Largest EB-5 Fraud to Date Lands Developer a 3-year Prison Sentence

May 30, 2017 by Melissa L. Lucar, Esq.

The Chicago developer that admitted to embezzling $160 million from nearly 300 Chinese investors was sentenced to a three-year prison term for what Securities and Exchange Commission (SEC) prosecutors claimed is the biggest EB-5 visa program fraud committed to date.

Anshoo Sethi negotiated a plea deal for one count of wire fraud in January 2016, revealing he misrepresented key financial information to the Chinese businessmen who assumed they would receive temporary EB-5 U.S. visas for their investments in a supposed hotel construction project. The EB-5 program issues green cards to overseas investors who invest in qualified U.S.-based development plans.

The hotel development plan, however, never underwent the requisite city permit approval process, and the documentation Sethi presented to the financiers to persuade them to invest was forged.

John Z. Lee, the presiding judge in the U.S. District Court for the Northern District of Illinois, stated at the sentencing proceedings that he believed Sethi when he claimed he indeed intended to complete the hotel. However, this belief, according to Justice Lee, was not sufficient to outweigh the extent of Sethi’s fraudulent activity that saw him mislead hundreds of investors for his profit.

Sethi was required to pay almost $9 million in restitution, which was the remaining unrecovered sum from the original $160 million he defrauded from the Chinese lenders. A significant majority of that capital was deposited into an escrow account that the SEC subsequently froze in 2013.

In 2014, Sethi was indicted for eight counts of wire fraud and two counts of making false statements for the EB-5 fraud. The defense counsel claimed Sethi was a youthful, inexperienced and aspiring entrepreneur who was exploited by a large consortium of lawyers and financial advisors who scam the EB-5 program for personal gain.

Sethi used his family’s land located in the vicinity of O’Hare International Airport to submit an application in 2010 to the U.S. Citizen and Immigration Services (USCIS) to be considered for EB-5 regional center status—a designation that would enable him to negotiate foreign investments in exchange for visas. After he had been approved, Sethi marketed his hotel development plan to numerous Chinese backers, claiming the proposed construction had obtained financing from the Chicago city government and had agreed to partnerships with large industry companies, including Starwood Hotels and Resorts Worldwide, Inc.

To entice the investors, Sethi showed them falsified documents he claimed proved the alleged hotel chain agreements and a $97 million loan from the Chicago City Council. He also stated the project site had been appraised for over $177 million, although the land had never undergone a valuation appraisal. Sethi’s misrepresentations led to 290 investors contributing approximately $541,500 each. Sethi diverted most of the money to an escrow account, where it remained until 2013 when the SEC, acting on a judicial order, froze the account.

Unfortunately, nearly $11 million that Sethi garnered via administrative costs was lost, spent by Sethi to perpetuate the scheme according to prosecutors. The majority of that sum went to brokers who managed Sethi’s relationships with the Chinese financiers.

Although Sethi appeared to have a genuine intent to finish the project, as evidenced by his own family’s $10 million in contributions to the plan, the scope of his fraud was too substantial for the judge to grant his counsel’s request for a modest three-month prison sentence.

Contact Melissa Lucar directly for more information.