Thursday, April 30, 2015

Atlantic Yards, Pacific Park, and the Culture of Cheating

I offer a framework to analyze and evaluate Atlantic Yards (in August 2014 rebranded as Pacific Park Brooklyn) and the Barclays Center: Atlantic Yards, Pacific Park, and the Culture of Cheating.

Note: this post is post-dated to remain at the top of the page. Please send tips to the email address above, rather than posting a comment here.

model shown to potential immigrant investors in China in 2014,
though not shown publicly in Brooklyn.

Saturday, April 25, 2015

As NHL Commissioner questions Nassau Coliseum likelihood for Islanders stint, transcript shows Yormark misleadingly said question would be resolved last year

National Hockey League Commissioner Gary Bettman, apparently spooked by previous plans to revamp/replace the Nassau Coliseum that ran aground, yesterday said "I'm not sure it's fair to give the fans -- even the people who live in Nassau County -- any hope that something's coming next,"
according to Newsday's Jim Baumbach.

"I'm not going to engage with Nassau politicians on any of that," Bettman said. "They, at least to this point, they've had their time to do what has to be done. If something else materializes, you know, we can all deal with it at the time. But I'm not focused on anything going on because the track record is terrible."

Nassau County Executive Ed Mangano, noting the planned renovations led by Barclays Center developer Bruce Ratner, countered,: "I believe that if Mr. Bettman likes the Barclays Center, he will similarly like the renovated Nassau Veterans Memorial Coliseum."

I think it's certain that the Nassau Coliseum will be renovated. More in question is whether Ratner's promise that the Islanders will play two exhibition games and four regular-season games there each year. 

As Bettman noted, it's too early to ask for or grant permission, nor would he speculate on whether it would be approved.

The 2013 discussion, and a misleading promise

Barclays Center CEO Brett Yormark expressed near-certainty about the six-game stint at a 9/23/13 Nassau Legislature hearing, as shown in the transcript at right.

Legislator Delia DeRiggi-Whitton stated: "There's a letter that I have a copy of from [then Islanders owner] Mr. [Charles] Wang which is dated June 6th which just states that he is ready to commit to the six Islander games annually at the Coliseum subject to the NHL approval. Do you know if we were able to obtain that approval?"

Ratner responded that it had not yet been proposed, and Yormark seconded that.

"We feel very confident that the Dolans [Rangers owners] are going to want hockey back here," Yormark said. "They're good citizens from Long Island and we've got to give them more credit than thinking that they won't allow it to happen. So between the NHL and the Dolans, we think we'll get that done for sure."

"But as of right now we don't have a firm commitment on the six games yet?" DeRiggi-Whitton asked.

"We don't and we didn't expect to have it now," Yormark responded. "We expected it to be an ongoing process over the next couple of months." That meant by early 2014.

Actually, as we now know, that process could not launch until the Coliseum gets renovated.

As Newsday reported, if the Islanders don't play in Nassau, the contract would require Ratner to pay Nassau County $1 million more each year in rent--apparently the expected revenue.

Friday, April 24, 2015

As EB-5 regional center program faces renewal vote, questions of reform (or should it just be killed)

I'm catching up on a lot of news related to the EB-5 program, which has helped the developers of Atlantic Yards/Pacific Park raise $477 million in cheap capital, with another $100 million to go. Perhaps the clearest summary of the lure and sketchiness of the program came in a February 2012 quote from an EB-5 fundraiser to The Daily:“It’s just a way of being able to get free money, basically, to build all sorts of projects.”

Source: Brookings Institution, February 2013.
The number is now 646!
Numerous real estate developers and other entrepreneurs have figured out that the path to cheap capital is the EB-5 program, particularly via regional centers, private (in almost all cases) investment pools federally authorized to raise funds overseas.

They compete especially in China, where millionaires eager to get their children into American schools or to get a stable foothold in the United States prize getting the green card and are willing to accept low interest rates. 

Meanwhile, regional centers can count temporary construction jobs as part of the required ten jobs per $500,000 investment, and can calculate the jobs based not merely on the immigrants' funds but the entire project budget.

No wonder the number of regional centers has boomed, from a mere handful as of 2007 up to more than 200 by February 2013 and now an astonishing 646. They're competing for only 10,000 visas under EB-5, so many of them are dormant--or waiting for an expansion of the program.

Given the enormous profit potential--the regional centers can charge fees to the investors and keep a portion of the interest rate spread--backers are keen to maintain the advantage.

Renewal pending

The enormously popular regional center component of EB-5 is technically a pilot, having been renewed every three years. It expires on September 30, 2015, and it faces questions over its renewal and the terms thereof, such as raising the minimum investment from $500,000 to $800,000--which still may be too low.

Defenders of the program say that the problems with EB-5 are the result of a few bad apples. But some federal reports criticize the fundamental design of the program, including the inability to truly count jobs--which can be credited to an economist's estimate--and the abuse of Targeted Employment Areas (TEAs), which are supposed to define an area of high unemployment but are often gerrymandered.

As I've written, some of that is in the hands of EB-5 skeptic Sen. Charles Grassley (R-IA), who seems most concerned about national security issues.

To some degree the legislation should be shaped by upcoming reports by the Government Accountability Office, the Securities and Exchange Commission, and the Department of Commerce.

Three that didn't pass

On 8/13/14, EB Investors Magazine reported on four bills affecting EB-5, none of which passed last year.

The Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744), the Senate immigration bill, passed the Senate but not the House. An amendment from Sen. Patrick Leahy (D-VT), a huge supporter of EB-5, proposed "a myriad of reforms meant to streamline the program, but also protect against fraud and security concerns," according to the publication. It would have gently adjusted the minimum investment by the consumer price index.

Another immigration bill—the SKILLS Visa Act—didn't pass the House. It would have created a new category, EB-8, with 10,000 green cards (as described)  for "entrepreneurs who raise $500,000 (inflation-indexed) capital investment and create 5 U.S. jobs within 2 years." It would have tightened the definition of a TEA, not letting states gerrymander.

The very simple EB-5 Regional Center Extension Act didn't pass either, but it would have made the program permanent, with no reforms. Fun fact: the main sponsor was Rep. Aaron Schock (R-IL), who has since stepped down in a bit of a scandal.

The main bill pending

The American Entrepreneurship and Investment Act of 2014, introduced by Rep. Jared Polis (D-CO), didn't pass, but has been replaced by The American Entrepreneurship and Investment Act of 2015.

Yes, it would improve compliance with securities laws, and bar individuals convicted of certain crimes, including fraud, being part of regional centers, but it's mostly an industry wish list, since it would:
  • make the EB-5 regional center program permanent
  • let states designate TEAs (the 2014 version was more stringent)
  • set aside 5,000 visas for investors who invest in TEAs
  • speed processing and approval
  • require deference for all prior-approved documents
  • eliminating the per-country cap for visas, notably helping Chinese immigrants
  • allow the Department of Homeland Security to delegate evaluation of employment creation to the Department of Commerce
The 2015 version, unlike the 2014 version, does not require the investment to be adjusted upward for inflation, nor does it request allow up to four years (rather than two) to calculate job creation.

But presumably there will be more adjustments, and perhaps more bills.

Rep. Polis and the patriotic spirit

Polis wrote a sunnily unskeptical 8/11/4 op-ed in EB5 Investors magazine:
The individuals who come to the United States through EB-5 exemplify the American Dream.
By providing capital at a time when American financial institutions have been hesitant to lend, EB-5 investors are filling a crucial hole, helping to accelerate our economic recovery, creating jobs and spurring development. They are rebuilding Main Streets and refining our most advanced technologies. The individuals who come to the United States through EB-5 exemplify the American Dream. They have the option to go anywhere in the world, but they choose to come here. They want to be American. They want their children to be American. And they want to invest right here in America.
They choose to come here because we're selling residency cheap!

