Category Archives: Articles and Blogs

Dec 4, 2015
The EB-5 Revolution has Begun

“God forbid we should ever be 20 years without such a rebellion”, said our founding father Thomas Jefferson. By all accounts, the EB-5 program is about 5 years overdue. The EB-5 program has come to a moment of truth in its quarter century history. The program has done much good, and some bad things have occurred in its name. At an increasing rate over the last several years, the program has started to forget its roots, as a job creation program, to become a small part of high-end large real estate project finance in a few prime cities in America. This is not the fault of the real estate developers who simply saw an opportunity in a program that was misunderstood by its administrators and mis-designed by Congress. Not being at fault, however, is not an excuse to leave a broken system unrepaired.

At its heart, the EB-5 program has the potential to be among the crown jewels of American immigration policy. Whether it can live up to that potential may largely be determined by the events in the next day or at most several days. Early in the day, yesterday, on December 2nd, compromise EB-5 reform language was proposed for inclusion in the Omnibus spending bill that must be enacted by December 11th to avoid a government shutdown. The bill contained real reforms. If enacted many things in the EB-5 program would change. And change it should. Change, especially to the most entrenched members of the EB-5 community is a scary thing. Despite a nearly non-stop barrage of negative press and SEC activity in the space over the last two years, many incumbent Regional Centers want nothing more than to be left alone so business as usually can continue undisturbed. As Rome burns around them, they see no peril at all in perpetuating the status quo. They fail to see that against a backdrop of trillions, EB-5’s few billions are at risk of getting cancelled entirely if the risks and distractions prove not to be worth the effort to our government. They fail to see that the blind acceptance of Chinese investors and agents is starting to change.

The bill is not the end of the EB-5 program as some complain, but rather, to quote another great leader, Winston Churchill, “It is [or would be] the end of the beginning.” With any ending, the next phase will require an adjustment process. Foremost, the shenanigans that were allowed in constructing TEAs would end and there would be no project grandfathering. The draft bill contains a very reasonable compromise that allows truly disadvantaged areas and the immediate proximate areas to qualify for the lower investment threshold. It is true that some projects, those in the most affluent areas, may no longer qualify as TEAs. To those developers, please stop whining. If you are fortunately enough to have the right to develop a plot of land in Manhattan, Los Angeles or Miami with a budget of hundreds of millions of dollars, whether or not EB-5 capital is part of your program will not matter one iota. Your project will get financed and you will make your many millions. A few less than without EB-5 capital, but so be it. Or maybe your investors would be willing to pay the 20% additional amount required to be part of a project in a premium location. Even if not, use the disappointment as a challenge and deploy the needed skill and efforts to a development that is slightly less lucrative, but that does qualify for EB-5, which then makes it worth a good bit more. Learn, adapt, adjust. A new challenge is simply an opportunity for those willing to take hold of it. The objecting Regional Centers are acting like the auto makers faced with mandated seat belts and then air bags a generation later. They screamed and predicted massive woes. Instead, the market embraced the newer better technology, which ultimately helped propel further growth. So too will be the path of an improved Regional Center program in EB-5.

The bill requires all Regional Centers to have 10% direct jobs. Read another way, that’s one whole job per investor. One, the smallest possible integer. Is that so much to ask? The currently accepted econometric methodologies fail to prove two important points. Firstly, that the jobs created will have a long duration and secondly, whether the created induced and indirect labor actually goes to American workers. This requirement simply insists that America, the “we the people,” get one single eVerified job per investor to insure, at a minimum, some verified value to our society in exchange for the coveted lawful permanent residency. Again, some Regional Centers complain that their current way of doing projects would not qualify. The answer is, so change. Evolve. If you are building an office building, add a call center or health clinic as part of your plan. If you are building a warehouse, add a trucking company. If you don’t know how to do it, joint venture, engage with other professionals. One job per investor would require 10% of the EB-5 capital. If you can do that at the present $500K level (which many who focus on Direct EB-5 know how to do), then at $800K investment levels, it would require a little over 7% of the EB-5 capital to work. Or simply gross up the budget for the new requirement.

