Misadventures in EB-5 Land: Stories from South Dakota, Utah, and Vermont

By David North on May 16, 2019

Usually the EB-5 program for immigrant investors winds up bringing extra people to the United States while their money is used to fatten the already fat cats’ prosperous urban real estate deals, like Hudson Yards in Manhattan or the new Waldorf Astoria in Beverly Hills.

EB-5 provides a family-sized set of green cards to aliens who pony up $500,000 for investments lightly screened by -- but not guaranteed by – the Department of Homeland Security. Each investment is supposed to produce ten new, ongoing jobs. Virtually everyone applying for these visas would not qualify under any other part of the immigration law.

But when EB-5 money wanders into non-urban deals, as it does from time to time, new and even more serious problems often occur. Today’s tales involve a failed EB-5 charter school in Utah, the lack of criminal charges in the long-running $200 million or so EB-5 scandal in Vermont, and some judicial maneuvers regarding a failed EB-5 funded casino in South Dakota.

The public impacts of these three EB-5 examples, over and above the immigration aspects, include a taxpayer bailout of the failed Utah operation, the apparently ignored criminal conduct (swindling of scores of millions) in the Vermont case, and who owes whom how much in South Dakota.

All three stories illustrate the casual administration of the EB-5 (and the charter school) programs, and the ability of politically-connected middlemen to (often) abuse everyone else in sight: aliens and citizens, taxpayers, students and teachers.

Sloppy Management in Utah

The American International School of Utah is, for the moment, an EB-5 supported K-12 charter school in Murray, a close-in suburb of Salt Lake City. Its directors voted earlier this month to close the place as it appeared impossible, even under new leadership, to repay the millions in debt that it owed, according to the local TV station, KSL. The debts included $5 million in EB-5 funds, presumably from ten investors.

Under the prior leadership of the school for 1,300, the Salt Lake Tribune reported:

“The for profit part of the charter invested in stock overseas and spent millions on flashy incentives for students, such as visits from Broadway singers and trips to Carnegie Hall in New York. Then the director stepped down.”

The SLT also wrote:

“Beyond finances, the relatively new school has struggled to gain its footing academically. Last year, the state said it was below average in its test scores and graduation rates. Before that, in 2017, the charter received an F grade. In 2016, it was a D.”

Under Utah state law, an arm of state government, using state funds will help the school repay its debts. That tax money should be used in this way is a dubious policy at best. Whether the alien investors will get their green cards – they should not as the program collapsed – was not mentioned in the press coverage.

The AISU case is simply one of many in which many innocent victims, including the state’s taxpayers in this instance, have suffered as a result of the overly casual administration of both the EB-5 and the charter school programs. But it was a one-off problem, presumably not criminal in nature, and not part of a wider scheme – which leads us to the next item where criminal activity is a more likely part of the scene.

No One’s Jailed in Vermont

No one is being accused of anything as mild as wasting funds by sending kids to Carnegie Hall in the complex and widespread EB-5 scandal dealing with many projects, and perhaps as much as $200 million in that state. Ariel Quiros, a Florida real-estate operator, his Vermont-based colleague, Bill Stenger, and his ex-son-in-law, Joel N. Burstein, branch manager of Raymond James, the large brokerage firm, were involved in a bewildering range of maneuvers, that included inappropriate financial transfers, unfinished projects, debts unpaid, and money disappearing, as we have reported from time to time.

While the intervention of the Securities and Exchange Commission brought these scandals into broad daylight, and a hard-charging, court-appointed receiver, Michael Goldberg has done a great deal to set things straight, there is something missing in the Vermont situation as that state’s sprightly alternative news source, VTDigger, has pointed out recently.

Despite the detailed documentation of what must be financial crimes, as developed in various civil court filings, and over the passage of three years, VTDigger noted recently that no one has been indicted at either the federal or the state level.

On the other hand, the scandals were so obvious that the state’s senior U.S. senator, Patrick Leahy, once a cheerleader of the program, has become one of its fiercest critics.

Court to Court in South Dakota

In comparison to Vermont’s EB-5 problems, which are relatively well in hand, a comparable series of scandals in South Dakota has been largely swept under the rug, even though one of the EB-5 players, Richard Benda – according to the state’s attorney general – killed himself by shooting himself in the stomach with a shotgun. [Neither the state’s Attorney-General’s office, held by the Republicans, nor Obama’s U.S. attorney, seemed very interested in the cases, with the latter simply not acting on a secret FBI report of the subject. A remarkably scaled-down set of criminal charges were handed down by the AG’s office, leading to a slap on the wrist of the main state EB-5 official, now retired.]

But some court action continues. Sixty-five Chinese EB-5 investors, who had invested, collectively, $32.5 million in the Deadwood Mountain Grand Event Center and Casino, sued the Casino and its 14 co-owners in federal courts, demanding to be paid. A federal judge has determined that the Chinese are owed their money, which, with interest has morphed into $44 million, but did not decide whether the Casino, alone, or the Casino and its 14 citizen co-owners, should pay the bill. Apparently this involves an interpretation of a state law which has never been tested in court before.

So the federal judge, in an interesting judicial do-si-do, asked the state’s Supreme Court to advise him on the meaning of the state law

What the local press has not discussed is the high probability that the casino, alone, could not pay much of the debt, but that much more could be raised if the co-owners were held liable, too. So that SD Supreme Court must make a decision that tilts to 65 Chinese aliens, on one hand, or to the 14 SD investors, on the other. Were I a betting man, I would wager that the court finds a way to rule in favor of the locals.

The just cited article says:

“Of the 65 Deadwood Mountain Grand investors, 64 have received citizenship, according to the Rapid City Journal. But they haven't gotten their money back.”

More precisely, either temporary or permanent green cards. Naturalization is not a feature of the EB-5 program. It has always been a mystery to me what happens to the green cards when a project fails, as this one has. There seems to be no rhyme nor reason to these decisions – just another part of the smog that swallows this program.