In January, Polis and Rep. Mark Amodei (R-NV) introduced the 2015 version of the bill. “This bi-partisan, pro-investment, pro-growth and pro-jobs bill is one piece of the legislative solution to reform legal immigration,” Amodei declared.

Last May, a group of more than 30 U.S. commercial, residential, hospitality, retail and other real estate organizations wrote a letter supporting the Polis/Amodei bill.

A contrary view


As I wrote in January 2014, Grassley released an internal memo from Homeland Security Investigations (HSI), the investigative arm of U.S. Immigration and Customs Enforcement, an agency within the Department of Homeland Security, which also houses USCIS.

HSI proposed major policy changes, including doubling the minimum investment amount from $500,00 to $1,000,000, and recommended that the program be limited to only active investors involved in managing and directing a business--again, a huge change, given that the program allows investors to live anywhere in the country.

It also recommended that "induced jobs"--resulting from workers' spending in the local economy--be eliminated from the job creation calculations. And it recommended that "the Regional Center Model be allowed to sunset, as HSI maintains there are no safeguards that can be put in place that will ensure the integrity of the RC model.”

HSI concluded, based on its own research, that it has has "reason to believe that the RCs [regional centers] are greatly exaggerating their indirect and induced job creation figures. By not having to provide evidence of jobs directly created, the RC inherently creates an opportunity for fraud, where the business goal can be initiating projects that give the appearance of creating job growth, with the sole intent to meet USCIS criteria rather than produce jobs."

New framing

EB-5 attorney Mona Shah, quoting Polis at a January 2015 conference, noted that the messaging around EB-5 is that it's about business, not immigration, and supports job creation. Thus, Shah wrote, "To support EB-5 is 'pro-business' and to support job creation. The notion of 'pro-business' will make some politicians in both parties more comfortable than saying 'pro-immigration.'

Polis wrote a 3/23/15 op-ed for Roll Call, headlined Bipartisan Immigration Program We Need to Pass Now:
Luckily, we have a program in place to help meet the needs of visionary entrepreneurs and developers: the EB-5 visa program. It’s one of the best ways we can attract foreign investments to support and grow our economy and create jobs for Americans. This innovative program was first created by Congress in 1990 to spur investments in the United States and it has been a critical tool since then to supplement our capital markets during the economic downturn.
Note the critical comment from Mohammed Shaikh, who recruits investors for EB-5 direct investment projects, thus a competitor with regional centers:
I'm a Certified Fraud Examiner and have an MBA in Accounting, and can state with 100% confidence that this bill needs to be blocked as regional centers not only violate securities laws to illegally market and sell their securities in China without first obtaining CSRC [China Securities Regulatory Commission] approval, but also go ahead and commit securities fraud by failing to disclose material facts to investors. They knowingly receive illegally laundered funds and actually engage in massive conflict of interest.
This bill does not do anything meaningful to protect EB-5 visa investors and ICE-HSI actually recommended that regional centers be shut down, while this bill is trying to permanently authorize the regional center program in the EB-5 visa category even though ICE has strongly recommended shutting down regional centers. See ICE memo at http://www.smartbusinessbroker...
Another industry perspective

On 9/18/13, Michael J. Petrucelli, a former acting director of USCIS, wrote an essay for Roll Call, EB-5 Investor Visa Program Needs Better Oversight, Regulation, supporting Leahy's bill,  which would "require stronger oversight and reporting, strengthen anti-fraud efforts and establish more flexible job creation methodologies."

Petrucelli also said "Congress should raise the qualification bar for EB-5 regional center applicants," "establish expedited processing for regional centers" with big projects, speed processing time, and "require that all existing and future EB-5 regional centers be fully compliant with applicable U.S. securities law and U.S. Securities and Exchange Commission regulation."

Those are reforms, but Petrucelli also agreed that Congress should defer to states on TEAs. "State and local governments need to be a part of this process, and they are better-positioned to know the situation on the ground than a federal level agency," he writes. (Alternatively, they are more likely to be captured by local interests.)

Should we be surprised that Petrucelli works in the EB-5 business?

Campaign contributions

I did a little checking, and it's unsurprising: Polis and other Congressional sponsors of EB-5 legislation like Rep. Bob Goodlatte (R-VA), have gotten regular contributions from EB-5 practitioners, notably regional center principals and attorneys.

Perhaps the largest contributor is Nicholas Mastroianni, subject of a critical Fortune profile, who just happens to be the guy behind the last two rounds of Atlantic Yards fundraising, as well as current Nassau Coliseum fundraising.


Here's another major contributor:

Thursday, April 23, 2015

After report charging favoritism in EB-5, industry advocates nervous of reforms; why shouldn't immigrant investment do more for the public?

I'm catching up on a lot of news related to the EB-5 program, which has helped the developers of Atlantic Yards/Pacific Park raise $477 million in cheap capital, with another $100 million to go. Perhaps the clearest summary of the lure and sketchiness of the program came in a February 2012 quote from an EB-5 fundraiser to The Daily:“It’s just a way of being able to get free money, basically, to build all sorts of projects.”

The political configuration regarding EB-5 is notable: there are numerous organized advocates, who get low-cost loans and earn profits, bringing investment to their locality, which understandably reels in local elected officials. Regular campaign contributions bolster such support.

Despite reasons to opposed EB-5 on fundamental levels--buying your way into the company doesn't sit right with many--or on instrumental ones--is our Rube Goldberg system effective, or should the money instead go to the government--there's little or no organized opposition.

However, the Department of Homeland Security Inspector General's report I described about political intervention in EB-5 has changed the equation, as Politico reported 4/15/15: Watchdog report spooks investor visa advocates.

The alternative headline could be "Watchdog report spooks investor visa profiteers."

You see, because Sen. Charles Grassley (R-IA) now heads the Senate Judiciary Committee, he could stall, kill, or put conditions on the reauthorization of the regional center component of the investor visa program. 

While immigrant investors can get green cards for themselves and their families by investing $500,000 directly in a job-creating enterprise, a huge majority instead choose to do so via regional centers, federally approved private (in nearly all cases) investment pools that can produce the required ten jobs per investor via an economist's report that also counts indirect jobs and is based on the entire pool of money in the project, not merely the immigrant investor funding.

It's a sweet deal.

"Political fodder"

Reported Politico:
"You’re hearing a lot about it and you’re going to hear a lot more, whether you like it or not," former USCIS [United States Citizenship and Immigration Services, which oversees EB-5] acting director Robert Divine said about the IG report Tuesday. "This thing is not going away. It is political fodder and it's unavoidable. It's too tempting for Republicans not to take advantage of the implications, the appearances in that document and suggest that a whole bunch of people on the other side are into giving each other political favors....The reality is there are Republicans who have gotten involved in EB-5 and sometimes those things didn't go all that well, and there'll be allegations back the other way.....And we'll be in the middle."
Divine addressed the issue as he spoke to hundreds of lawyers, investor recruiters, real estate developers and state and local government officials who play roles in the EB-5 program, which allows foreign investors to win green cards for themselves and their families by investing as little as $500,000 in a U.S. business or development project.
He's right that EB-5 is not a partisan issue. While the report focused on three projects connected to Democrats, numerous Republicans have sought political blessing if not favor for their EB-5 projects.

At the International Invest in the USA conference, Divine suggested that the reports of favoritism would close down access to the USCIS: "What really needs to happen is that everybody ought to get better access." Really?

As I commented on Politico, Divine is no mere ex-federal agency head. He's deeply embedded in the world of EB-5, representing them as a lawyer and as VP of the national trade group for regional centers.