The anti-fraud, securities laws and verification requirements are needed reactions to a history of abuses that have only recently garnered regulator attention. No one can nor should object. It’s a pain and expensive, but deserved. If the industry had done a better job at policing its own ranks, the heavy hand from above would not have been needed. This can and will force the marginal and fraudulent players from ever wanting to try their hand at the game.

This doesn’t need to be a war, it should, in fact, be a celebration of the next chapter in the evolution of the EB-5 program. I call on everyone to reach out to their Senators and Representatives in Congress (especially those on Judiciary and Appropriations Committees) to express strong support for inclusion of the EB-5 reform language in the Omnibus bill. Let us work together to build a better EB-5 program and with it a better America.

Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog

Sep 18, 2015
EB-5 TEA’s: A policy Perspective

Targeted Employment Areas – TEAs – were supposed to be about bringing desperately needed investment capital into economically distressed areas. The thesis goes, create employers in those areas and the jobs are likely to go to those who live there. The current EB-5 program抯 treatment of TEAs, in all but a minority of cases, does anything but that. The current rules allow the combination (gerrymandering) of affluent and distressed areas to create a larger area that satisfies, on average, the TEA unemployment rate requirements. Because of this, as pointed out in the recent Wall Street Journal article, the program抯 capital flows in increasing volumes to high profile construction projects in affluent neighborhoods, such as Hudson Yards on Manhattan’s West Side. The clever counter-argument admits that the neighborhoods benefiting from the EB-5 capital development doesn’t need the money, but that it’s ok, because the people who work in these projects come from the economically distressed areas that we wanted to help in the first place. Ron Klasko published a solution premised on this logic that would allow already accepted “area of intended employment’ to serve as the basis for determining the geographical boundaries of a TEA. (

But what about the economically distressed neighborhoods? So the workers who travel from them get the jobs in the affluent areas. Under a trickle down (or maybe trickle across) theory of econometrics, these households then spend more money in their downtrodden areas, which is enough to help revitalize the depressed areas. Maybe. Or maybe the workers pick up and leave as soon as they can afford it. Assuming they have enough disposable income (to matter) from their new jobs (assuming the salaries were above subsistence wages), that seems just as likely a result as the trickle-across econometrics. In the end, the distressed neighborhoods stay, well, distressed. Even worse, the most employable of the population demographic have left.

From a policy perspective that result leaves a somewhat unsatisfied feeling. The goal of the TEAs was to bring investment capital into the areas of high unemployment and rural areas to spur the development of those areas. That development would then lead to jobs in those areas, which could even lead to a re-population of those areas by increasingly higher earning cohorts, thus restoring the tax base and supporting the local businesses that exist in those areas and the new ones that might be created to support the upswing. It is the virtuous circle argument that was the focus of an EB-5 policy forum organized by, the leading foundation working on the redevelopment of inner cities ( at Harvard University’s Kennedy School of Government. See their white paper, Increasing Economic Opportunity In Distressed Urban Communities With EB-5 available at the following link: (

Labor will always be mobile, but anchoring capital to an area holds the real promise of structural revitalization. The policy to help the area, as originally intended, is sound and the current practice of gerrymandering has completely subverted that policy. Recognizing a static snapshot of commuter patterns as the justification for the gerrymandering leaves things no better off. Maybe it is time to recognize the problem for what it is and not kick the legislative can down the road any longer. If congress wants to create another program to support unemployed (or under-paid or under-employed) workers, then what Mr. Klasko proposes may be a sound proposal, at least in the short term. But if the point is to revitalize the areas, to use the precious foreign direct investment (EB-5 Capital) to help rebuild the downtrodden forgotten and ignored areas of this country and usher in true long term structural improvement, then it will not. Maybe it is time that investors who want to invest in high income areas simply have to pony up a greater investment amount as was always intended by Congress from the get-go. The point of the EB-5 program is not to ensure the supply of development capital for Class A real estate development projects in prime neighborhoods. It is to provide the most bang for the buck for the American people. With respect to TEAs, it was to provide an incentive to invest in the areas that need it the most.

Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog

Aug 26, 2015
Sleepless in Seattle

On August 24, 2015, the Securities and Exchange Commission filed suit against Washington (State) based Path America SnoCo Regional Center, its CEO and several related entities for allegedly misappropriating funds and committing fraud with respect to $136 million in EB-5 investments.

