Open Letter to Governors: Don't Go Overseas for EB-5 — It Might Backfire

By David North on May 1, 2016

To: America's Governors and other Elected Officials

From: David North, Center for Immigration Studies

Re: Warning: Overseas Travel to Promote EB-5 Investments Can Be Risky

The invitations look attractive — a trip to China or Vietnam, a place you have never been, all at the cost of either the EB-5 promoters or the state business development budget. All you have to do is appear at an event or two to promote the EB-5 (immigrant investor) program, and you will surely get a nice trip; and maybe you will bring some investment-created jobs to your state.

The big problem is that many EB-5 investments turn out to be disasters for the investors and for everyone connected, directly or indirectly, with them. And it can happen to pols in both parties.

Just ask the current and the recent governors of Vermont, Peter Shumlin (D) and James Douglas (R), both of whom made trips to China on behalf of Vermont's part of the EB-5 program, which has just exploded into a scandal involving the apparent theft of $50 million in EB-5 funds right under the noses of the Vermont government, as we reported earlier. Their trips were recorded here and here.

Perhaps the most glaring example of these dangers was recorded in a cover story in Fortune in 2014. The story detailed how former Governor of Illinois, Pat Quinn (D), subsequently defeated for re-election, pitched Chinese investors in China for an EB-5 real estate deal in Chicago that was a complete hoax from the start until it was broken up by the SEC. The conspirators secured a series of photographs of themselves with the governor, and used them in the scams.

This kind of bad luck can fall on your immediate colleagues as well. The Securities and Exchange Commission broke a scandal in Washington State involving a former Tibetan monk who used $125 million in EB-5 moneys as his "personal piggy bank". The program had been heavily touted by Lt. Governor Brad Owen (D).

At the extreme, one governor's former cabinet member, an enthusiastic booster of the EB-5 program, was found dead of a shotgun wound in the stomach after EB-5 trips to China, one of which he double-billed to the state. This was the late Richard Benda who worked for then-Governor Michael Rounds (R) of South Dakota, as we reported in a blog a couple of years ago.

Rounds, so far, has escaped real harm from his state's EB-5 program and currently sits in the U.S. Senate. A former staff member of his administration, Joop Bollen, faces a preliminary hearing on May 16, as the South Dakota state government has finally indicted Bollen for inappropriate use of state funds.

The fundamental problem, as Peter Elkind, author of the Fortune article (and the man who broke the story on the Enron scandals) describes it, is:

Sethi [the Chicago EB-5 conman] employed a ... common technique, implying that a project has official government backing in the U.S. That is immensely alluring for Chinese investors, who are accustomed to a government that controls everything. To do that, Sethi snookered Illinois Gov. Pat Quinn ...

It would be the better part of wisdom, governor, if you avoided ex-Governor Quinn's situation, and simply never let yourself — and your office — to be used by EB-5 promoters.