Grassley's concerns

A spokesman for Grassley indicated concerns:
"Chairman Grassley is considering whether the EB-5 program should be extended," spokesman Taylor Foy said in a statement emailed to POLITICO, "If the program continues, it must have safeguards that ensure national security is not compromised and the job creating benefits of the program are realized. Any EB-5 reauthorization must include more stringent guidelines and reporting requirements that prevent abuse, address security concerns and provide a better understanding of how the program benefits our economy."
Politico, ever conscious of horse-race journalism, notes that, despite the IG's report and the fallout, "the EB-5 program has a strong base of support on Capitol Hill" and state and local officials. (The article noted two Republican and one Democratic representative who spoke at the conference.)

Exactly. Which is why journalism is needed to right the balance. The scandal is--as Michael Kinsley might put it--what's legal.

Potential changes

Politico notes that changes in the EB-5 program are expected, such as raising the minimum investment to $800,000--less than in other countries and surely not a deterrent to the fierce demand from China. 

A more interesting suggestion comes from former Pennsylvania Gov. Ed Rendell, a consultant to EB-5 firms, who denied he was seeking favors (as noted in the IG's report) and told the Washington Post:
"I think the EB-5 program should be changed where aliens are still able to get to the top of the green card list by investing in America, but those funds should be the ones to seed the infrastructure bank,” he said.
He would also like to see the program shifted from Homeland Security to the Commerce Department.
“It is an economic development program,” he said. “They [Homeland Security officials] have no understanding of economic development projects.”
Huge demand

Clearly, there's huge demand for EB-5 visas, which suggests they are priced way too low. Not only that, there are no age limits or language requirements.

CNN reported 4/15/15, U.S. runs out of investor visas again as Chinese flood program:
The United States has depleted its annual supply of EB-5 immigrant investor visas for the second year in a row after a huge wave of applications from rich Chinese.
The State Department has announced that starting in May, no more spots will be available to Chinese for the rest of the U.S. government's fiscal year, which ends Sept. 30.
Known as EB-5, the immigration program hands out green cards to foreigners who invest at least $500,000 and create 10 jobs in the U.S. The program, which caps the number of visas issued annually at 10,000, hit its annual limit for the first time last August.
This year, the program has reached the quota even earlier, reflecting the massive jump in demand among wealthy Chinese to move to the U.S., especially after Canada ended a similar program in 2014.
There are 13,000 pending applications, and the delay means that those with children approaching 21 face a risk when applications have delays. One main reason for leaving--along with going to a more stable society--is to get an American education for their children.

While in 2004, Chinese nationals accounted for 13% of EB-5 visas issued, last year the figure was 90%, according to CNN's analysis.

In March, the South China Morning Post reported, in More wealthy Chinese set to flood US investor visa scheme: think tank report, that the growth spurt was even more recent:
Mainland Chinese received 9,128 EB-5 investor immigrant visas last year, 46 per cent more than in 2013. Among the 10,692 investor visas the US issued last year, mainlanders received 85 per cent of them.
Attorney Mona Shah also pointed to the elimination of competitors' programs:
On January 15, 2015 the Hong Kong government announced its immigrant investor program was indefinitely suspended. After Canada terminated its federal immigrant investor program in early 2014, US eliminated another fierce competitor. Experts predict that about 40,000 potential investors from HK will transfer to the EB-5 Program. 
Raising the price

Slate's Jordan Weissman last year observed that because the investors mainly want a green card, "there’s a good chance they won’t be particularly careful with their investments." An alternative phrasing: there's a good chance they'll be vulnerable to deception. 

His suggestion:
So here’s a potential solution: Since so many foreigners—too many, in fact—are willing to pay good money for the right to live here, Washington should up the charge and use some of the extra profit to fund better oversight. Right now, applicants have to invest $500,000 in a high-unemployment area, or $1 million elsewhere, to qualify for the program. By the standards of today’s global rich, that’s nothing. Why not double it, or even triple it? Let supply-and-demand work its magic.
It's not just oversight that's needed. It's actually getting a public return.

More for the public

On 3/7/14, analyst David North, who works for an organization that would like less immigration--criticized as nativist but one of the few that seriously critiques EB-5--wrote The Economist Has a Good Idea that Could Net US $4 Billion-Plus a Year.

Modifying a UK proposal for raising the price of visas, he suggested the U.S. could charge eight times more. North's proposal: 
To modify this proposal for the American scene, where there is a ceiling of 10,000 visas (for both investors and family members, combined), I would suggest the following: The INA should be changed to allow no more than 1,000 immigrant investors (and families) thus producing about 3,000-3,500 admissions, a potential reduction of 6,500 or 7,000 a year, an important gain in itself. (At maximum, the current system brings $1.5 billion a year to the United States.)
The 1,000 immigrant visas would then be auctioned off with a reserve price of $4 million but with the winner paying a not-to-be-disclosed bonus above that....My suggestion is that the recipient should be the Social Security or Medicare trust funds, on the grounds that both need additional income and the politics of such a decision would be more attractive than simply putting the money in the Treasury.
Putting aside the issue of limiting the numbers, and recognizing the cost could vary, North's proposal makes sense because would eliminate all the middlemen--lawyers, regional center operators, migration agents--who make big money off the deal, and make it more likely the funds would serve the public interest.

A federal recommendation

As I wrote in January 2014, Grassley released an internal memo from Homeland Security Investigations (HSI), the investigative arm of U.S. Immigration and Customs Enforcement, an agency within the Department of Homeland Security, which also houses USCIS.

HSI proposed major policy changes, including doubling the minimum investment amount from $500,00 to $1,000,000, and recommended that the program be limited to only active investors involved in managing and directing a business--again, a huge change, given that the program allows investors to live anywhere in the country.

It also recommended that "induced jobs"--resulting from workers' spending in the local economy--be eliminated from the job creation calculations. And it recommended that  "the Regional Center Model be allowed to sunset, as HSI maintains there are no safeguards that can be put in place that will ensure the integrity of the RC model.”

HSI concluded, based on its own research, that it has has "reason to believe that the RCs [regional centers] are greatly exaggerating their indirect and induced job creation figures. By not having to provide evidence of jobs directly created, the RC inherently creates an opportunity for fraud, where the business goal can be initiating projects that give the appearance of creating job growth, with the sole intent to meet USCIS criteria rather than produce jobs."

The Brookings recommendation

A February 2014 research report from the centrist Brookings Institution noted the "complicated network of intermediaries with little regulatory oversight," the lack of coordination "between regional centers and local economic development agencies (EDAs), even though these entities often share similar goals and could develop mutually beneficial partnerships," and the lack of good data to evaluate EB-5.

I'd suggest that regional centers and local EDAs do not share similar goals in most cases.

Brooklyn suggested reforms to "help federal policymakers strengthen the utility of this tool and better accomplish the central goal of the program, which is to aid regional economic development, especially in distressed areas."

However, that goal is hardly firm, given the willingness to defer to gerrymandered Targeted Employment Areas, which give a break to projects--like Atlantic Yards--in relatively prosperous areas.

The reforms:
Designate an oversight role for the Department of Commerce to supervise the adjudication of regional centers, standardize data and methodology, and better monitor program impact.

Create incentives for partnerships between regional centers and EDAs, thus aligning similar goals in mutually beneficial arrangements. Regional centers and EDAs often possess complementary resources and can leverage more funding and reduce risk for investors.

Generate high-quality, multi-variable public data on regional centers to facilitate better evaluation of the program.
Brookings did not, however, suggest raising the entry fee.

