UPDATED, 12:15 p.m., April 25: It’s a paint-by-numbers approach to defrauding real estate investors.
Federal agencies raided the homes and office of a California attorney and her father on Wednesday amid an investigation into whether the two perpetrated a multi-million-dollar fraud scheme. Victoria and Tat Chan allegedly took money from roughly 100 Chinese investors through the EB-5 visa program but never actually invested it on their behalf.
Instead, authorities said, the Chans used the funds to buy luxury homes for themselves throughout Southern California. The list of investors believed to be involved included fugitives on China’s 100 most wanted list, some of whom were allegedly complicit in the scheme. At least three of the investors successfully obtained green cards, according to an affidavit filed by the FBI.
This is just the latest case of alleged fraud related to the EB-5 program, which provides green cards to foreign investors who plow $500,000 or more into U.S. projects, including real estate developments, that result in at least 10 U.S. jobs.
At first glance, the allegations suggest that the Chans masterminded an intricate web of deceit in a bid to get rich. The scheme defrauded EB-5 investors of $50 million over the course of nearly a decade, according to authorities.
But EB-5 insiders say the scheme described by law enforcement was based on a simple formula and is emblematic of just how susceptible the program has become to fraud. The investigation will likely fuel arguments in favor of nixing the controversial program, which is up for renewal in Congress April 28.
“It’s remarkable just how unremarkable [this case] is,” said Michael Gibson, managing director at Miami-based USAdvisors.org, an EB-5 investment-advisory firm. “These people are not rocket scientists. These are a bunch of jokers that figured out that they can recruit enough investors too stupid to verify their investments.”
To understand what allegedly went down, it’s important to understand how the EB-5 program actually works. People who want to solicit EB-5 money for a project must petition the government to establish a “regional center,” which acts as an intermediary between developers and investors — a de facto clearinghouse for immigration documents and investor capital.
Regional centers have made good money charging developers between 5 and 8 percent of the total capital raised, as well as charging each investor an administrative fee of $25,000 to $60,000 on top of the $500,000 minimum commitment they are making to the project.
According to the affidavit, the Chans launched their EB-5 scheme nine years ago, when Victoria submitted a request to United States Citizenship and Immigration Services to designate her organization, the California Immigration Investment Fund (CIIF), as a regional center. The federal agency approved Chan’s request, and the CIIF became official.
While Victoria ran the American operations of CIIF out of the San Gabriel Hilton Hotel at 225 W. Valley Boulevard, her father Tat led the Chinese side in Guangzhou, a major city in southern China.
CIIF operated through at least 14 affiliating companies and service providers, the biggest of which the Chans dubbed the Harris Group USA. According to its tagline in Chinese, the Harris Group “is your only opportunity to get rich in America.”
On its website, CIIF claimed that it was worth more than a whopping $1.6 billion and provided ancillary services such as immigration assistance, consultation for elite school applications, luxury car importing and guidance for pregnant Chinese women from childbirth through raising children in the U.S.
But according to the affidavit, the Chans’ regional center was not a very elaborate con — the father-daughter team allegedly staffed it with high-schoolers, who they paid $10 an hour to pose as full-time employees.
Furthermore, the court document shows they weren’t subtle when it came to peddling the alledgely faux projects, either. In one ad posted to the CIIF Facebook page in 2014, the Chans boasted “another successful project using EB-5 investment,” touting Harris Gardens, a new Chinatown plaza in North Los Angeles. They said they’d raised more than $10 million in EB-5 investments for the project, which authorities said does not exist.
“We promise you three things,” the CIIF Facebook reads in Mandarin. “Investment project success, and full investment return on time; successful immigration — we’ll get you a green card no matter what; and provided housing, as well as assistance in finding permanent housing and moving.”
The FBI affidavit names at least six developments that the CIIF pursued, including a hotel and restaurant in Ontario and the San Gabriel Valley Chinese Cultural Center. CIIF associates had met with planning officials in multiple cities, according to the affidavit, but no project ever came to fruition.
When FBI agent Gary Chen visited what were supposed to be developments based on several visa applications, he found nothing but vacant plots of land, he claimed in the affidavit. “To date, nothing has been built, nor construction commenced,” he wrote.