In this case, the SEC is attempting to shut down what seems to be a fairly significant bad actor. Among the alleged misdeeds, the Regional Center and the CEO are accused of diverting investor funds to other projects the CEO controlled, withdrawing hundreds of thousands of dollars of cash from casinos in Canada and using investor capital to purchase a private residence.

On the face of it, the case is somewhat unremarkable as the SEC is doing its job to protect investors from issuers engaging in fraud and thievery. It is somewhat notable that this civil action for injunctions and other relief does not come with a parallel criminal action from the US Justice Department. Perhaps that will come later and this action was only meant to immediately stop the continuing harm.

One interesting aspect of the case was the use, in a limited fashion, of escrow accounts. In this case, the investors placed 100% of their capital in escrow accounts, but according to the terms of the subscription agreements (and as described in the PPM), $400,000 of the $500,000 investment was to be released upon the filing of the given investor’s I-526 petition and the balance upon I-526 approval. So in effect, 80% of the investment capital had no true form of protection for any real length of time. For the release of the $400,000, there was no meaningful business or immigration related condition. One could imagine that the sponsor used this extraordinarily weak form of escrow in their marketing to help create a false sense of security on the part of the investors.

The cautionary tale of this case is that investors should do their sponsor diligence and think carefully about the structure of the deal. No matter what the structure or background of the sponsor, investors in all investments (EB-5 and non-EB-5) are vulnerable to a sponsor who has the intent to steal and defraud. Some things to watch out for that can help are whether the sponsor works with top professional service providers (lawyers and accountants). If they use escrow, do they use the strongest form (release only upon I-526 approval, for each investor with respect to his or her capital). While this cannot save an investor from bad deeds after approval, it’s hard to imagine the criminal sort putting in a structure which requires a significant waiting time, like full approval release.

I would like to congratulate the SEC for their hard working in helping ensure the integrity of the US EB-5 program. If anyone would like a copy of the case, simply send me an email to

©2015 Matthew Gordon

Reprinted with permission.

Originally posted at: ILW.COM EB-5 Blog

Jul 7, 2015
A Gusher

The Securities and Exchange Commission announced today charges against a San Francisco based oil and gas company with fraud in connection with running a $68 million ‘Ponzi-Like’ scheme that targeted the Chinese American community in California and also in Asia. Unlike the most recent case announced on June 23rd (see, which did not involve any allegations of fraud, but the failure to be a registered broker dealer, this case is back to the SEC’s more typical charge of going after the naked criminality of lying to investors in order get them to part with their money. The case has many of the typical fraud bells and whistles: The issuer lied about their capability to engage in the described business and they subverted funds from the promised use (in this case to allegedly buy a luxury home).

Going after fraud to protect confidence in the US capital markets is the meat and potatoes of SEC enforcement. Given that, this type of action is not particularly notable, especially since the issuer in the present case was using a variety of public advertising media in the United States to solicit the public directly and potentially in potentially large numbers. It is curious that the Justice Department did not join in on the fray with a parallel criminal action. Unlike the previous action in Florida, in which the defendants agreed to charges as part of a settlement that one could fairly assume helped keep the Justice Department at bay, in the present case, other than the settlement of the company’s CFO and an unregistered broker, the main defendant company has not settled the charges (at least yet).

The most interesting aspect of the case is the expression of appreciation in the SEC’s press release for those who helped in their investigation. In addition to the usual players, the SEC thanked the Hong Kong Securities and Futures Commission, and the China Securities Regulatory Commission. This is the first public acknowledgement in the EB-5 context that the SEC is working directly with their counterparts in China and may suggest that the Chinese are finally starting to pay attention to what is going on inside their borders. The problem of Chinese migration agents acting with impunity in which they say and do anything to get EB-5 investors is common knowledge in the industry, but the SEC alone lacks the jurisdictional nexus to target these companies and individuals. With the Chinese securities regulators now cooperating with the SEC, these rogue elements of the EB-5 community will have nowhere to hide. Chinese efforts, in combination with a marked increase in US enforcement activity, portends well for the groundswell of activity that is needed to rid the EB-5 program of the bad actors that threaten the entire program.