Another centrist organization raises questions

The nonpartisan Migration Policy Institute issued a report 10/1/14, headlining its news release As New Countries Embrace Immigrant Investor Programs, Others Question Their Economic Benefits, MPI Report Finds:
The report, Selling Visas and Citizenship: Policy Questions from the Global Boom in Investor Immigration, examines the increasing mix of players and types of immigrant investor programs, their policy design, benefits and other considerations. During the past decade, the number of countries with immigrant investor programs has increased dramatically, and about half of all European Union member states now have dedicated routes. Demand has increased as well, with the U.S. EB-5 program, for example, nearing its annual cap of 10,000 visas this year for the first time, after two decades of relatively low uptake.
“Cash-for citizenship” policies have not been without controversy, however, as Malta experienced in 2013. Its plan to sell passports for 650,000 euros (later upped to 1.15 million euros in cash and investments) sparked an outcry in the country—as well as in Brussels, since a Malta passport grants immediate access to EU citizenship.
...The report explores the two primary models: (1) investment in private-sector assets, such as the business investment programs used in the United States, Singapore and the Netherlands, or the purchase of private property, as seen in Greece, Latvia, Portugal and Spain, and (2) providing funds to the government via non-refundable fees, low-interest loans or bonds, as occurs in the Caribbean as well as Australia, Malta and the United Kingdom.
The report argues that the clearest economic benefits come from programs that encourage cash payments to the government or national development funds, though it notes that these are the most controversial as they accentuate public concerns about whether it is appropriate to sell citizenship. Programs requiring private-sector investment—such as the U.S. EB-5 program—are promising in theory but raise some thorny compliance issues. In particular, the government may have little control over where and how the money is invested, as well as whether investments actually create the expected number of jobs.
(Emphasis added)

In other words, they're saying EB-5 is sketchy.

The MPI summarized some concerns:
Citing concerns over economic benefits, Canada earlier this year scrapped its federal program. And the United Kingdom’s Migration Advisory Committee has argued that the country is giving away residence rights in return for a government bond investment with no economic value. Australia, meanwhile, has adjusted its program to target investors who will make clearer economic contributions.

Wednesday, April 22, 2015

Lawyer: because "the heart" of EB-5 is job creation, it's fine for foreign (government) developers to trade U.S. green cards for cheap capital

I'm catching up on a lot of news related to the EB-5 program, which has helped the developers of Atlantic Yards/Pacific Park raise $477 million in cheap capital, with another $100 million to go. Perhaps the clearest summary of the lure and sketchiness of the program came in a February 2012 quote from an EB-5 fundraiser to The Daily:“It’s just a way of being able to get free money, basically, to build all sorts of projects.”

Does it make a difference if American entrepreneurs seeking cheap capital from immigrant investors (who want green cards) take on foreign partners, or even foreign-government owned partners?

I've suggested that, in the case of the Greenland Group and Atlantic Yards/Pacific Park, the situation sounds like something out of The Onion: the Chinese government--Greenland is majority owned by the government of Shanghai--would profit by marketing a precious national asset (U.S. green cards) to Chinese immigrants.

The purported justification is job creation, but that's very fuzzy.

The EB-5 industry, unsurprisingly, disagrees. EB-5 attorney Victor Shum on 1/15/15 wrote Welcome International Developers to the EB-5 Project Marketplace for EB5 INVESTORS MAGAZINE:
Over the past few years, international developers have entered the United States market and launched development projects that incorporate EB-5 funding as part of the project's capital stack. This past February, Shanghai-based Greenland Group broke ground on its mixed-use Metropolis project in downtown Los Angeles. And in Oakland, the Brooklyn Basin Project is a more recently announced joint venture between Signature Development Group of Oakland and Zarsion Holdings Group Co. Ltd of Beijing, China—both with EB-5 offerings.
Greenland, of course, is also using EB-5 for Atlantic Yards/Pacific Park along with Forest City Ratner, raising $249 million and now in the process of raising $100 million. (Forest City raised the first $228 million before its partnership with Greenland emerged.

A new boost?

Writes Shum:
As a result of this beneficial arrangement, many projects that have languished for years due to lack of funding are suddenly greenlighted for development. Communities that have long-suffered from a deficiency in domestic investment have the opportunity to become revitalized with foreign investor funds—only a small portion of which may expressly be from EB-5 investors. Judging by the number of trade missions made to China by local and state leaders seeking foreign direct investment for their communities, our elected officials would appear to agree.
He portrays it as a win-win, with the Chinese development groups "achieving portfolio diversification in the United States," while U.S.-based developers not only "gain access to cheaper capital" but also--as I've noted--gain "a strong local partner to market EB-5 investments in China."

It's more than that. It's enhancing developer profits, by substituting cheap capital for existing capital, substituting for bridge financing.

No formal bar

For investors, Shum notes, there's little difference between this and other EB-5 projects, since the same requirements and paperwork apply.

Shum notes that the federal agency overseeing the program, the United States Citizenship and Immigration Services (USCIS) "neither expressly nor implicitly precludes a foreign-owned company from participating in the EB-5 program, nor should they."

His rationale is that the "the heart of the EB-5 program is job creation in America for American workers." Based on that, the more players, the better. His conclusion:
Far from being a cause of concern, international developers investing money and developing U.S.-based projects is a vote of confidence in the United States. As Senator Patrick Leahy noted, "[a]t a time when so much American investment is incentivized off shore, isn’t it nice to see a government program [EB-5] that brings foreign investment onshore?"
Let me suggest another perspective. The heart of the EB-5 program is not job creation. The heart is selling visas cheap, providing profits for the developer/entrepreneur, and all the middlemen involved.

Yes, the Atlantic Yards EB-5 projects include public funding, and that is part of the sum used by an economist to magically calculate job creation.

If the heart actually were job creation, then there'd be a far more stringent way of measuring it, and--for example--immigrant investors wouldn't gain job-creation credit based on the entire pot of money, just their contribution. And maybe the government would require the investment be in government bonds, rather than allow a Rube Goldberg scheme in which the profits go to clever developers.

Leahy, a champion of EB-5, has gotten regular campaign contributions from the big EB-5 developer in Vermont.

Greenland on EB-5

As I wrote last November,  Crain's New York Business published an unsurprisingly gentle interview with I-Fei Chang, who leads Greenland USA, the U.S. arm of Greenland Holdings.

The closing passage:
What are your thoughts on the EB-5 program, which offers a U.S. visa to overseas investors?I think it's now become almost a conventional way [to raise capital] for large-scale developers in America. They utilize EB-5 because it is quick money, and it improves the employment rate. For the L.A. project and also Pacific Park, we used that method. EB-5 investors, especially some of the 2 million customers who already buy from us in China, know our brand. So they are very confident we will deliver.
As I wrote, it has become almost conventional because it's such a great deal. EB-5, however, does not "improve the employment rate." To quote Fortune:
A December 2013 study by the Department of Homeland Security’s inspector general found that the government “cannot demonstrate that the program is improving the U.S. economy and creating jobs for U.S. citizens.” A February 2014 paper by the Brookings-Rockefeller Project on State and Metropolitan Innovation concluded that “knowledge of the program’s true economic impact is elusive at best.”
There are two reasons for that. First, the government is exceedingly generous in its employment tally. It gives EB-5 investors credit for all the jobs theoretically spawned by a project even when EB-5 money represents only a sliver of its financing. Second, for many mainstream ventures, EB-5 money isn’t really creating jobs—it’s merely saving developers money for projects that would be financed anyway.
But Chang did affirm that a Chinese company has an edge in marketing an EB-5 project to Chinese investors.

Rosen, Kasirer, Ratner part of Observer's Political Power 50 list

The New York Observer’s Political Power 50 wisely excludes Gov. Andrew Cuomo and Mayor Bill de Blasio, two staunch Atlantic Yards supporters, as well as New York's two U.S. senators. (Senator Chuck Schumer is a big supporter.)

Still, along with numerous de Blasio aides and deputy mayors involved with Atlantic Yards in some ways, such as Emma Wolfe or Alicia Glen, it's notable how many of those listed have AY ties.

