EB-5 Fraud Case at the US Supreme Court
© James C Wolf Mar 2020 (updated June 2021) In Liu v. SEC, 591 U.S. ____(2020)[1] the US Supreme Court determined that a Los Angeles EB-5 fraud project must return all EB-5 funds to investors, less only legitimate business expenses. Charles Liu and his wife, Xin (Lisa) Wang, solicited nearly $27 million from 50+ foreign investors under the EB–5 Program. Liu and Wang promised that each $500,000 investment would go towards a new cancer treatment center. The center was never built. The PPM specified that legal, accounting and administration expenses would be paid from a $45,000 administrative fee. As early as Aug 2013, Liu planned to send millions of dollars to family members and companies in China, even as he recruited investors in 2014 and 2015.[2] In May 2016, the SEC filed a complaint in a Los Angeles federal court to shut down the fraudulent EB-5 project. The District Court ruled in favor of the SEC, barring Liu and Wang from the EB–5 Program. The District Court further ordered the fraudsters repay the full amount raised (“equitable disgorgement”), less only funds that remained in the corporate accounts for the project. On appeal, the Supreme Court validated the theory of “equitable disgorgement,” ruling that the fraudsters should only be credited for legitimate expenses actually incurred.
Bottom Line:
Unfortunately, it appears that Liu and Wang “transferred the bulk of their misappropriated funds to China, defied the district court’s order to repatriate those funds, and fled the United States.” The lessons of this case are:
If you suspect fraud, don’t wait for the SEC.
The SEC is a powerful, well-funded government agency but it is slow. It took the SEC 3 years to close down this fraudulent EB-5 project. If you suspect fraud, it is best to get into federal court as soon as possible while your funds may still be in the US. Millions of dollars were still in the US only a month before the SEC action in Liu v. SEC.
Before you Invest: Look for Fraud Hints.
The SEC found that Liu and Wang used fake and misleading endorsements from US politicians. Always check out the marketing materials!
Don’t Expect the USCIS or EB-5 Regional Center to Look Out for You.
There is no record the USCIS ever checked out the sponsoring EB-5 Regional Center, which was controlled by Liu and Wang. This EB-5 Regional Center was part of the fraud. Within a few months after USCIS approved the Regional Center, Liu and Wang signed agreements to move millions of investor money back to China instead of to the Los Angeles project. [/et_pb_text]
After you Invest: Check out the Project.
The SEC found that the project site had been vacant for at least a year before it filed its action. Liu and Wang had already raised millions and continued to recruit investors while the project site was an empty lot. USCIS never required (and still doesn’t require!) a Regional Center to provide investors with meaningful reports on the project. Clearly, no one was checking things out for the Investors.
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