A couple of astonishing things happened last week in coverage of the EB-5 immigration visa program--green cards for investments--the dubious use of which I've investigated for months regarding Atlantic Yards, the controversial arena-plus-towers megaproject in Brooklyn.
(See my previous Huffington Post coverage, Green Cards for Sale? Atlantic Yards Backers Seek Chinese Investors and Anatomy of a Green Card Pitch: In China, Atlantic Yards Backers Rely on the Distraction of Basketball.)
Reuters, in "Special report: Overselling the American dream overseas," pointed to numerous problems in this essentially unregulated program, in which businesses and developers seeking cheap capital compete to recruit immigrant investors, who must park $500,000 in a purportedly job-creating investment in exchange for green cards for themselves and their families.
Many would-be immigrants don't get their green cards. Many don't get their money back. And many are misled by immigration brokers pimping the investment projects. And some of the regional centers--the federally-authorized investment pools that market the projects--are quite shady.
Brooklyn project under scrutiny
One poster child: the New York City Regional Center's (NYCRC) promotion of what they dub the Brooklyn Arena and Infrastructure project, an effort to raise $249 million for developer Forest City Ratner's $4.9 billion Atlantic Yards project, saving the developer perhaps $191 million.
- that investors need not worry about getting green cards
- that investors would be financing a new arena in Brooklyn for the National Basketball Association's Nets
- that the government of New York State is involved in the project being presented
In a subsequent interview with Reuters, George Olsen, managing principal of the New York City Regional Center acknowledged the claims were "not accurate" - the investors will finance the rebuilding of a rail yard and some related infrastructure near the new basketball court -- and promised he would jump on Kookmin "with two feet."
"But that's what's frustrating," Olsen said. "You can't be at every seminar, you can't be at every meeting, you can't be in the room when one of these people is talking. To raise $100 million, you have to get 200 investors. That's a lot of people. So there's a certain amount of mass marketing that has to go on.
- the questionable assertions regarding the safety of the NYCRC investment
- the questionable role of the law firm working for the NYCRC and investors
- the federal government's apparent unwillingness to police dubious claims of job creation
The deceptive statements highlighted by Reuters and explained away by Olsen have been made by the NYCRC's own principals in a project video, the audio of which I reproduce on my blog today.
And the same statements have been made by the NCYRC's point man in China, Gregg D. Hayden, during investment seminars and webcasts there, as I've described. (Here's an FAQ summarizing the series.)
It's on video, too. "The project itself involves three components," Hayden said (at 1:33) in a webcast produced by a Chinese immigration consultantcy, excerpted below. "The Brooklyn arena; the related infrastructure to the lands; and the redevelopment and expansion and upgrading of the [city's] third largest transportation hub, in Brooklyn, called the Atlantic Terminal."
"The first major advantage is that the approval process, from USCIS, having already been accomplished, takes all of the immigration risk out of the process for the EB-5 investor," Hayden claimed in a webcast (below) at 1:00. "[O]ur job creation, which is the focus of getting the condition removed in two years, is so extremely certain with this approval process from USCIS," he continued, at 4:25.
Reuters caught the NYCRC's agent in another deception, but let Olsen get away with excusing it:
The agent from Kookmin, for instance, said during the Seoul sales presentation that the government of New York state was involved in the rail yard project. Olsen said that claim was inaccurate as well.
But such claims get made over and over again -- especially outside the United States.
Actually, they've been made by the New York City Regional Center itself, which has promoted the role of city, state, and borough governments in the arena project.
The NYCRC was willing to pay travel expenses for Brooklyn Borough President Marty Markowitz to visit China. (Markowitz backed out but lied on tape for the NYCRC that "Brooklyn is 1,000 percent behind Atlantic Yards.")
In its own newsletter, the NYCRC stated:
The NYCRC is pleased to announce another project in conjunction with the governments of both the City of New York and State of New York.
The same claims were made in the video shown to potential investors, as well.
Regional centers frequently try to get local officials to accompany them, as potential investors, especially in countries like China, can be impressed by the suggestion of an official government role.
Eagerly cooperating, the Empire State Development Corporation, New York State's chief economic development agency, even paid to send Executive Director Peter Davidson to China, where he made astonishing claims about job creation for the arena project.
More misleading promotion
The page below left from the project brochure is headed "Government Support" (according to a translation I commissioned), with the first line stating, "Different levels of government agencies have already approved the key components of the project."
However, that refers to the overall Atlantic Yards project, given that the "Brooklyn Arena and Infrastructure Project" did not exist when government agencies considered the project.
The second page of the brochure states that the NYCRC, along with the city and state governments, "join hands together" to announce the project. Neither the city nor state government is a formal partner with the NYCRC in the project as presented to the Chinese investors. Each has made previously-funded subsidy commitments.
In the opening of an EB-5 event in Beijing, as shown on this video, Hayden saluted Chinese partners by saying, "For the State of New York, for the City of New York, and on behalf of all of us in New York, we appreciate your strong efforts." That also could leave the impression of partnership.
