The rich foreigners want visas. The government wants job-creating investments in return. And entrepreneurs compete to make it happen. But it’s a program full of flaws.

The United States was built on the foundation of immigrants seeking a better future.

But entry is now being sold for a $500,000 cover charge each year to thousands of wealthy foreigners, who have been able to jump to the front of the line.

Through a longstanding yet little-known program, a growing number of overseas investors are pumping capital into U.S. real estate in return for their chance at the American dream.

As talk of immigration reform roils the presidential election, the federal government’s EB-5 program has exploded — but with little regulatory oversight.

EB-5 — or “Employment-based Fifth Preference” — has funded assisted-living facilities in Sarasota, casinos on the Las Vegas strip and towers in upscale Manhattan. A group of developers is using millions of dollars in EB-5 funds for a tourist attraction dubbed the “Eiffel Tower of Miami.”

The program allows wealthy foreigners to obtain a visa through an investment of $500,000 or $1 million — depending on the unemployment of the particular region of the country — so long as the money helps to create or preserve 10 jobs in the U.S. The vast majority of EB-5 projects meet the $500,000 threshold.

The capital goes to the private sector — not the government — as a method to spur the economy. It was originally intended to help rural areas plagued by poverty.

As many as 10,000 visas are available each year to investors and their family members through EB-5 — widely touted as the fastest avenue to a U.S. green card.

Only California has attracted more EB-5 investment than Florida, and since the Great Recession, participation from immigrants has increased more than tenfold.

But a Herald-Tribune investigation has found fundamental flaws in the program.

The newspaper tracked every regional center in Florida approved by U.S. Citizenship and Immigration Services. These private-sector businesses are pre-approved by the federal government as an authorized source to spend EB-5 money, expediting the green card process.

Through interviews with more than 50 individuals tied to the program, government regulators and third-party analysts, the newspaper built a database of each of those 73 companies.

The Herald-Tribune also obtained Homeland Security audits, federal government reports and scoured through thousands of court cases, state corporation filings, federal election campaign information and municipal property records.

Among the newspaper’s findings:

A Department of Homeland Security audit has shown that EB-5 poses “national security threats that could harm the U.S.” But the program continues to grow faster than the government can keep up.

An agency operating under Homeland Security never fully vetted the principals approved to open EB-5 regional centers in Florida. The operations are run by businessmen who have been barred from selling securities, developers with a history of failed projects, a multimillion-dollar firearms dealer and an attorney who has represented dozens of criminals coming into the country. Some of these EB-5 principals have been entangled in lawsuits over allegations of fraud. They have been linked to financial crimes, battled bankruptcy and lost homes to foreclosure. Those types of financial issues would typically preclude a loan from a traditional bank. But the program’s current regulations do not give the immigration department the authority to deny or terminate an EB-5 regional center based on past fraud or national security concerns.

The government’s methods for reporting the economic benefits of EB-5 are unreliable and often overstated. The program’s top administrative agency is unable to demonstrate the precise benefits of EB-5 investment and cannot verify that the money is creating the jobs intended. Many of the projects now using EB-5 funding would have proceeded without the foreign investment, which has boosted developer margins through capital that is dramatically cheaper and less risky than traditional bank financing.

Oversight is lax. The government struggles to verify whether the funds used by foreigners to gain EB-5 visas were obtained legally. It has no access to many offshore bank accounts or employment information. In fact, the federal government has no centralized database to track these investors once they enter the country, relying solely on paper records. Regulators consistently fail to record basic information like a name or date of birth. A new monitoring system to bring EB-5 into the digital era has been delayed at least four years.

Those with their hands in the EB-5 program have gone to great lengths to keep the existing structure intact, reinforced by strong political interests in Washington, D.C. Elected politicians have gone on to work for EB-5 regional centers following their retirement or lost elections. So has the past director of the USCIS. In Florida alone, the principals of EB-5 regional centers have donated more than $800,000 to federal campaign coffers since 1999, funding bids from both major political parties and members of Congress who have publicly supported EB-5.

