Indian American Chicago hotel developer Anshoo Sethi was sentenced to three years in prison for exploiting EB-5 visa program to fraudulently raise capital from Chinese nationals who were seeking permanent residency in the United States.
The EB-5 visa program allows individuals from around the world to invest a minimum of $500,000 in a federally approved project around the US which would create at least 10 American jobs for a period of two years, in exchange for a Green Card for the investor and his immediate family members.
The EB-5 program has run into several controversies over the last two years with the Justice Department uncovering scams that have fleeced investors, and thrown a shadow over the future of the EB-5 visa program itself.
Recently, the US government came out with new proposals to increase the EB-5 seed investment to minimum 1.3 million, to as much as $1.85 million, depending on the location of the federally approved projects. There have been talk in Congress to end the program, in the wake of several scams like that done by Sethi.
Sethi, 32, the founder of A Chicago Convention Center LLC, purported in 2011 to build a hotel and convention center near O’Hare International Airport in Chicago, according to the Justice Department.
Sethi solicited Chinese nationals to invest $500,000 apiece in the project, plus $41,500 in administrative fees in his company. Each Chinese national who participated in the project also applied for an EB-5 visa.
While soliciting investors, Sethi made several false statements, including lies about funding and tax credits from the State of Illinois and the City of Chicago, none of which materialized.
The $900 million project never got off the ground, and no EB-5 visas were ever granted to investors.
Sethi pleaded guilty last year to one count of wire fraud. In addition to the 36-month prison term, U.S. District Judge John Z. Lee also ordered Sethi to pay $8.85 million in restitution to the victim investors.
The prosecution represents the largest EB-5 criminal fraud case in the United States to date.
“Defendant Anshoo Sethi abused the EB-5 visa program and blatantly lied to investors and the United States government on a massive scale,” Assistant U.S. Attorney Sunil Harjani argued in the government’s sentencing memorandum. “Overseas investors spent much time and energy making the difficult decision to invest in the Sethi project, and processing their visa applications – not knowing that the project was built on a bed of lies and forged documents.”
According to his plea agreement, Sethi’s fraud scheme began in the summer of 2011 and continued until February 2013. He told investors that he planned to build the hotel and convention center on a three-acre parcel of land in the 8200 block of West Higgins Road in Chicago, just east of O’Hare.
Sethi falsely told investors that his company maintained relationships with large hotel chains that purportedly were interested in the project, including Hyatt, Starwood and Intercontinental Hotel Group. To bolster an additional false statement regarding City of Chicago funding, Sethi signed a “Redevelopment Agreement TIF” document that purported to convey a relationship between the city and Sethi’s company. The document, which contained a bogus city ordinance implying that the project had been approved for TIF funding, was provided to third party brokers who used it to solicit investors.
In all, Sethi raised approximately $158 million from more than 290 investors. The U.S. Securities and Exchange Commission brought a civil lawsuit against Sethi and was able to restore approximately $147 million to Chinese investors.