For a copy of the SEC’s press release, see:

For a copy of the SEC’s order related to those defendants who settled, see:

Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog

Jul 7, 2015
Let’s Get The Facts Straight

In the SEC’s recent charges against two unlicensed brokers in Florida, the SEC Order contained a misstatement of the law regarding the EB-5 program. Oddly placed in the ‘Factual Background’ section of the Order, paragraph 7 summarized the legally required investment amounts as follows: “An applicant investor is only required to invest $500,000 if done through a regional center.” The EB-5 program regulations require all investments to be of at least $1 million, unless the investment is made in a targeted employment area, which then allows for the reduced investment amount of $500,000. See 8 CFR 204.6 (f). Subsection (1) states the general $1 million threshold and subsection (2) states the $500,000 level for investments in targeted employment areas.

One should not judge the SEC too harshly for this error. There are many ‘myths’ about what is and what isn’t the law relating to the EB-5 program. This same mistake has been made by many (even who participate in the EB-5 program). Hopefully the error in the statement of law as a part of the factual background section of the Order will not be a source of appeal for the accused to wiggle out of their just punishment. In future enforcement actions, the SEC should sharpen their understanding of the program as more sophisticated and better capitalized defendants may be able to escape punishment if errors are made. Hopefully, the SEC will appreciate that the EB-5 program is just a little bit different than typical investment markets. The confluence of immigration laws, federal securities laws and state laws can produce unexpected and unintended results. See my article published yesterday, entitled Miami Vice, for a more detailed analysis on this topic. Minor errors aside, to effectively regulate the EB-5 investment marketplace the SEC will need a deep understanding of how the program does (and doesn’t) work to get the right result.

The SEC’s press release on the changes can be found here:

A full copy of the order can be found here:

My analysis of the SEC’s actions and the interplay between the securities, immigration and contract law can be found in the article entitled, Miami Vice, found here:

Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog

Jul 7, 2015
Miami Vice

Yesterday, June 23, 2015, the SEC charged two firms with brokering securities without the needed broker-dealer licenses. The investigation was led out of the SEC’s Miami office which charged a Boca Raton, Florida based firm, and its Hong Kong counterpart, with a US presence, with illegally brokering $79 million of EB-5 investments. For a copy of the SEC Announcement see

The SEC’s action is interesting and instructive on several fronts. Firstly, this is one of the first SEC cases that did not involve a purported fraud. No one should question that the SEC had a legal basis for taking the actions that it did, but it is an expansion of their activity set to go beyond the relatively plain vanilla 10(b)(5) cases (for fraud) that it has pursued thus far concerning enforcement of the US Securities Laws in the EB-5 arena. There is no firm suggestion that the investors in these cases were in fact harmed, which can put this in the category of a victimless crime. It is noteworthy that there was no corresponding criminal action on the part of the US Justice Department. The SEC’s justification and rationale is the protection of the integrity of the capital markets. In the context of the EB-5 market, that is definitely a worthy goal. Hopefully this is just a beginning for the SEC as there are undoubtedly bigger and more bad-acting fish to fry in this sector.

Another point to note is the scale of the activity. $79 million is a lot of money and concerns a lot of investors (for EB-5 purposes). It would have been hard for the accused to argue that they were ‘finders’ in this context. Not so long ago, the SEC suffered a setback in their approach to the finders vs brokers debate (essentially taking the position that finders do not exist where transactional based compensation is involved). In SEC v Kramer, also in Florida, the judge found presence of transaction compensation alone, given the small volume of transactions, to be insufficient to make the individual in question a broker. See SEC v. Kramer, 778 F. Supp. 2nd 1320 (M.D. Fla. 2011). Other district courts have also refused to follow the SEC’s position in this area.

