Congressional Heat on Kushner and Big EB-5

On June 1^st, 2017, Senator Patrick Leahy and Representatives Zoe Lofgren and John Conyers, Jr. wrote a joint letter to Laurent Morali, the president of Kushner Companies, indicating in the opening that they:

“…are concerned about recent reports detailing Kushner Companies’ use of the EB-5 Regional Center program, especially in light of Jared Kushner’s role in the Trump administration and the potential for conflicts of interest. These reports indicate that Kushner Companies and its latest EB-5 project, “One Journal Square,” may be seeking to benefit from the Kushner family’s connections to the White House. These reports also suggest that luxury developers have aggressively lobbied Congress to prevent reforms to the EB-5 program. Such lobbying appears intended to benefit luxury development projects like those built by Kushner Companies, and thus presents the appearance of a conflict of interest given Mr. Kushner’s new position in the administration.” 

The letter goes on to examine the reforms Congress is considering and calls Kushner Company to task for its continued EB-5 marketing efforts, which – as is the case with virtually all major EB-5 projects – patently disregards U.S. securities and immigration regulations on how foreign investors can be lawfully sourced.  With the spotlight on Jared Kushner’s White House role and the the Kushner Company’s EB-5 fundraising activities in China, false “guarantees” made by unlawfully compensated foreign immigration brokers and the furious lobbying effort by Big EB-5 to keep investor dollars flowing to the richest parts of America, Sen. Leahy and others are calling for an investigation into Big EB-5, specifically, the legality of the marketing activities undertaken by these mega-projects like those promoted by Kushner.

The letter represents, I HOPE, the beginning of the end of the unlawful practices undertaken by Big EB-5 to the detriment of those EB-5 Regional Centers who are offering investment opportunities in truly poor urban and rural parts of America.  More importantly, the specific questioning regarding the Kushner Companies’ compensation of foreign migration agents goes to the heart of what 99% of the EB-5 industry has been conveniently ignoring:  U.S. securities law PROHIBITS the payment of finders’ fees/commissions to foreign migration agents who are not registered securities broker/dealers.  And the reality is that none are.  The letter demands answers, and with those answers the truth of this insidious circumvention of SEC rules will be revealed not only as practiced by the Kushner Companies, but as practiced by virtually the entire EB-5 sector.

The key points in the 9 page letter:

• Inquires about Jared Kushner’s extensive and continuing financial interests in the Kushner EB-5 effort, despite his token separation from activities of the company upon joining the White House.
• It cites the Beijing promotional activities of the company led by Nicole Kushner Meyer, Jared Kushner’s sister, where investors were promised by Qiaowai migration agents that the President would personally “make sure [the visas] come through” and that there was “no chance the project could fail”, and specifically asks what the company had done, if anything, to ensure that had stopped. The letter further asks how many investors had been realized as a result of the promotional event.

• They cite Washington Post report entitled “Changes to visa program could set back Kushner family’s real estate company” in which the newspaper reported that Big-name developers have hired armies of lobbyists to fight changes in the EB-5 rules.” The letter states:

“In order to secure EB-5 funding for its projects, Kushner Companies partners with a regional center known as U.S. Immigration Fund.15 A New York Times report described the U.S. Immigration Fund as “at the forefront of efforts to stop an overhaul of the EB-5 program in 2015 and 2016.”16 According to public disclosure records, between 2013 and the first quarter of 2017, U.S. Immigration Fund spent $980,000 on lobbying related to the EB-5 program.” 

• The letter mentions by name the Chairman and CEO of S. Immigration Fund, Nicholas Mastroianni II, who was featured in a Fortune Magazine report titled “The Tangled Past of the Hottest Money-Raiser in America’s Visa-for-Sale Program”. In the article, Mr. Mastroianni is described as:

“A squarely built 50-year-old with a Long Island accent, Mastroianni has a long history of legal problems, failed ventures, and unpaid debts—which have continued even as his professional fortunes have turned sharply upward—leaving a legacy of conflicts, judgments, and entanglements.”

• The letter cites that Reuters reported that Ding Ying, the founder and president of Qiaowai, the Chinese migration agency used by Kushner Companies and U.S. Immigration Fund, attended the inauguration of President Trump and met with the President, his family, and members of his cabinet. According to the letter, the company’s website stated that “[t]he fact  that Ms. Ding has once again been invited to  attend a presidential inauguration shows that the Congress values and approves of the Qiaowai. “

• They specifically ask about TEA legitimacy of the company’s projects, citing New York Times articles about “developers who propose projects in wealthy urban areas, such as Manhattan and even Beverly Hills, to qualify for [the] incentives that are supposed to be reserved for [the] poorer areas.”

• They reminded Kushner Company that the Government Accountability Office reviewed a sample of EB-5 petitions filed in 201534 and found that 97 percent of petitioners were investing in projects that claimed to be in a high unemployment area, and that “There is concern about the manner in which Kushner Companies’ EB-5 projects appear to qualify as high unemployment areas.” 

• The letter cites a report titled “Behind Kushner Companies, a Chinese Agency Skirts Visa-for­Investment Rules,” in which Reuters found six instances in which Qiaowai guaranteed potential investors either a green card or their investment. That on May 5, 2017, Qiaowai wrote that One Journal Square “in a real sense guarantees a permanent green card and the safety of the investment principal.” Other materials indicated that the project “fully safeguards investors’ green cards and funds.” According to The New York Times, one potential investor said that Qiaowai “said [that President Trump] would make sure it came through:

                                       “They said there was no chance it could fail.”

• The letter cites a Reuters report which says that EB-5 agents can make as much as $100,000 per investor they recruit, which represents a finder’s fee of 20 percent of the underlying investment, specifically pointing out that:

“Both finding investors and receiving transaction-related compensation are indicators that a person may need to register as a broker with the SEC, and the SEC has recently pursued enforcement actions against individuals facilitating EB-5 investments for failing to register.”   

• The letters concludes by cutting to the chase and asking the critical questions:

“Do Qiaowai migration agents receive transaction-related compensation for each investor they recruit for One Journal Square? If so, how much? What other fees or compensation do they receive?”

“Are Qiaowai agents-or any other agents recruiting EB-5 investors for Kushner Companies’ projects-registered as brokers or dealers with the SEC? If not, what exemption do they rely on? If none, how does this arrangement comply with U.S. securities laws?”

Big EB-5, you have just been BUSTED by the good Senator Leahy et al, and it’s time to take a knee! Ze jig is up.

As someone who has been fighting this systematic abuse of EB-5 while painstakingly finding EB-5 investors one at a time through lawful channels for the past six years, I am THRILLED that the illegal tactics of Big EB-5 have been brought to light, FINALLY, through the newsworthiness of the Kushner companies.  When EB-5 reforms are all said and done, AVS EB-5 will stand among the handful of EB-5 Regional Centers which do NOT: 1) falsify TEA status and who do NOT 2) rely on paying unlawful kickbacks to foreign agents to source EB-5 investors.

To quote a very honorable gentleman who spoke publicly yesterday, “Oh, LORDY”, how I look forward to seeing the Kushner Companies’ response to the letter, due on June 16, 2017. 

See the whole Leahy/Lofgren/Conyers letter here.

Tags: EB-5 Reform, EB5 News