Consider in the top ten:
8. Jonathan Rosen, Co-Founder, BerlinRosen
The consulting firm he co-founded, BerlinRosen, serves as the mouthpiece of Mr. de Blasio’s political operation, and is tightly intertwined with the forces of progressive politics in New York City—from the Working Families Party to labor unions to Ms. Mark-Viverito to Attorney General Eric Schneiderman. But his client list also includes some of the biggest real estate firms in city, like Two Trees and Forest City Ratner. His wife, Debbie, served as deputy chief of staff to the indicted Mr. Silver and now works under the city’s budget director, Dean Fuleihan. His relationship with the mayor is raising eyebrows and questions among some advocates about the largely unregulated interactions between consultants and government.
Indeed, the relationship is raising eyebrows.

A top lobbyist

The second lobbyist, after John Banks of the Real Estate Board of New York (REBNY), works for Forest City, among many others:
28. Suri Kasirer, Founder, Kasirer Consulting
The founder of Kasirer Consulting has been the city’s best-paid lobbyist for nearly a decade. A Democrat married to Bruce Teitelbaum, former Mayor Rudolph Giuliani’s chief-of-staff, Ms. Kasirer is known as both an effective advocate-for-hire for real estate interests and as a fundraiser for Hillary Clinton’s 2008 presidential effort, former Comptroller William Thompson’s 2009 mayoral campaign and Mr. de Blasio’s 2013 bid for City Hall. She also sits on the ABNY [Association for a Better New York] steering committee.
Among the moguls

Two real estate moguls, William Rudin (23), Chairman, Association for a Better New York, and Rob Speyer (25), President, Co-CEO, Tishman Speyer and Chairperson, REBNY, are listed at least in part because of their industry group affiliations.

The first real estate mogul outright is Hudson Yards developer Stephen Ross (26), Chairman, Related Companies, who "worked hand-in-hand with [Deputy Mayor] Ms. [Alicia] Glen and [City Planning Chairman] Mr. [Carl] Weisbrod in coming up with an equation for below-market units in Related’s massive Hunter’s Point South development in Queens."

Below market but mostly middle-income, actually.

Then comes the Atlantic Yards developer:
37. Bruce Ratner, Founder, Forest City Ratner
The controversial stadium he erected in Brooklyn won’t host next year’s Democratic Party convention, but the Forest City Ratner founder remains a major player on the city’s political scene. One of Mr. de Blasio’s closest friends and fundraisers in the real estate community, with ties stretching back to the latter’s days in the City Council, Mr. Ratner recently saw the mayor install one of his company’s vice presidents on the Rent Guidelines Board—which controls price increases on the city’s roughly 1 million stabilized apartments.
There are lots of reasons to include Ratner, but the VP on the Rent Guidelines Board, I think, is fairly minor.

Just below top 50

Among the runners-up:
Bertha Lewis, Founder and President of The Black Institute
Ms. Lewis is a loud progressive with close ties to Mr. de Blasio—and she is unafraid to call him out when she feels he’s straying from the left wing that elected him.
Lewis of course is a partner with Forest City Ratner as signatory of the Community Benefits Agreement.

Tuesday, April 21, 2015

Never mind: despite declarative notice of overnight work (that didn't happen), ESD says not to take such notices as definitive

So, I asked last Friday, what happened to the plan to close Sixth Avenue near Atlantic Avenue for noisy overnight work the night before?

It did not happen, nor was a notice circulated explaining why.

"Notices are based on the work we anticipate will occur – they are not definitive projections," was the response I got from Empire State Development. "When a new date is selected, an updated notice is circulated."

That's questionable on two counts. First, it's true that the language of the two-week Construction Update is conditional, citing "anticipated upcoming construction activities."

But this work was also announced in a separate Community Notice (below), circulated just a few days before it was to happen, which used much more definitive language, as in "the contractor will be trenching..."

Also, while it's obviously appropriate to send a notice when a new date is selected, shouldn't the public--especially the neighbors--should be told immediately that the planned work didn't happen, and why? Otherwise the level of trust in such communication will drop.




The SEC, GAO, and Department of Commerce are looking into EB-5

I'm catching up on a lot of news related to the EB-5 program, which has helped the developers of Atlantic Yards/Pacific Park raise $477 million in cheap capital, with another $100 million to go. Perhaps the clearest summary of the lure and sketchiness of the program came in a February 2012 quote from an EB-5 fundraiser to The Daily:“It’s just a way of being able to get free money, basically, to build all sorts of projects.”

A blistering report up the report by the Department of Homeland Security's Inspector General is hardly the only evaluation planned of the EB-5 immigrant investor program, which provides green cards for investors and their families if they park $500,000 in an investment that purportedly creates ten jobs.

The regional center component of EB-5--the opportunity to make pooled investments rather than directly into a project--is set to expire on September 30, 2015, and before any vote on reauthorization, expect some more spotlight on EB-5.

The regional center component--enormously popular, because investors can count indirect jobs--has been officially a pilot program, renewed every three years. Advocates want to make it permanent, with minor reforms. Others seek more significant reforms. And others may want to abolish it.

As I wrote in January 2014, in December 2013, Sen. Charles Grassley (R-IA) released an internal memo from Homeland Security Investigations (HSI), the investigative arm of U.S. Immigration and Customs Enforcement. The latter is an agency within the Department of Homeland Security, which also houses United States Citizenship and Immigration Services (USCIS), which oversees the EB-5 program.

HSI proposed "the Regional Center Model be allowed to sunset, as HSI maintains there are no safeguards that can be put in place that will ensure the integrity of the RC model.”

SEC crackdown coming

Bloomberg reported 2/13/15 SEC to Target Deals Giving Visas to Rich Foreign Investors
The SEC is preparing sanctions against as many as two dozen immigration lawyers, people familiar with the matter said, for collecting deal fees from foreign investors trying to access the EB-5 visa program, which grants U.S. residency for $500,000 investments that create 10 jobs.
The lawyers were prohibited from earning transaction fees because they weren’t registered as brokers, according to the people, who asked not to be named because the investigations aren’t public.
And instead of quoting an industry cheerleader, which is typical with most reporting, Bloomberg found a skeptic:
“It’s not been demonstrated that it does much to create jobs, it’s given rise to a lot of questionable schemes, and it’s very complicated,” said David Martin, a law professor at the University of Virginia who has served as general counsel to the Immigration and Naturalization Service.
An investor alert

The SEC on 10/913 issued Investor Alert: Investment Scams Exploit Immigrant Investor Program
The U.S. Securities and Exchange Commission's ("SEC") Office of Investor Education and Advocacy and U.S. Citizenship and Immigration Services ("USCIS") are aware of investment scams targeting foreign nationals who seek to become permanent lawful U.S. residents through the Immigrant Investor Program ("EB-5"). In close coordination with USCIS, which administers the EB-5 program, the SEC has taken emergency enforcement action to stop allegedly fraudulent securities offerings made through EB-5.
The announcement stated:
The SEC and USCIS are aware of attempts to misuse the EB-5 program as a means to carry out fraudulent securities offerings. In a recent case, SEC v. Marco A. Ramirez, et al., the SEC and USCIS worked together to stop an alleged investment scam in which the SEC claims that the defendants, including the USA Now regional center, falsely promised investors a 5% return on their investment and an opportunity to obtain an EB-5 visa.
In another case, SEC v. A Chicago Convention Center, et al., the SEC and USCIS coordinated to halt an alleged $156 million investment fraud. The SEC alleged that an individual and his companies used false and misleading information to solicit investors in the "World's First Zero Carbon Emission Platinum LEED certified" hotel and conference center in Chicago, including falsely claiming that the business had acquired all necessary building permits and that the project was backed by several major hotel chains. 
The GAO audit

Also coming is an audit from the Government Accountability Office (GAO), which in November 2014 began reviewing EB-5 at the request of three Republican Senators, including Grassley.

