Fraud Friday — SEC Charges Lawyer with Stealing Investor Money in EB-5 Offerings
January 20, 2017
By Bob Coleman
Editor, Fraud Friday
SEC Charges Lawyer with Stealing Investor Money in EB-5 Offerings
Last month, the SEC charged a California-based attorney with defrauding investors seeking to participate in the EB-5 immigrant investor program, stealing their money to buy a yacht and prop up his other businesses.
The SEC says Emilio Francisco raised $72 million from investors in China solicited through his marketing firm PDC Capital to invest in EB-5 projects that included opening Caffe Primo restaurants, developing assisted living facilities, and renovating a production facility for environmentally friendly agriculture and cleaning products.
None of the assisted living facilities have been built, though some of the Caffe Primo locations associated with EB-5 investors’ cash have opened, according to the suit, filed in federal district court in Los Angeles.
According to the SEC’s complaint, Francisco and PDC Capital diverted investor funds from one project to another and outright stole at least $9.6 million that was used to finance Francisco’s own businesses and luxury lifestyle. Francisco was allegedly aware that doing so would violate federal regulations and jeopardize any visas for the foreign investors.
Adds the LA Times’ James Rufus Koren. . . . . .
Investors can qualify for U.S. residency if they invest $1 million in a new business venture that creates at least 10 jobs. For businesses in rural or high-unemployment areas, investors can put in just $500,000, though it has become commonplace for EB-5 project developers to link projects even in prosperous urban areas to pockets of high unemployment to qualify for the smaller amount.
As the EB-5 program has grown, so has the potential for fraud. The SEC filed five EB-5 fraud cases last year and a handful more this year. Several cases have ties to Southern California, a hub for investment from China, where the EB-5 program is particularly popular. For the 12 months that ended in September 2015, Chinese citizens accounted for nearly 84% of U.S. visas obtained through the program.
Last year, the SEC sued a Redlands doctor for fraud, saying he and an associate misspent half of the $20 million they raised from Chinese investors hoping for U.S. residency. In June, the agency sued an Orange County couple, saying they misappropriated millions of dollars that were supposed to build a cancer treatment center.
In 2014, the SEC filed civil fraud charges against Los Angeles immigration attorney Justin Moongyu Lee, saying he took EB-5 money that was supposed to build biofuel plants in Texas and instead invested in a mining operation in the Philippines. The Justice Department filed criminal fraud charges, though the case has not moved forward because Lee is serving a prison sentence in South Korea.