A federal judge has halted plans to construct the "world's first zero-carbon-emission platinum LEED-certified" hotel and conference center in Chicago after a federal suit accused its developer of fraudulently selling more than $145 million in securities and $11 million in fees to foreign investors.
In a suit filed in February, the U.S. Securities and Exchange Commission alleges Anshoo Sethi, the Intercontinental Trust Center of Chicago and the Chicago Convention Center "perpetuated a large-scale investment scheme to exploit a federal visa program as a means to defraud investors seeking strong returns and a legal path to U.S. residency."
The suit accuses Sethi, 29, of using false documents to make the $735-million project more attractive to investors seeking U.S. EB-5 visas through U.S. Citizenship and Immigration Services. The USCIS program allows foreigners to qualify for legal permanent residency in the U.S. if they invest from $500,000 to $1 million in undertakings that create at least 10 U.S. jobs within two years.
Under the Immigration Act of 1990, EB-5s emerged as an alternative means to fund projects, many in the hospitality segment, after credit tightened in 2008.
The suit involving Sethi marks SEC's "first enforcement action involving EB-5s," says agency spokesman Kevin Callahan. "In addition to USCIS, the defendants defrauded more than 250 investors, most of them from China," he says.
"EB-5 fraud is extremely common, though rarely of this magnitude," says Michael Gibson, managing director of USA Advisors.org, a Tampa, Fla.-based enterprise that evaluates EB-5 offerings for foreign investors.
Gibson says USCIS-authorized regional centers—the private enterprises that accept and pool EB-5 investments—aren't subject to adequate oversight, nor are brokers who "receive commissions regardless of how a project turns out."
"The problem is, USCIS isn't a development expert," says Brian B. Su, CEO of Artisian Business Group, a Springfield, Ill.-based consultant specializing in EB-5s. "In recent years, it has had to slow its approvals of new regional centers. As likely as not, candidates may receive 'requests for evidence' to ensure the projects attached to their applications are solid. And the majority are. There are always going to be bad apples, I don't care what the enterprise is."