The Seattle Times reported 12/10/14 that the audit will not only look at episodes of fraud, but two two significant vulnerabilities, at least to EB-5 critics: the economic models used to estimate job creation, as well as program’s overall economic impact.

EB-5 has been big in Seattle, and reporter Sanjay Bhatt got a typical self-serving quote from someone who has done very well by EB-5. “This is the only government program that doesn’t cost the taxpayer anything,” said Henry Liebman, CEO of American Life.

That of course ignores the notion of opportunity cost--that a different structure, in which the profits from selling visas went to the public instead of entrepreneurs who can get rely on fuzzy job creation statistics, might be a much better bang for the buck.

Liebman, interestingly enough, said EB-5 funds speculative development. If EB-5 money were truly seed money to get projects off the ground, maybe. But in the case of Atlantic Yards, it's margin for the developer.

The Department of Commerce

It's odd that EB-5, which is more about economic development than immigration in some ways, is under the supervision of USCIS.

In a February 2014 report, the Brookings Institution recommended that the Department of Commerce "supervise the adjudication of regional centers, standardize data and methodology, and better monitor program impact."

The Seattle Times also noted that the  Department of Commerce is studying the economic impact of EB-5. So another report will emerge before the regional center component of the EB-5 will be up for reauthorization.

Some advice

The SEC offers a list of steps potential investors should take, which aren't necessarily easy for people in another country who don't read or speak English well. In fact, the questions are so at odds with EB-5 marketing--as shown in the Atlantic Yards example--that the SEC could and should have a field day cracking down on such marketing.

Some excerpts:
Obtain copies of documents provided to USCIS.
Request investment information in writing. Ask for a copy of the investment offering memorandum or private placement memorandum from the issuer. Examine it carefully and research similar projects in evaluating the proposal.
Ask if promoters are being paid. If there are supposedly unaffiliated consultants, lawyers, or agencies recommending or endorsing the investment, ask how much money or what type of benefits they expect to receive in connection with recommending the investment.
Seek independent verification. Confirm whether claims made about the investment are true. For example, if the investment involves construction of commercial real estate, check county records to see if the issuer has obtained the proper permits and whether state and local property tax assessments correspond with the values the regional center attributes to the property.
Look for warning signs of fraud. Beware if you spot any of these hallmarks of fraud:
Promises of a visa or becoming a lawful permanent resident. Investing through EB-5 makes you eligible to apply for a conditional visa, but there is no guarantee that USCIS will grant you a conditional visa or subsequently remove the conditions on your lawful permanent residency. USCIS carefully reviews each case and denies cases where eligibility rules are not met. Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.
Guaranteed investment returns or no investment risk. Money invested through EB-5 must be at risk for the purpose of generating a return. If you are guaranteed investment returns or told you will get back a portion of the money you invested, be suspicious.
Unregistered investments. Even though a regional center may be designated as a regional center by USCIS, most new commercial enterprise investment opportunities offered through regional centers are not registered with the SEC or any state regulator. When an offering is unregistered, the issuer may not provide investors with access to key information about the company's management, products, services, and finances that registration requires. In such circumstances, investors should obtain additional information about the company to help ensure that the investment opportunity is bona fide.
Unlicensed sellers. Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or registered. Designation as a regional center does not satisfy this requirement. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms.
(Emphases added)

As I reported in December 2010, a promoter of the first Atlantic Yards EB-5 investment, on video, claimed that "all of the immigration risk [was] out of the process."

Post: Greenland wouldn't sign Atlantic Yards deal without meeting Bloomberg (hence the photo)

There's an interesting nugget in Lois Weiss's New York Post article today, REBNY, set, go: The Most Ingenious Deal of the Year nominees, regarding the nomination of the Forest City Ratner deal with the Greenland Group for 70% of Atlantic Yards (excepting the arena and B2 tower), later renamed Pacific Park.

It's not exactly news that the CBRE brokerage team used the Kowloon section of Hong Kong to explain Brooklyn to the Chinese buyers, since that was explained in a Real Estate Weekly interview with CBRE's Marcella Fasulo in March.

“We only took the asset out to a very limited audience," Fasulo said. "We approached Greenland, and within a couple of days they were planning a trip to New York City.”

It is news that, as Weiss writes, "[w]ith no word for 'joint venture' in Mandarin, the brokers also had to devise an alternate, corporate-like deal structure with a board of directors."

Meeting with Bloomberg

And this is news:
Greenland’s top US executive and later its head of global development visited and approved. But Zhang Yuliang, Greenland’s chairman and president, would not sign the “Memorandum of Understanding” without meeting then Mayor Michael Bloomberg. The CBRE team arranged a City Hall meeting in 2014 and the MOU was signed.
That explains the photo at right taken in October 2013, posted on Greenland's web page for news releases but not by the mayor's office, as I wrote last June.

Nine days before Forest City and Greenland announced the memorandum of understanding, the mayor met in his office with Zhang, as well as Deputy Mayor Robert Steel and Borough President Marty Markowitz.

According to a crude Google translation of the 10/11/13 news release, Bloomberg "pointed out that New York City will be their help to solve the various problems encountered in the Green Group in the United States investment process, coordinating parties to provide more convenient conditions and quality service for Greenland Group, strive for the early realization of cooperation expected results."

As noted in coverage of the EB-5 immigrant investor program, Chinese investors like to be reassured by the role of government in a project, however spurious. In this case, the role of government is significant.

Bloomberg, of course, could not guarantee government assistance to the project over the term of its buildout. However, he could stress the importance of cooperation. And the photo with Bloomberg--he's somber, Zhang looks enthused--certainly added to Greenland's cachet in its effort to grow globally.

Monday, April 20, 2015

Next Atlantic Yards Community Update Meeting postponed to May 12

The ESD Atlantic Yards Team sent a message confirming that, with all of two days' notice, the  next Atlantic Yards Community Update Meeting is being postponed three weeks "to ensure the most up to date information is share [sic] with the community." (I cited the likelihood last Friday.)

(If they want to share the most up-to-date information, a first step would be to explain now why the night work promised for last Thursday didn't happen, and when it will be done. I just requested info.)

The message:
The April 22nd Atlantic Yards Community Update Meeting (formerly known as Quality of Life) is being rescheduled for Tuesday, May 12th. We are rescheduling the Community meeting to ensure the most up to date information is share with the community. Just as a reminder all meetings will take place at: Just as a reminder all meetings will take place at:
@ 6:00 PM
Shirley Chisholm State Office Building
55 Hanson Place, 1st Floor Conference Room
Brooklyn NY 11217


The EB-5 scandals bubble up, from Nightline to Inspector General; fed official claimed "nothing is more important" than job creation (sure)

I'm catching up on a lot of news related to the EB-5 program, which has helped the developers of Atlantic Yards/Pacific Park raise $477 million in cheap capital, with another $100 million to go. Perhaps the clearest summary of the lure and sketchiness of the program came in a February 2012 quote from an EB-5 fundraiser to The Daily:“It’s just a way of being able to get free money, basically, to build all sorts of projects.”

ABC's Brian Ross and Matthew Mosk have been breaking news about EB-5, the immigrant investor program, and has found numerous examples of sketchy operations, raising questions about crime and national national security.

And their investigation has since been backed up by a blistering report from the Inspector General (IG) of the Department of Homeland Security (DHS), which houses the United States Citizenship and Immigration Services (USCIS), the agency that oversees EB-5, in which immigrant investors can get green cards for themselves and their families by investing $500,000 in a purportedly job-creating investment.

The IG concluded--after interviewing numerous whistleblowers inside USCIS--that Alejandro Mayorkas, then-Director of USCIS and current Deputy Secretary of the DHS--intervened in three cases involving politically prominent promoters of EB-5 investments and steered a favorable outcome.