Despite the absence of actual developments, some investors with CIIF seem to have successfully obtained visas and green cards, the affidavit said. In interviews with former CIIF/Harris Group employees, one attested to the fact that the Chans’ clients acquired green cards, saying that they had scanned green card approval notices as part of the job.
But without any real projects, what were these employees actually doing?
They were teenagers doing absolutely nothing, according to the parents of an employee that took a CIIF “office-type” gig in 2012, during his last summer before college. The father recalled that his son complained “he did not do anything at work, and was just sitting there all day looking at Facebook,” the affidavit said.
Evidence does not support the existence of the ancillary services the Chans claimed to provide either, though at least a dozen pages on the Harris Group’s website focus on childbirth, including contact information for pediatricians in the San Gabriel Valley and a guide on what Chinese cuisine is appropriate for infants: green cucumber rice soup, coconut milk porridge and stir-fried sweet celery (as long as it’s not spicy).
In reality, the Chans and their associates were using investor funds to go on a property shopping spree, according to authorities.
As of 2016, they had purchased at least a dozen homes, the affidavit said. Victoria acquired a single-family home in Diamond Bar for $994,000 in 2011. Around the same time, an associate of Tat’s bought a property at 728 Carriage House Drive for $3.2 million.
The allegations surrounding the Chans come at a particularly sensitive time for the EB-5 program, as Congress debates its future and considers raising the minimum investment from $500,000 to $1.35.
For opponents of EB-5, the Chan case could be viewed as a case study in how dirty money flows through the program without oversight. The Chans allegedly liaised with Chinese fugitives, including a former Chinese government employee accused of accepting bribes and abuse of power, in putting together the scheme. Two of those fugitives’ green cards were still active as of March 2017, the affidavit claims.
“Anything that happens in the world of EB-5 right now is going to be interesting because the program is about to sunset,” said Sal Picataggio, an immigration attorney based in Orlando, Florida whose practice largely focuses on EB-5. “But critics of the program will always use any bit of information against it.”
Still, Picataggio isn’t too worried. Those in the industry expect the program to be extended in a continuing resolution come April 28, he told TRD.
Thus far, President Donald Trump has not articulated any official position on the program, but sources said they’re optimistic he will be in favor of keeping it, given his and his son-in-law Jared Kushner’s use of the program in their own real estate projects.
Developers small and big have tapped into the EB-5 program over the years to raise money. For his Beverly Hills Waldorf Astoria project, developer Beny Alagem sought to raise $150 million from Chinese investors, for instance. In New York, Related Companies secured $600 million in EB-5 funds for Hudson Yards.
Some lawmakers, however, advocate for killing the program entirely.
At a House Judiciary Committee hearing on immigration last month, Rep. Louie Gohmert asked if the program could be used as a tool for money launderers or even terrorists.
“America has degenerated to the point that our soul is for sale,” Gohmert said. “…Give us your immoral, your degenerate, as long as they have money, the message is we want them in America and we’ll give them a visa to get their money.”
One real estate attorney in New York called it the “crack cocaine” of real estate financing. Its opponents are quick to point out that other examples of abuse abound.
“[The Chans] were not are not super scheming, smart, or devious,” Gibson said. “They just got people to invest. It seems like we’re getting a new case of EB-5 fraud every week.”
Late last year, a Newport Beach EB-5 attorney defrauded more than 130 investors and squandered at least $9.5 million of their funds on personal expenses, a lawsuit filed by the Securities and Exchange Commission alleges. The most famous example of fraud is still the Jay Peak ski resort in Vermont, for which its developers raised more than $350 million from over 700 investors in at least 74 countries. At least $200 million of those funds were misused, regulators alleged, in what appears to be a complex, “Ponzi-like” scheme starting in 2008.
The allegations in the Chan case could show how easily fraudulent regional centers can still slip through the cracks, even years after the Jay Peak incident.
“What is unique about [the Chan] case is that the father daughter team were allowed to operate as an EB-5 regional center,” said Paul Yace, a director for an Orange County real estate firm with ties to a regional center. “The [EB-5] program could have major transparency by installing an oversight and compliance standard that all regional centers must be a part of in order to publicly display their projects that are out for potential investors.”
But Gibson is skeptical that such regulations could ever be approved.
“The problem here is that there is fraud in the industry, but the industry itself is not interested in transparency,” he said.
A previous version of this story misidentified Paul Yace’s title as broker. He’s a salesperson and director, not broker.