Pair misspent millions from Chinese investors in EB-5 visa program, SEC says
For a dozen Chinese investors, the building at Martin Luther King Boulevard and Norton Avenue in Lynwood was supposed to be a ticket to the United States.
A Redlands doctor turned developer promised to use their combined $6 million to convert the former adult day-care center into a nursing home, one that would get the investors green cards through a federal program aimed at boosting foreign investment.
Instead, nearly two years after construction was supposed to be finished, the building remains a tattered shell, walls down to the studs, no windows or doors, and no sign of ongoing work.
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Now federal regulators say those and other investors were duped by physician Robert Yang and his associate, Claudia Kano of Pomona, who are accused of misspending funds raised through the EB-5 visa program.
The Securities and Exchange Commission has filed civil fraud charges against the pair and frozen their assets in the agency’s latest enforcement action involving the program, which has been swept up in controversy and scandal.
The SEC has filed five EB-5 fraud cases this year after filing just one in 2014 and two the year before.
“There’s been increasing SEC involvement. They’ve done more this year than in prior years combined. I would expect them to have more still,” said Michael Homeier, a Sherman Oaks attorney who works with developers using EB-5 investments to fund projects.
The 25-year-old program, which is coming up for reauthorization before Congress, allows foreign investors to gain permanent U.S. residency in exchange for investments that create American jobs, preferably in rural areas and neighborhoods with high unemployment.
But it has faced harsh criticism as a disproportionate amount of EB-5 funding has helped build hotels, pricey condos and other projects in affluent urban areas.
Some developers also have been accused of stretching the rules through contrived maps that connect wealthy and poor neighborhoods into one high-unemployment area. Projects in such areas offer green cards to investors who put in just $500,000, half of the regular $1-million minimum investment, a harder-to-raise sum.
The latest fraud case allegedly involves more run-of-the-mill investment fraud. The SEC declined to comment beyond the lawsuit and a news release about it. The lawsuit was filed last month against Yang, Kano and their business, Suncor Care Inc.
The lawsuit said the pair raised $20 million from 40 Chinese investors between late 2012 and April of last year.
The money would go toward building nursing homes in Fontana, Hesperia and Lynwood, with each investor putting money into a single location.
Instead, the pair misspent more than $10 million, in part by mingling funds and siphoning off money for personal use, the lawsuit said.
Yang is accused of spending more than $1 million to pay off loans from friends and family, to pay expenses for his medical practice and to buy property. About $3.5 million went to the “finder” who lined up the Chinese investors.
Typically, EB-5 investors pay a fee of about $50,000 on top of their original investment. Most of that fee goes to a licensed broker in their home country who connects the investors to U.S. developers, Homeier said.
In this case, investors paid $45,000, and then without their knowledge, Suncor gave the finder an additional 18% cut of each investor’s stake, according to the SEC. Such a cut would make the original investment too small to qualify for the EB-5 program.
Meanwhile, the nursing homes have not opened, a problem for the foreign investors who are required to show their investment created 10 jobs before qualifying for a green card.
Suncor told investors its nursing home in Fontana would be completed in 2012, followed by Hesperia in 2013 and Lynwood in 2014, according to the SEC’s suit.
Mark Hiraide, an attorney for Yang, Kano and Suncor, said his clients have been cooperating with the SEC and are working to put a receiver in charge of Suncor to temporarily run the business. He said continuing construction of the nursing homes was a priority.
He would not comment on specific SEC allegations but defended his clients’ actions.
“We’re confident that we’ll be able to demonstrate their characterization of the events is not a fair characterization,” he said.
Kano could not be reached for comment. Calls to Yang’s office in San Bernardino were not returned.
The allegations are similar to other EB-5 fraud cases filed by the SEC, which typically have accused developers of misusing money slated for one project for another, or for personal use.
Last year, the commission said a Los Angeles immigration attorney and his associates diverted money that was supposed to build an ethanol production plant in Kansas to a project in the Philippines.
This year, the SEC accused a Florida woman of using investors’ money to buy a boat and two luxury cars.
In August, it charged a Bellevue, Wash., developer with improperly spending millions of investors’ money, including making cash withdrawals at casinos.
“I’ve seen a lot of this stuff go on before I ever got involved in EB-5,” Homeier said. “There’s nothing different about the EB-5 program other than the thought that these investors are easier to snooker than Americans.”
The SEC suits are all civil, but criminal charges could follow in some cases.
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