What was missing

Neither the ABC reporting nor the IG's report, however, challenge the routine evasion of the law's intent, which (in part) is to stimulate jobs in areas of high unemployment (or rural areas).

That means developers can get state agencies to gerrymander maps--like the Bed-Stuy Boomerang I've described regarding the Atlantic Yards EB-5 project--to ensure that an EB-5 investment qualifies for a Targeted Employment Area (TEA).

And it means that the economists hired to calculate job creation can base that figure not merely on the sum invested by immigrant investors but on the whole pot of money in the project, which can include taxpayer subsidies.

That might make sense if the contribution by immigrant investors truly serves as seed money. But in cases, as in the Atlantic Yards example, it simply substitutes for a higher-interest loan.


The investigation

A package ABC produced in February, The $500,000 Green Card, suggested that the EB-5 program was "one being aggressively marketed to wealthy foreigners, and one that whistleblowers say is being exploited by criminals, spies, and possibly even terrorists."

Notably, ABC found numerous governmental sources to express dismay:
The federal official who oversaw the growth of the program, Deputy Homeland Security Secretary Alejandro Mayorkas, told lawmakers last year that any weaknesses in the program have been tightened. But whistleblowers told ABC News that little has changed since concerns were raised about visa applicants being approved despite being suspected of fraud, money laundering, and in one instance, possible involvement in selling child pornography.

Mayorkas declined requests for an interview for this report, and when ABC News caught up with him, he ignored the cameras and questions altogether.
....Documents obtained by ABC News show that U.S officials had undertaken an investigation of a southern California shipping company, American Logistics International, and its Iranian-born owner, Alireza Mahdavi, for possible illegal shipments to Iran. Even as the investigation was underway, the company was re-certified by U.S. immigration officials as an EB-5 regional center, which entitles it to recruit foreign investors with the promise of a visa, and potentially, a Green Card. The company has raised millions of dollars from foreign investors, many from Iran.
Senator Charles Grassley (R-IA), the chairman of the Senate Judiciary Committee, expressed concern about the national security aspects of the program. ABC reviewed a report that indicated that more than 30 EB-5 "projects had at some point become the subject of a criminal investigation."

Advocates, however, point to a few bad apples. ABC reported on the positive side:
Investment from EB-5 applicants has helped finance the construction of a New York sports arena and a Vermont ski resort and water park, help provide financing for a Hollywood movie studio, and even finance the construction of the FBI office building in San Diego.
Actually, that part about the arena isn't true. (The video here actually showed the arena.) So ABC offered backhanded endorsement of the EB-5 investment in Atlantic Yards, which is hugely dubious.

(Elements of this story were broken by the Washington Times in November 2013, as far as I can tell, and was based at least in part by revelations by Sen. Charles Grassley (R-IA), the ranking Republican on the Judiciary Committee.)

Bi-partisan support

A 2/3/15 ABC piece, Whistleblowers: US Gave Visas to Suspected Forgers, Fraudsters, Criminals, reported:
Five different Homeland Security whistleblowers spoke with ABC News about a range of cases where visas were approved despite numerous red flags. They said objections were often ignored because the immigration program is so popular within the Obama Administration and with members of Congress from both parties.
It's got bipartisan support because elected officials like to offer local developers/entrepreneurs cheap capital at no seeming public costs.

But why is it so popular within the Obama Administration, or within any presidential administration? They represent the national interest.

If they acted wisely, they'd recognize that a different program--say, one in which the investment goes to the government--would serve the public interest rather than one that favors entrepreneurs who are willing to push the envelope or lie in marketing the project.

Selling green cards?

It's interesting that ABC could find someone to offer the bedrock criticism of the program, reporting:
Some immigration groups have criticized the program as “nothing more than selling Green Cards.” Brent Wilkes, the executive director of the League of United Latin American Citizens, one of the largest Hispanic civil rights groups in the U.S. said it “short circuits” the immigration process, allowing foreign nationals “with enough cash” to leap ahead of legitimate applicants who lack the means.
Of course it's selling green cards.

But because other countries do it, it's likely the United States won't stop. The question then should be how and whether the public getts any value. As Dartmouth's John Vogel put it:
One of the oddities about the EB-5 program is that the U.S. government is giving out the green cards, but the entrepreneur who puts together the investment gets the money. This scheme seems inefficient and open to corruption. If our government really believes that it is a good idea to sell green cards, maybe we should drop the pretense that this is a job creation program. It might be more efficient to have the money go directly to the U.S. Treasury and reduce the deficit by billions of dollars a year. In fact, the U.S. government could auction off these green cards and perhaps raise even more money.
The industry spin

ABC quoted Peter Joseph of the trade group Association to Invest in the USA:
Joseph noted the program is now so popular that the 10,000 visas allotted in 2014 for EB-5 investors were claimed in a matter of months, and he is lobbying for its expansion. The money has paid for popular projects -- a Brooklyn basketball arena, a California winery, a Vermont ski lodge, even a Hollywood movie studio – that have supported an estimated 42,000 jobs.

“It's a win for the investor, who's seeking to get an immigration benefit, along with a return on their investment, along with the American worker who's able to get to work, thanks to the capital investment coming through the program,” Joseph said.
That's tired rhetoric. How about: it's a win for the developer, especially since those jobs figures are so fuzzy.

Other controversies

ABC pointed to several EB-5 controversies, involving then-Virginia gubernatorial candidate Terry McAuliffe, former South Dakota Governor (and then Senate candidate) Mike Rounds, and Nevada Sen. Harry Reid's intervention in a Las Vegas hotel project, prompting the USCIS to reverse its position.

In another piece, Feds Investigating Iran Ties to Firm Involved in US Visa Program, Ross and Mosk reported on American Logistics, a Los Angeles shipping firm, and its Iranian-born owner, stating that a confidential Department of Homeland Security document warned that the EB-5 program might be used by Iran “to infiltrate the United States.”

In another report, The $500,000 Green Card: Obama, Clinton Kin Courted By Foreign Middlemen, ABC reported how big names were recruited to promote EB-5:
Hillary Clinton’s brother is involved. So are powerful California politician Willie Brown and Chicago political boss Richard M. Daley. One firm that helps wealthy Chinese gain access to the little-known immigration program even tried to recruit President Obama’s half-brother, Mark Obama-Ndesandjo.
In New York, of course, some elected officials or former officials have been involved, including former Gov. David Paterson and Sen. John Sampson.

The industry response

Responding in the Huffington Post, Ali Jahangiri, CEO and Publisher, EB5 Investors Magazine, wrote 2/13/15, 'Nightline' Misunderstands Fundamental EB-5 Program Functions and Safety:
Most pointedly, the article misunderstands how the EB-5 program works. The article alleges that immigrant investors "can jump to the front of the line and obtain legal status to live in the U.S. for two years." This implies that immigrant investors take visas and a place in "line" from other immigrants who do not have the financial means to utilize the EB-5 program. This is simply inaccurate. Each visa category is distinct and separate from other categories, so the assertion that EB-5 applicants "leap ahead of legitimate applicants who lack the means," is simply not true. 
He's right, but also not quite the full story. EB-5 applicants leap ahead simply because they're wealthy, and can show their money is legit and have found an investment that purports to create ten jobs. That doesn't ring right.

More importantly, many EB-5 applicants leap ahead of other potential immigrant investors who might actually invest in creating jobs.

As to whether "the program has become a magnet for those seeking to sidestep the scrutiny of the traditional immigration process," Jahangiri is right that there are checks and protocols. But the Nightline report aired significant in-house dismay about management.

