Foreign investors seeking U.S. green cards put nearly $50 million into what was supposed to be a massive mixed-use development in a suburb of Houston.
But the Securities and Exchange Commission charged the developers of the Houston-area project with diverting $20.5 million to other investments in real estate.
In December, without admitting or denying any wrongdoing, the developers settled the SEC charges and agreed to pay a penalty plus reimbursements to investors totaling $51.4 million. None of the investors has received a green card, and none of the developments they funded has advanced to construction.
The SEC civil action is the most recent sign of problems with the EB-5 program, which has provided more than 100,000 visas to foreign investors who put at least $500,000 in job creating U.S. businesses, often real estate developments.
The EB-5 immigration process was created in 1990 and scheduled to end three years ago, but Congress has granted a series of short-term extensions to keep the program alive.
Critics increasingly complain that the EB-5 program has led developers to improperly use funds, defraud investors and fund projects that fail to meet the economic goals of the program.
Flaws in the EB-5 program were exposed by the mixed-use development planned in Pearland, Texas, a suburb just south Houston.
The Wall Street Journal reported that the developers of the EB-5 project in Pearland and the firm that recruited the foreign investors are owned by the same company in Hong Kong, Modern Land (China) Co. Ltd.
Sen. Chuck Grassley (R, Iowa) raised questions about that type of arrangement in a 2016 letter to the Department of Homeland Security.
Grassley noted that the arrangement allows foreign companies to offer U.S. green cards to investors and to sell homes built with EB-5 funds to the same investors, negating the economic impact that Congress wanted the program to produce.
Nevertheless, Congress will keep extending the EB-5 program on a short-term basis, experts predict.
The planned development of senior housing, luxury residential buildings and retail space in Pearland drew $49.5 million of capital from 90 foreign investors, according to the SEC.
The money went to three development companies with common ownership, but they moved $20.5 million of the money to two unrelated real estate projects, according to the SEC.
The federal agency said the corporate owner of the three development companies “eventually replaced” the improperly diverted $20.5 million. [Wall Street Journal] – Mike Seemuth