Sometimes a financial program can do substantial damage to individual victims without the program's operators doing anything wrong — and EB-5 is a good example.
The mere presence of the program — offering, as it does, green cards to aliens who invest in the United States — can wreak havoc without any direct complicity from politicians or government officials. That's one of the reasons Congress should not interfere with the scheduled sunset of the major part of the program on September 30.
This generalization flows from one of a set of highly specific stories, this one being about how a Mainland China multi-millionaire couple, eager to participate in EB-5 and with a trusting nature, managed to lose close to $1.5 million to a Chinese-American couple living in an elegant six-bedroom mansion in the DC suburbs; and how a Chinese-American lawyer, retained by the Mainland couple, is alleged to have helped in the process, either by negligence or design.
The story is spelled out, in excruciating detail, in a civil suit filed in Maryland's federal courts by Li Che, the wife of a wealthy Chinese businessman (Zhengang Zhang), against her former lawyer, Sam H. Chang and his DC law firm: Wasserman, Mancini & Chang. Che, perhaps realizing that the couple who swindled her and her husband were without any real assets despite the mansion, only sued the lawyer (for negligence and legal malpractice). The complaint can be seen in the courts' electronic files, PACER, as case 8:16-cv-02665-PX.
The story also shows that locally specific cultural skills matter; that being a terrific success in a business in provincial China does not predict equal success, or even survival, in another commercial environment. (The story that follows is based on the complaint, which, by definition, has yet to be tested in open court.)
Che and her husband live in one of those huge Chinese cities that I had not heard of, Zibo City, a place with 2.8 million people, some 300 miles south of Beijing. Neither speaks a word of English and the husband "speaks only an uncommon dialect of Chinese", one of the many statements in the complaint that is not amplified. (The complaint, filed by a U.S. law firm, reads as if it were written by someone whose first language is not English.)
The couple, however, have long sought a way to secure a base, if not a permanent home, in the United States. Their one reported child (age 12 in 2012) was noted as wanting to study in the United States, and at the time of filing was said to be studying in Washington. The parents had been examining economic opportunities (including the EB-5 program) in the United States for the last four years.
To make a long story short, the couple met, through migrants from their province, the mansion occupants (the house has an assessed value of $930,100, which my real estate tax board experience tells me means that it is really worth about 5 to 10 percent more, and has 5,152 square feet of interior space) and the householders seemed to be prosperous, upstanding business people. The occupants were Xiaolan Zhang and her husband, Peine Yan.
Che and her husband were houseguests in the mansion for several weeks and they noticed the apparent prosperity of their host and hostess. Only later did they discover that there was a Ponzi scheme in operation and that Xiaolan Zhang was using other people's credit cards to buy expensive merchandise and then sell it at 20 percent discount, that Peide Yan was on probation for bankruptcy fraud, that he "was also charged with various theft and fraud crimes", and that he had pled guilty in Maryland's courts. The money thus raised was used to pay off previous investors who were threatening criminal action, according to the complaint.
Soon Che and spouse were working with an attorney suggested by the other couple, Sam Chang, who was said to be a good immigration and business lawyer and who could speak to the people from China in Mandarin. Che and Zhengang Xhang then deposited $1,020,000 into an account that was supposed to create both a retail business and a set of EB-5 visas for them, only to discover much later that the very next day after the money was transferred it went on to an account managed by the mansion occupants who squandered it.
The couple from Zibo City lost close to $1.5 million by the time they sued and have asserted that Chang routinely mishandled their business affairs, failed to tell them that they were being swindled, and bungled the EB-5 petition. So eventually they sued him and his law firm, making the claims outlined above.
The naiveté of these would-be EB-5 investors is breathtaking — in another setting perhaps they could have been conned into putting a million into "Aaron Burr: the Musical" — but this is only one of a long series of similar stories (see here and here), all set in motion by the EB-5 program.
To conclude on a more positive note, Che's suit, something done at her own expense, not the government's, is a welcome development. Most EB-5 victims do not sue; if it becomes apparent that there is a real danger in hornswoggling those monolingual millionaires through the EB-5 program, maybe the sharks will be more cautious, or at least turn to other prey.
I am grateful to Elise Barber, a CIS intern, for her research assistance.