Janangiri blamed it on a few bad apples:
As with any governing body, fraud typically stems from individuals, not the system, and the EB-5 program is no more systematically prone to exploitation than any other visa program. The program is not perfect, but the overwhelming evidence shows that right now, it is working.
And he suggested legislation would improve it:
That being said, there are several pieces of legislation in the pipeline that would drastically improve it. The most notable bill is the American Entrepreneurship and Investment Act of 2015, co-authored by Congressmen Jared Polis (D-CO 2nd District) and Mark Amodei (R-NV 2nd District). The bi-partisan bill would make the regional center program permanent, and also set more rigorous standards for regional center operators and administrators. Legislation like Congressmen Polis' and Amodei's bill makes the program more secure and efficient, and would drive more money into the American economy and create more jobs for American workers.
Other than setting some new standards regarding those involved in regional centers--a rather modest lift--the bill is an industry wish list. It endorses gerrymandering and does nothing about the job-counting issue.

The report on Mayorkas

ABC, naturally, had a field day in late March when the IG's report was issued, in Top Homeland Official Alejandro Mayorkas Accused of Political Favoritism.  (Here's coverage in CNN, the Wall Street Journal, and the New York Times.)

The special treatment involved a Las Vegas casino project pushed by Sen. Harry Reid (D-NV), an electric car company run by Terry McAuliffe, a longtime Democratic fundraiser who's now governor of Virginia (and also involving Hillary Clinton's brother Tony Rodham), and a Sony film studio in Los Angeles promoted by former Pennsylvania Gov. Ed Rendell, another Democrat.

ABC noted that, when facing confirmation, Mayorkas previously told the Senate, "I have never, ever in my career exercised undue influence to [change] the outcome of a case."

That was contradicted by the IG's report, which found:
  • USCIS personnel, including Mr. Mayorkas, recognized the risks to the EB-5 program if benefits were granted without transparency and were not adjudicated according to statute, regulations, and existing USCIS policy governing EB-5 matters. USCIS therefore took pains to ensure all communications with stakeholders were properly documented and to ensure the process for deciding on petitions and applications closely followed statute, regulations, and established policy. Indeed, USCIS was obligated by law to follow the procedures set forth in the regulations. We found a number of instances in which Mr. Mayorkas declined to become involved in certain matters, stating that he did not think it would be appropriate for the Director to do so.
  • In three matters pending before USCIS, however, Mr. Mayorkas communicated with stakeholders on substantive issues, outside of the normal adjudicatory process, and intervened with the career USCIS staff in ways that benefited the stakeholders. In each of these three instances, but for Mr. Mayorkas’ intervention, the matter would have been decided differently.
  • We were unable to determine Mr. Mayorkas’ motives for his actions. In each instance he recollected, Mr. Mayorkas asserted that he intervened to improve the EB-5 process or to prevent error. As a result, he claimed that he took a hands-on approach when a case warranted his personal involvement. Mr. Mayorkas told us that his sole motivation for such involvement was to strengthen the integrity of the program; he said he had no interest in whether a particular application or petition was approved.
  • Regardless of Mr. Mayorkas’ motives, his intervention in these matters created significant resentment in USCIS. This resentment was not isolated to career staff adjudicating within the EB-5 program, but extended to senior managers and attorneys responsible for the broader USCIS mission and programs.
  • The juxtaposition of Mr. Mayorkas’ communication with external stakeholders on specific matters outside the normal procedures, coupled with favorable action that deviated from the regulatory scheme designed to ensure fairness and evenhandedness in adjudicating benefits, created an appearance of favoritism and special access.
"That so many individuals were willing to step forward and tell us what happened is evidence of deep resentment about Mr. Mayorkas’ actions related to the EB-5 program," the IG reported.

The complaints, the IG reported, went beyond Mayorkas's efforts to change the culture of USCIS, in which "he exhorted individuals to 'get to yes.'"

No new jobs

The IG's report notes that Mayorkas created a handpicked “deference review board” (DRB) to review Time Warner movie projects and reversed proposed denials of the EB-5 applications.

The report notes USCIS staff told the DRB in a teleconference that they disagreed with the deference decision. According to one adjudicator:
I explained to the review board that we did not feel that the project was creating new jobs, and that [LA Films IV] [was] just using the money to replace other funds available to Time Warner, including cash reserves and their $5 billion revolving credit facility with Citibank. So the EB-5 money was not really resulting in any new projects that would not have otherwise been produced in the absence of EB-5 capital.
That dubious use of lower-cost immigrant investor funds to replace existing funds is exactly what happened with Atlantic Yards, and when it replaces bridge financing, it's considered A-OK.

Regarding the electric car case, a participating summarized Mayorkas’ remarks:
The Director stated that he believes that nothing is more important to the United States at this time than the creation of jobs for U.S. workers. This will inform how he views every classification. So, if the regional center claims that it will create jobs for U.S. workers, he will read the statute and the [regulations] as generously as possible. For other classifications, such as H-1 B, where there are statutory provisions designed to ensure that U.S. workers are protected, he will read the statute and [regulations] more narrowly. The director noted several times that these cases are affiliated with "people of influence" and "people with money" and that he has several more of these on his radar. It seemed clear to me that since "people of influence" have raised other cases to him (or a higher authority at DHS or the White House), the AAO will be requested to defend our draft I-924 and EB-5 decisions to the Director in the future, prior to issuance. 
(Italics added by IG, bold added by AYR)

If nothing is more important than creating jobs, then maybe they should check to ensure that jobs are actually being created. (Mayorkas told the IG he did not remember making the statement about people with influence or money, and said it sounded “absurd.”)

The DHS response

Astonishingly, DHS Secretary Jeh C. Johnson issued a statement calling Mayorkas "an exceptionally conscientious, honest and patriotic public official" who "can at times be very hands-on in resolving issues" but "works hard to do the right thing."

Johnson acknowledged that involvement in "individual matters that happen to reach our desk [can] risk the appearance of preferential treatment,"  so he is now confident that Mayorkas "understands this." OK.

Indeed, Inspector General John Roth told Congress that, while Mayorkas violated his own code of behavior, as stated in a memo he'd prepared, there was no criminal activity, according to the Times.

The continued pressure

Johnson, in his statement, also noted that DHS officials "are constantly contacted by outsiders – including Members of Congress of both parties –on behalf of those with an interest in the outcome of a particular EB-5 case," which shows how those Congressional reps are influenced by the money back home.

Johnson said he was developing "a new protocol to ensure that the EB-5 program is free from the reality or perception of improper outside influence," and requests changes from Congress:
In the past, this Department has sought unsuccessfully from Congress a number of statutory enhancements to the program’s integrity, including added legal discretion to deny or revoke cases when necessary, authority to exclude people with criminal backgrounds from participating in EB-5 regional centers, and authority to require regional centers to certify compliance with our securities laws. The EB-5 regional center program is up for statutory renewal again this year. I urge Congress to work with the Department to strengthen the security and integrity of the program.
The latest scandal

The scandals just keep coming. On 4/13/15, ABC reported FBI Investigating Former White House Military Aide:
The FBI is investigating a former top military aide to three U.S. presidents and his firm over allegations it bilked foreign investors out of millions of dollars by touting his White House ties and making promises of quick U.S. Green Cards to raise funds for a giant hotel complex, ABC News has learned. Five years after an elaborate ground-breaking ceremony in New Orleans, there is only a vacant lot and investors say almost $16 million has disappeared.
The Noble Outreach project, let by retired Air Force Col. Timothy Milbrath, is among more than 30 EB-5 projects under some form of criminal investigation. In this case, there's a civil lawsuit filed against Milbrath's company by investors who claim the firm took their money but they didn't get green cards.

Given that EB-5 marketers like to play up ties to governmental bodies or public figures, it's not surprising that, according to ABC, Noble Outreach's promotional materials "flaunt[ed] Col. Milbrath’s White House ties and feature photos of him serving Presidents Ronald Reagan, George H.W. Bush and Bill Clinton as chief of staff to the White House Military Office."