Later in that event, he said, "As you saw in the [official project] video, we have very generous support from the governmental agencies of New York City and New York State; specifically, in the video, you heard [Mayor] Michael Bloomberg talk about job creation and how important it is to New York City."
However, government agencies have not invested in the regional center, and Bloomberg was talking about job creation for the Atlantic Yards project as a whole.
Conflict of interest for lawyers?
The Reuters report also suggests that attorneys may face a conflict of interest:
Another big problem with the program: The attorneys the immigrants rely on as they navigate the EB-5 maze in the United States are often deeply conflicted, accepting commissions from the businesses they steer the immigrants to. It's a practice the lawyers do not always disclose and one that may violate U.S. securities laws.
I've tried to explore that issue regarding the role of the Ithaca, NY law firm Miller, Mayer, which represents the NYCRC as well as immigrant investors, and may be the leading firm in this narrow specialty. None of the lawyers there would respond to my queries, including Stephen Yale-Loehr, described by Reuters as "the unofficial dean of the EB-5 bar."
Think about it: if such a top law firm has behaved questionably--check out photos of Miller, Mayer attorneys at basketball-centric investor sessions, or a video of an attorney talking about "this very exciting NBA arena project"--then how much regarding EB-5 doesn't deserve scrutiny?
Yale-Loehr told Reuters, "No. 1, it's a win for the U.S. businesses that might not be able to finish a project but for foreign financing." At least for the Brooklyn arena, that's not the case, as a state official confirmed the arena's fully funded.
Reuters, which identified Yale-Loehr as an adjunct law professor at Cornell University Law School, did not cite his affiliation with Miller Mayer. While Yale-Loehr, unlike some of his colleagues, did not go on the NYCRC China trip, he appeared in a promotion (graphic below) by NYCRC affiliates touting the high-level personages associated with the project.
Much left to investigate, including security of investment
Reuters left readers with the sobering recognition that the two federal agencies that are supposed to oversee the EB-5 program--the U.S. Citizenship and Immigration Services (USCIS) and the U.S. Securities and Exchange Commission (SEC)--are falling down on the job.
They told Reuters they are unaware of any marketing abuses in the program. Maybe they're aware now, as Reuters documented several abuses.
But even Reuters didn't look at another aspect of the Atlantic Yards: the safety of the investment.
"The Brooklyn Arena and Infrastructure Project, your EB-5 investment program, is a $1.4 billion project," Hayden said at 2:58 of the first video excerpted above. "It involves a lot of government, over $740 million of government-related funding. The EB-5 funding, the $249 million we are seeking to raise in the China market, is only 17%, the safest, most secure portion of the capital structure, 17%... portion of the capital structure is the EB-5 portion."
That could leave the impression the capital structure is a series of loans, with the EB-5 portion the safest. Not so. The direct government subsidies have already been allocated. Investors buying $511 million in government-authorized bonds would certainly be repaid first, as those bonds were presented to rating agencies, with the rating based on expected cash flows from the arena.
No rating for the EB-5 debt has been announced, nor is it apparently secured by any specific cash flows. Rather, the collateral offered involves a mortgage on development rights to seven future towers on the development site.
The fundamental issue: job creation
Moreover, the Reuters series did not address one core issue raised in my series: whether immigrant investors deserve credit for job creation based on the entirety of the capital in the project, rather than just the funds they commit.
Reuters brushed over the issue, referring to the EB-5 program's "strict job creation requirements" and noting, "The only thing [the USCIS] checks is that the U.S. businesses receiving the money create the jobs they promise."
EB-5 investors must each create ten jobs for their $500,000 investments. If they invest through the growing number of regional centers, the job creation may be calculated via an economist's report, which applies a multiplier to the total amount invested.
(It doesn't look terribly stringent. See the Lake Buena Vista Resort Village & Spa in Orlando, FL, for an example of a project in which each investor gets 1.5 condos and preserves ten jobs, since the job requirements have already been fulfilled. Next up is a timeshare project.)
The problem in Brooklyn
In the case of the Brooklyn arena project, the NYCRC tells would-be investors that their $249 million would be combined with well more than $1 billion already committed by government and private investors. An economic report commissioned by the NYCRC thus calculated that 7,696 jobs, far more than the required 4,980 jobs, would be created by the overall $1.448 billion investment.
The USCIS has apparently vetted the NYCRC's overall job-creation methodology, but, as I've written, it does not look like the federal agency has looked carefully at how it would be applied regarding this project.
After all, it's plausible that EB-5 investors deserve credit for job creation based on the whole pot of money--as long as their investment serves as seed money or "last mile" funding, thus crucial to a project actually moving forward.
In this case, the Atlantic Yards project would go forward with or without EB-5 funding. The developer, Forest City Ratner, has signed completion guarantees for the arena and infrastructure.
If this finagling--essentially endorsed by the city and state, as well as the borough of Brooklyn-- passes muster, what's to stop any developer from refinancing with immigrant investor capital and claiming job creation based on both the new capital and previously committed capital?