Just last month, the U.S. Securities and Exchange Commission obtained a court-order freezing the assets of a South Florida woman, who regulators have accused of diverting $1 million she had raised from investors to buy a 48-foot boat, a BMW X5 and a Mercedes-Benz. She also allegedly took a Carnival cruise with EB-5 funds, spent some to help with expenses for a pet and used $5 million as collateral for a mortgage on a beach home.

U.S. Sen. Chuck Grassley, R-Iowa

“There’s a whole industry of people who can get rich leveraging this for things it wasn’t intended for,” said U.S. Sen. Chuck Grassley, R-Iowa, who has pushed legislation for EB-5 reform. “People are milking this program for their own pocket. It’s very obvious that it is a fraud on the taxpayers.”

When presented with the Herald-Tribune findings, a spokesman for the USCIS declined to speak on the record, but supplied a short statement.

“DHS (Department of Homeland Security) and USCIS are committed to preventing fraud and ensuring the integrity of the EB-5 Program,” spokesman Joe Holstead said in an email. “In (fiscal year 2013), USCIS established a new Immigrant Investor Program Office in Washington, D.C., and created a Fraud Detection and National Security EB-5 Division (FDNS EB-5), which embedded FDNS personnel within the program office to work alongside adjudications officers. This headquarters FDNS component provides additional oversight and conducts fraud, national security, and intelligence assessments. Thus, USCIS has expanded security checks to cover regional center businesses and certain executives participating in the program, and now has the ability to query financial intelligence.”

Applications spike

Congress expanded its employment-based immigration policies in 1990 — a different era both in terms of the U.S. economy and attitudes toward immigration — to propel growth and funnel more foreign capital into the U.S.

Among the options to emerge was EB-5.

Because of low participation, the program was expanded in 1992 with a pilot for so-called “regional centers” to help navigate the bureaucracy. These third-party intermediaries come with a government seal of approval when soliciting investment overseas.

The regional center pilot has been reauthorized seven times.









Since its inception, EB-5 has created 73,000 jobs and infused $11 billion into the economy, according to USCIS estimates.

The program saw a dramatic spike in participation as economies in Asia and South America blossomed, empowering more foreigners to afford the program's buy-in. The wealthy sought a safer place to harbor their cash and still saw the U.S. as the best long-term bet.

When traditional bank financing in the U.S. dried up during the Great Recession, capital-starved developers flocked to the program.

The number of pending EB-5 applications from immigrants swelled from 853 in fiscal year 2008 to 17,367 as of September 2015, government records show. That is a 1,936 percent spike in seven years. There is already a backlog of more than 7,000 applications for fiscal year 2016.

The popularity among immigrants has prompted a similar rise in the number of the regional centers that administer the money. They grew from 16 in 2007 to more than 200 by 2012. As of September, there were more than 930 authorized by USCIS, and only California has more than Florida’s 73.

That proliferation has drawn some unscrupulous players — and opened the door to potential fraud, experts say.

“We are talking about building a wall along the Southwest U.S., yet if you’re rich, you can get expedited green card status through EB-5,” said Jack McCabe, a Florida real estate consultant. “Basically, what you’re saying is, if you’re wealthy, we’re going to make it easy on you. If you’re poor, we want to keep you out.

“The opportunities for abuse are widespread.”





Thomas A. Dentinger lists this home in Clearwater as his principal operating address for a government-approved EB-5 regional center, according to state corporation records. GOOGLE MAPS

Cheaper equity

Thomas A. Dentinger operates an EB-5 regional center from his 2,694-square-foot house in Clearwater, planning to raise money through the program for an 80-unit assisted-living center with 96 patient beds in south Hillsborough County.

Dentinger said about 70 percent of the $14.6 million project will be funded through a traditional construction loan. He will meet the difference with private investments, his company’s own equity and money raised through EB-5.

This is the first time Dentinger has been involved in an EB-5 project. He said he hopes to break ground by 2016.