With respect to the applicability of the securities laws, like the real estate investments that were brokered, one of the most important features is always location, location, location. The second company charged, a Hong Kong company, was ensnared because of its ‘presence’ in the United States. Companies, agents and the like who are relying on the extra-territorial nature of their actions to insulate them from obligations under US law need to be very concerned about what does (or does not) create a jurisdictional nexus for these purposes. Whether the SEC is correct in asserting its jurisdiction is almost beside the point. With the agency’s resources, unless the accused is willing to go away and stay away forever, a charge by the SEC is a painful experience in the best of cases. Migration agents with offices of any kind in the US should be especially concerned. Those attempting to solicit potential investors using means directed to them while they are physically present in the United States, who are themselves in the United States, and are to be compensated based on the successful transaction should know that they are putting themselves squarely in the SEC’s crosshairs. As the SEC has now shown, they will act in the absence of harm or fraud for the sake of defending the market’s honor and virtue.

So what else does this mean? From the perspective of the regional center (the issuer of the securities), there are a whole host of potential problems that arise from accepting investors from those found to be unregistered brokers. Firstly, there are legal theories of facilitation under which the SEC (and/or the Justice Department) could seek primary liability from the regional center and its principals. Secondly, it is almost a foregone conclusion that either from new regional center legislation or via new rulemaking, regional centers who work with agents that violate the US Securities Laws will be at risk for additional sanctions, including potentially a revocation of their regional center status. Foremost, however, is that the use of an unregistered broker-dealer gives rise to a rescission right on the part of the investors. This means that any of the affected investors at any time could demand his or her money back, notwithstanding what the investment contracts say. While that is bad for the regional center, it may be worse for the investors. It’s an especially troublesome query to imagine how the investor rescission right might be interpreted by USCIS (or the courts) in the context of In Matter of Izumi, which makes investor rescission rights illegal and therefore fatal to gaining lawful permanent residency via EB-5. Does this mean that an investor, by coming thought an unregistered agent, then should have his or her I-526 or I-829 petition denied as a matter of an unintended interaction between US Immigration Law, Federal Securities Law and State Contract Law? This writer certainly hopes not as then the victimless crime would have a victim after all by the hand of the enforcement that was supposed to provide the protective shield from the harm in the first place. It seems, once again, that the market’s virtue and EB-5 make for strange bedfellows.

©2015 Matthew Gordon
Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog

Apr 24, 2015
E3 Investment Group’s E3 Cargo Featured In JP Morgan Chase Report

NEW YORK, NY / ACCESSWIRE / April 20, 2015 / E3 Investment Group’s EB-5 funded transportation subsidiary E3 Cargo featured in a report issued by JP Morgan Chase and the Initiative for a Competitive Inner City.

E3 Investment Group (E3iG), headquartered in New York, announced today that E3 Cargo, E3 Investment Group’s EB-5 funded subsidiary, has been featured in an investment report issued by JP Morgan Chase and Initiative for a Competitive Inner City (

The report is entitled, ‘Financing Growth: A Practical Resource Guide for Small Businesses’ is a comprehensive review of financing sources for small businesses, including EB-5 capital. E3 Cargo was the only business featured by the report in the EB-5 section. According to Matt Gordon, E3 Investment Group’s Chief Executive Officer and Chairman of E3 Cargo, “The publication of this report is significant for both EB-5 and our firm. For institutions of the stature of JP Morgan and ICIC to recognize EB-5 as part of the capital financing continuum is another example of the EB-5 sector’s coming of age. For E3 Cargo to be the only featured example of how EB-5 capital can be used is an honor and a great tribute to the work we are doing to contribute to Indianapolis’ revitalization.”

Read more at: Yahoo Finance

Apr 24, 2015
If you don’t have something nice to say (about the EB-5 program), then don’t say anything.

The mainstream press, as all EB-5 community members know, has done a slanted and horrible job at providing balanced and unbiased coverage of the EB-5 program. Of course, many bad things have happened in the program and there are still many bad actors running amuck. In a multibillion dollar and growing industry, both are here to stay, although hopefully with a declining frequency in the future. What has been absent from mainstream press reporting has been the good stories. Excepting ILW’s work, its hard to find anyone publishing neutral let alone positive information on the happenings about EB-5. That is, until last Friday.

