds for his imaginary project and how the whole venture came crashing down because the Securities and Exchange Commission (not the Department of Homeland Security, which runs the EB-5 program) discovered its nature and broke up the scam.
The main story is supported by two other items, a set of photographs of five other major EB-5 projects, several of them successful, and a briefer account of how one alert American made $14.7 million, legitimately, out of the EB-5 program.
The five EB-5 projects include the failed $60 million Northern Beef Packers project in Aberdeen, S.D., which I have written about, and which he said was a "gothic horror: the business quickly went bust and a former state official involved in the project committed suicide under mysterious circumstances."
Another project of the five is Sen. Leahy's (D-Vt.) favorite, Jay Peak, a resort in far northern Vermont. Elkind wrote about this one: "Early investors have gotten green cards, but after six years they've yet to get their $500,000 back. Owner Bill Stenger says full payment is five years away."
The person winning the $14.7 million whistle-blowing payment for dropping the dime on the Chicago scheme was another EB-5 promoter who saw the details of the proposal, did a little checking, and then spent the best half-hour of his life filling in a report to SEC on what he found. Michael Sears, however, the hero of this story, has some problems of his own with a former business partner who is suing for a share of the award.
Full disclosure: I had several e-mail and telephone exchanges with Peter Elkind early in his Investigation, though much of what he reported is new to me. Also, Stenger (pro-EB-5) and I (anti) were opposing witnesses at a U.S. Senate hearing before Sen. Leahy a couple of years ago.