“EB-5 is much cheaper equity,” Dentinger said during a phone interview in late October. “We haven’t begun soliciting anything at this point. When we do, we have contacts, established contacts, with people who have relationships in China, but also other parts of the world, like England and South America.”

Twenty-nine years ago, financial regulators found that Dentinger had violated federal anti-fraud provisions through the sale of securities to more than 150 investors, but that episode apparently had no impact on the USCIS approval of Dentinger’s application to open an EB-5 regional center.

In 1986, Dentinger was listed as defendant in a federal lawsuit filed by the Securities and Exchange Commission, and was ordered by an Illinois judge to disgorge $130,000, along with any stock he received from Continental Energy Corp., according to federal court archives obtained by the Herald-Tribune. The suit alleged that from 1980 through 1983, Dentinger and two other businessmen violated federal anti-fraud provisions with the sale of securities — in the form of interests in oil and gas wells — to about 171 investors, raising at least $3.3 million. The complaint alleged that Dentinger and the other defendants failed to register the securities with the SEC and misrepresented material facts to investors, including the rate of return and risk, federal records show.

When asked about the suit by the Herald-Tribune, Dentinger said the issue never came up during his application process with the federal government and that no potential EB-5 investor has asked about it.

“There was a bad actor there, who embezzled money and left the country,” Dentinger said during a second interview. “I’m the one who blew the whistle. ... It took years of my life to straighten out, but it was straightened out.”

Dentinger declined to elaborate. “I’m not going to get into what has no bearing, as far as I’m concerned, with my involvement in EB-5,” he said.

The green card

Others operating EB-5 regional centers praise the program, saying it has been their only option for generating capital after the financial meltdown.

“Coming from the recession, almost no banks were willing to provide financing for new construction,” said Luis E. Prado, a hotel developer who came to America from Venezuela 12 years ago and who has been involved in the program since 2010. “EB-5 provided the best alternative.”

But those who closely follow financial markets say the cheap money is the true draw. With EB-5, developers can bring smaller down payments to the table and ultimately reap larger profits. Borrowers seeking traditional bank loans are generally more scrutinized by financial institutions, one reason why so many EB-5 players have the past financial scars of foreclosure and bankruptcy.

Experts say the EB-5 investors also can be less discerning than Wall Street because they are primarily in it for the green card — never expecting much of a return on their payments. That reduces the risk for developers because these foreign investors are unlikely to come back for collateral if the deal falters.

“If it wasn’t for the green card, nobody in their right mind would do it," said Jose E. Latour, an attorney who heads an EB-5 regional center in South Florida.

Executives at one EB-5 regional center in Florida have found themselves entangled in legal claims of unpaid loans, misappropriated stock interests and allegations that they hid financial records in an attempt to shortchange an investor out of tens of thousands of dollars, court records show.

The center is a subsidiary of American Regional Center Group LLC, a Miami company operated by Gonzalo Lopez Jordan and Santiago Steed, state corporation filings show. The business also lists former USCIS director Emilio Gonzalez as a special adviser to the board of directors.

The company received its approval from USCIS to operate an EB-5 regional center in Florida during May, following a 10-month application review. According to its application, the center focuses on residential and commercial construction, hotel development and restaurant operations. The parent company also operates regional centers in Nevada, California, Texas, New England, New York and the Caribbean, its website says.

Jordan, the center’s top executive, has a background in banking, previously working as a vice president at Smith Barney Inc. Steed has experience in real estate and financial services.

Jordan and Steed did not return calls seeking comment. Gonzalez also did not return calls from the Herald-Tribune.

In 2013, the two men were sued in Miami-Dade court over allegations that they fraudulently misappropriated stock interests in a king crab fishing venture after the seafood company defaulted on a $3.7 million loan. That litigation says another partner from the fishing business has asserted criminal allegations against Jordan in Argentina, according to the lawsuit.

