The Chicago Regional Center: A Lesson in Due Diligence

In the wake of the Security and Exchange Commission’s lawsuit against Anthoo R. Sethi, founder of the Chicago based EB-5 regional center who defrauded 250 foreign investors, many are now questioning the EB-5 program. What happened in Chicago on such a large scale, although unfortunate, was really an anomaly that has little to do with EB-5. EB-5, a program rounding out its twenty third year in existence, was not the problem. The problem was fraud, and EB-5 fraud, although it exists, can generally be avoided with a little due diligence and common sense.

Through two companies comprising the Chicago regional center, the Intercontinental Regional Center Trust of Chicago (IRCTC) and A Chicago Convention Center (ACCC), Sethi attracted 250 investors and $145 million with fraudulent documentation and lies. He offered an investment opportunity that violated the golden rule of investing: If it’s too good to be true, it probably is. The opportunity he sold to the foreign investors, was to be the “World’s First Zero Carbon Emission Platinum LEED certified” convention center, complete with top name hotels, bars, restaurants, and entertainment. The cost to each investor, aside from the required $500,000 or $1,000,000 minimum investment, was $41,500 in administrative fees. Sethi then essentially guaranteed the investment, promising investors a return of their entire investment if they did not receive green cards.

If eliminating much of the risk of the investment was not enough to raise a few eyebrows, a little due diligence on the part of investors would have revealed something fishy in the water. First, Sethi, a 29 year old, boasted 15 years of experience, which would have made him only 14 when he started. Sethi also told investors building permits for the site had already been approved. However, a search of the Chicago Building Permits database for the project address would have revealed that no such permits existed. Finally, the major hotels that were allegedly involved had no franchise agreements with Sethi. In fact, two of the hotels had terminated agreements with Sethi two years prior, a fact that likely could have been ascertained by contacting the hotel’s corporate office directly.

Ultimately, the takeaway from the Chicago incident is not that investors should avoid EB-5, but rather that, like any investment, EB-5 investments require due diligence. Many of the Chicago investors relied on the fact that the U.S. Citizenship and Immigration Services (USCIS) had initially approved the regional center. But USCIS approval is not due diligence. EB-5 investments must be made with the guidance of a team of competent U.S. counsel and business advisors to guide investors through the intricacies of the investment project and the immigration system, and ultimately to ask questions when red flags are raised. Furthermore, in light of Chicago, USCIS is likely to become much more strict in granting regional center and EB-5 visa approval—yet another reason good immigration counsel, specifically, is indispensable.