When to Blow the Whistle in an EB-5 Fraud Case?

If authorities hear about a murder or terrorist attack plot, they move immediately to prevent people from being killed.

But what should the authorities do when they become suspicious of an embezzlement in the works? Move in immediately to prevent the loss of more money, and in the rush risk losing the case against the bad guys – or let it play out till all the facts are in order and no innocent victims, like carpenters on the building site, are hurt.

This is the dilemma that faced the state of Vermont and the Securities and Exchange Commission (SEC) in the huge EB-5 scandal that emerged in that state last week. Here are five considerations:

1. If you are one of the alien investors, you would want the operation shut down quickly to avoid or minimize the theft of your money.
   
   
2. If you are a government lawyer or investigator, you would want to nail down as much evidence as possible – you want to win the case, so slower may be better.
   
   
3. If you are profiting from the project's actual construction, working on the site, or selling supplies to the contractors, you would want the scheme to play out as long as your own bills are being paid.
   
   
4. If you are in one government agency, and one or more other agencies are working on the same case, you probably would want to weigh the other agency's sense of timing.
   
   
5. If you are worried, as the Department of Homeland Security is, about the continued flow of overseas investments, you would want to move swiftly to correct matters – that is, if you were paying attention.

I have no inside information on these decision-making processes, but it is clear to everyone that DHS was not paying attention, so the last consideration did not come into play.

When Governor Peter Shumlin (D) was asked about why Vermont did not move earlier to close down the activities of Messrs. Quiros and Stenger (protagonists in what the SEC called a "Ponzi-like" scheme), his answer was along the lines of consideration number three. The decision, thus, went against the alien investors in favor of Vermont interests.

While it is clear that as much as $50 million in investor funds were either stolen or wasted, it is not clear what will happen to the visa petitions of the more recent of the Vermont investors, the ones whose money went into the project in the last couple of years. At the press conference, one of Shumlin's cabinet members passed along the advice of DHS to the investors — keep filing those petitions. That advice, while perhaps appropriate, does not answer the question: What happens to EB-5 petitions when, thanks to federal and state incompetence, the money is stolen?

If the rulings run against the investors you can be sure that lawsuits will follow.