Another corporate entity associated with Jordan and Steed is involved in a separate lawsuit brought in 2014 by a former business partner, who claims the two intentionally withheld financial information about an ownership share in an office building on Miami’s Brickell Avenue. Jordan and Steed were attempting to buy out the other partners. The suit alleges that the partners used questionable tactics to demonstrate that the shares were worth less in order to get a better deal for themselves, and never turned over certain financial documents, court records show.

Like many firms using EB-5, Jordan and Steed also struggled financially during the recession. TotalBank, a South Florida subsidiary of the fourth largest lending group in Spain, filed for foreclosure against Jordan and Steed in 2009 over a mortgage used to buy nine units in a Miami corporate condominium. That case was voluntarily dismissed by the bank two years later.

Fraud complaints

The Securities and Exchange Commission, the federal agency that regulates financial security offerings, has reported receiving more than 100 complaints related to potential EB-5 fraud in the past two years.

The agency has brought six cases against some of these players, which collectively involved more than $268 million in fraudulent EB-5 funds, agency records show. The SEC does not have the authority to file criminal charges, only civil cases in federal court or administrative actions.

One of the most notable cases involved an Illinois company that the SEC said fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors, primarily in China.

The firm announced plans to build the “World’s First Zero Carbon Emission Platinum LEED certified” hotel and conference center near Chicago’s O’Hare Airport.

But the SEC alleged that Anshoo R. Sethi and his companies falsely told investors that they had all the necessary building permits in hand, along with agreements from major hotel flags. Sethi's group also provided bogus documents to USCIS, the federal agency alleged.

The lawsuit states Sethi and his companies spent almost $11 million in administrative fees from EB-5 investments, though the agency does not specify where the money went. That was despite promises to return the money if the immigrant visa applications were denied. More than $2.5 million was deposited into Sethi’s personal bank account in Hong Kong and $35,000 was used to pay a prior judgment to Wyndham Hotels, SEC records show.

As part of a settlement reached in March 2014, the SEC ordered the firm to disgorge $11.5 million and barred the defendants listed in the case from selling securities for 20 years that are offered from any of the defendants or any entity controlled by Sethi.

More than $2 million in civil penalties were levied, and Sethi’s companies agreed to dissolve once satisfying their payment obligations, federal records show.

In the latest Florida case — unveiled by the SEC in November — the agency's lawsuit alleges that Lin Zhong and her company EB5 Asset Manager LLC told investors that their money would be used for a mixed-use real estate development planned in Port St. Lucie.

But she allegedly moved $6.5 million out of escrow without their consent, spending much of those funds for unrelated personal expenses, which also included her own real estate taxes and education for her family, court records show.

The SEC also says Zhong failed to disclose a past real estate venture that had failed and concealed prior bankruptcies.

When reached by the Herald-Tribune, her attorney declined to comment on the case.

Financial regulators told the newspaper that EB-5 cases can be more complex than other white-collar ones. The most significant problems are with the commission-based brokers who sell these securities overseas on behalf of regional centers in the U.S. These transactions create “evidentiary challenges,” regulators said.

“We don’t really know what is being said to entice them to invest,” said one federal regulator who investigates EB-5 fraud, but who would only speak to the Herald-Tribune on the condition of anonymity. “We don’t know who these people are. We are not at the meetings, we don’t know what materials they’re passing around, and it creates hurdles for investigating. We may not have the whole picture.”

The economics

Even when there is no wrongdoing, the basic economics of the EB-5 program have come into question.

Every job created through a real estate venture can be counted by the government toward the EB-5 requirements, instead of only the portion of the investment that was actually funded through EB-5 money. That can artificially inflate the program’s stated benefit to the economy, according to a trio of government reports.

For example, one development brought 450 investors into the country, funding 30 percent of a real estate project through EB-5 capital. But to gain their residency, the investors counted all of the estimated jobs created through the venture, using the portion of the project driven by other financing methods to subsidize the EB-5 requirements, according to the U.S. Government Accountability Office.

