Part of the complexity of the EB-5 process lies in the number of entities involved. Funds must be tracked throughout a multi-year process as they move through the EB-5 lifecycle, and specialized tracking and reporting requirements can make administering these funds complex. How does your firm detect EB-5 Fraud? In several cases, alleged EB-5 fraudsters have taken advantage of this complexity to hide their misuse or misappropriation of funds.
In the Jay Peak case, “funds frequently flowed in a circular and roundabout manner between various accounts and entities” in an attempt to disguise the shortfalls the alleged fraud created. Even the controller for Jay Peak had difficulties obtaining account documents and other financial information.
In these cases, third-party oversight and accounting would have likely deterred or detected EB-5 fraud. To ensure objective oversight of EB-5 funds and that the policies investors agreed to are always being followed, EB-5 best practices dictate that projects should work with a third-party administrator.
Had a third party tracked the flow of funds in the Jay Peak case, the project principals would not have been able to conceal misuse of funds through the “intricate web of transfers” the SEC investigators allege they created.
Additionally, had the Jay Peak projects been more transparent with their investors and their community, the financial shortfalls due to misuse of funds, extensive commingling of funds violating the immigration requirements of the EB-5 program, and the many violations of limited partner agreements regarding use of funds would have been apparent years earlier, and much of the alleged fraud would not have been able to take place.
Securities and Exchange Commission v. Ariel Quiros, Jay Peak, Inc., et al., No. 16-21301 (S.D. Fla. 4/12/16) (Hereinafter SEC v. Quiros et al)
 SEC v. Quiros et al at 2
This is the second in a series of blogs examining cases of alleged fraud in EB-5. Other blogs in this series cover:
- Preventing fraud as funds are released from escrow
- Conflicts of interest
- Risk factors for fraud in EB-5
What is EB-5? Find out more by downloading our EB-5 Administration Solution Sheet.