Friday, September 29, 2017

The International Appraiser’s 3rd Successful SEC Whistleblower Complaint Against an EB-5 Regional Center

This week the SEC filed an asset forfeiture action against the Home Paradise Regional Center in Commerce, California, a EB-5 regional center that gained temporary green cards for foreigners based on false reports to the USCIS on its alleged renovation and operation of a fake 111,000 square foot home and commercial design center that supposedly created 345 jobs, but created just one job, for a receptionist.

I first became acquainted with Home Paradise in Beijing at the Overseas Property Investment Exhibition.

As an EB-5 regional center is considered as a security regulated by the U.S. Securities and Exchange Commission, one of the first things I look for is to see if the regional center has complied with the Securities Act of 1933 and the Securities and Exchange Act of 1934. I do background checks on the owners and principals of the regional center. Some are in violation of Securities Act Section 17(a)(2) by failing to disclose their sordid legal histories.

[It shall be unlawful ] "(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading"

The other applicable statute is the Securities and Exchange Act of 1934, which states in section 10(b)(5):

"Rule 10b-5: Employment of Manipulative and Deceptive Practices:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."

Ed Chen, the CEO of Home Paradise, had a history of liens and civil judgments against him before he started Home Paradise, a matter of public record, and thus had a duty to disclose this to investors. If investors had known his legal history, they may not have entrusted him with $545,000 each.

Since establishing the regional center in 2011, the parent company, Home Paradises, LLC, has had 8 property foreclosures, which should have also been disclosed.

All of this once again indicates the initial poor design of the EB-5 visa regional center program. Imagine a federal agency announcing, “Who wants to collect tens of millions of dollars from naïve foreign immigrants?” and all of the hundreds of entities who responded by saying “We do! We do!” and not a single background check performed.

To get approved as a regional center, all they had to do was order an economic study from one of the econo-whore firms.

The approved regional centers were never subject to audits, just a yearly I-924A form explaining their job creation progress to functionaries in Washington, DC. Was it realistic to expect truthful I-924A reports? Now we know that Home Paradise was lying, as was the California Investment Immigration Fund I reported on in April.

Now the USCIS has initiated a program to visit regional centers to check facts, while the SEC investigates regional centers suspected of fraud. With 835 EB-5 regional centers, though, this process will take a long time.

It is time for USCIS to make I-924A forms public (meaning that the public does not have to obtain consent from the regional center). Civil servants in Washington might not know if a regional center is lying, but local rivals and investor advocates can find the lies much quicker than the current regulatory system if allowed access to the I-924A reports.

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