A Homeland Security audit in December 2013 of the program found this practice makes it “impossible to determine whether the foreign funds actually created U.S. jobs.” The report concluded immigrants are able to gain “permanent resident status without proof of U.S. job creation.”

But USCIS officials say the agency is not statutorily required to do any more than it already is. After two years, if the investor meets all of the requirements, the conditions are removed and the immigrants — as well as their investment — are no longer tracked.

“There are opportunities for USCIS to more reliably report on the economic benefits of the program,” Rebecca Gambler, director of Homeland Security and Justice for the U.S. Government Accountability Office, told the Herald-Tribune. “USCIS’s method for reporting the economic benefits is unreliable because it can overstate the results. ... The bottom line is USCIS already has data they could use to make better estimates.”

Bridge loan

Many developers now rely on the program to write themselves bridge-loans for construction, using EB-5 money as repayment.

For instance, rather than putting 20 percent down on a project to secure a construction loan, EB-5 financing could allow a developer to put up only 5 percent of his own equity, loaning himself the remainder to get the project started. Many regional centers throughout Florida, including one in Sarasota, now use this model, the centers' managers told the Herald-Tribune.

Once the EB-5 call is fully funded, the developer then gets paid back on his own five-year bridge financing before the primary lenders or any immigrant investors, according to interviews with dozens of regional centers.

These loans are usually offered through “host regional centers.” Essentially, these centers lease their USCIS approvals to third-parties that then don't have to file for their own regional center status — and never have to submit their names or projects to government regulators.

“It’s a project that’s going to get done anyway, so from a risk standpoint, it’s lower,” said Samuel Silverman, who studied economics and Chinese at Yale University and now uses the host model through his EB-5 Affiliate Network. “We saw an opportunity to do a more institutional type of financing for large-scale investors.”

But critics say these regional centers violate the true intent of the law, arguing that if a real estate development is advancing with or without EB-5, the jobs that project may create likely won’t change with the added foreign investment.

Contrary to the intent of the law, the vast majority of EB-5 projects are now taking shape in some of the nation’s most affluent communities.

“The intent was to help rural and struggling areas,” said Shae Armstrong, general counsel for the More American Jobs Alliance, which has lobbied for stricter EB-5 rules. Armstrong said loopholes in the program have attracted developers who struggled to advance projects using more traditional financing methods.

“If you have a history of foreclosures and other questionable development deals, and you can’t get financing, this should not be the alternative,” Armstrong said. “But it’s like running a nonsmoking campaign in 1955. Everyone looks at you crazy.”

An industry within

A niche industry has emerged within EB-5 involving companies that specialize in producing these economic reports — the key ingredient for an immigrant investor’s successful visa.

Listing a single-family home in Riviera Beach as its principal operating address, USEGF Florida Regional Center LLC’s primary focus is providing economic analysis and job creation studies for other EB-5 regional centers across the nation.

The center is managed by Scott W. Barnhart, who owns the home where the business is registered. Partner Derek S. Boirun is a real estate developer in New York.

Barnhart said his economic development studies use standard models that date back decades to track direct jobs, construction employment and count indirect jobs — through things like material suppliers and ancillary spending.

“Can I identify which grocery store employee was hired because a new building went up down the street? No, I cannot,” Barnhart said. “But I can see all of the workers at the site, and I can see where the A/C company got all of the vents.”

Barnhart acknowledges that other firms will sometimes push the limits, but he strongly disagrees with the notion that the studies measuring the program’s impact are fundamentally flawed. Similar models are used to measure job creation when government concessions are given to a company to move.

Patrick Hogan, whose Illinois company operates a regional center in Florida, says “this is not an investment program, it’s a job creation program. The investors want to see that the jobs will be produced. It will cost them a lot of more than $500,000 if they can’t show the jobs, and they have to pack up and leave.

“I tell them, 'If you want to invest your money, give it to Schwab. Give it to someone else, don’t give it to me.

“If you want a green card, give it to me.'”