Read More at: ILW.COM EB-5 Blog

Jan 9, 2015
Answering Direct Questions

The mainstream press, as all EB-5 community members know, has done a slanted and horrible job at providing balanced and unbiased coverage of the EB-5 program. Of course, many bad things have happened in the program and there are still many bad actors running amuck. In a multibillion dollar and growing industry, both are here to stay, although hopefully with a declining frequency in the future. What has been absent from mainstream press reporting has been the good stories. Excepting ILW’s work, its hard to find anyone publishing neutral let alone positive information on the happenings about EB-5. That is, until last Friday.

On Friday, JP Morgan Chase and Initiative for a Competitive Inner City, a foundation started by Harvard’s Michael Porter, jointly issued a research report entitled, Financing Growth: A Practical Resource Guide for Small Businesses. The report itself is very pragmatic, dealing with the pros and cons of all potential investment sources for small businesses, including EB-5 capital. What it doesn’t do is EB-5 bash. It lays out what’s good and what isn’t about it. While this isn’t the popular press, it is a published research report that presented the EB-5 sector in a fair light. So maybe (hopefully) this can show the popular press that the world wants a little more balanced information about the program.

It was particularly gratifying to see my firm’s subsidiary, E3 Cargo, as the only example featured to illustrate how EB-5 capital can be used for small businesses. E3 Cargo is a great story within EB-5. E3 Cargo is hiring workers in Indianapolis, Indiana as we speak. It is located in Census Tract 3580, which has over 11.4% unemployment (which is in Marion Township, which has over 16%). The EB-5 program and the use of targeted employment areas is supposed to be about revitalizing economically distressed areas. With E3 Cargo, we create jobs right where the policy makers wanted them, not in a gerrymandered geography linking high and low unemployment areas, but right where the jobs are needed.

Hopefully other institutions and journalists will start to report on other companies that are working hard to fulfil EB-5’s policy mandate. There are many good stories out there.

©2015 Matthew Gordon

Reprinted with permission.

Originally posted at: ILW.COM EB-5 Blog

Nov 13, 2014
Raising The Bar

The SEC continues its pursuit of fraud in the EB-5 program. As with their previous enforcement actions, they are targeting garden variety fraud. In the current case, filed on September 3rd, the SEC alleges that the sponsors unlawfully withdrew funds from escrow accounts and used such funds for purposes that were not part of the business plan. In this case, which was to build and ethanol plant in Kansas. You can find the SEC’s press release on the case here: The generic nature or the fraud itself nor the size at $11.5 million is particularly notable. What is notable is that I believe this case marks the first criminal prosecution of an EB-5 sponsor in well over a decade as the Justice Department filed criminal charges against the sponsors based on their violations of the US securities laws. What is also notable is how the sponsors were able to get access to the investor’s investment capital despite the fact that escrow structures were in place. It goes without saying that people shouldn’t commit fraud. I think this case can be used to focus counsel on the role and structure of escrow within EB-5 investment structures. As this case illustrates, not all escrow structures are the same. The SEC alleges that the sponsor, “took money out of investor escrow accounts without their knowledge prior to the approval of an investor’s application for residency.” This begs the question, how did they do this? Were the escrow agreements designed to prevent exactly this? I have seen structures in which a member of the sponsor is the appointed representative of the subscriber in an EB-5 transaction. This effectively defeats the protections of what escrow is supposed to do, which is to create a neutral mechanism to ensure that funds are only released to a sponsor when the agreed upon conditions are met. There are other structures widely used in EB-5 (particularly among regional center projects), which involved early or phased releases of capital prior to the positive adjudication of the investor’s I-526 petition, or where the approval of one investor causes the release of all investors’ escrowed funds. Mind you, there is nothing illegal or wrong with these structures so long as there is clear disclosure to investors (that being said, the appointed representative structure, in my opinion, is pushing the line even with disclosure). Investors and counsel should take careful note of exactly how the escrow agreements are structured. Be sure to ask and understand who holds the funds, who has the ability to release funds, who administers the funds and what are the exact terms and conditions for timing and amount of release of the funds. In the present case, if the allegations are true, it is particularly egregious that attorneys, members of the immigration bar, were the source of the fraud. If they were acting both as project sponsors and counsel to the investors, then the investors never stood a chance. Whenever possible it is always best for the investor to have his or her own independent counsel to provide advice free from conflicts of interests (waivers notwithstanding).