Recently, the news that the Chicago Convention Center project in the United States defrauded 250 EB-5 investors, mainly from China, has caused a huge stir in the U.S. immigration community. To understand the latest developments of the incident and to reveal the details to Chinese investors, the reporter interviewed a relevant person in charge from Worldway Immigration Agency, who was the only chief agent for the Chicago Convention Center project in China.
Reporter: Worldway was the first to publish the report titled "The U.S. Securities and Exchange Commission has officially sued the Chicago Convention Center project party" on its official website. Can you disclose the latest developments of this incident?
Worldway Group Project Director: We learned from the U.S. side on February 8, 2013, Washington time, that the U.S. Securities and Exchange Commission filed a lawsuit against the Chicago Convention Center (ACCC), the Chicago Intercontinental Trust Fund Regional Center (IRCTC), and its controller Mr. Anshoo R. Sethi in the Northern District of Illinois on February 6 (collectively referred to as the "project party"). The U.S. Securities and Exchange Commission issued a statement regarding this incident on its official website on February 8.
Currently, the Northern District of Illinois has issued an emergency temporary restraining order prohibiting the promotion of this investment immigration project and has frozen $145 million of EB-5 investment funds. At the same time, given that Mr. Sethi used most of the $11 million in issuance fees without approval while his I-526 was not approved (with $2.5 million directly transferred to Mr. Sethi's private account in Hong Kong), there is less than $1 million left in the issuance fee account. The U.S. Securities and Exchange Commission has requested through the Northern District of Illinois that Mr. Sethi return all used/transferred issuance fees. The U.S. Citizenship and Immigration Services has also stopped the approval of this project. More than 250 EB-5 investors have been affected, mainly Chinese.
Reporter: According to our information, Worldway was the only chief agent for this project in China?
Worldway Group Project Director: Yes. In August 2011, Worldway Group was granted the title of the only chief agent in China by the project party and was invited to attend the launch ceremony in Beijing in September, where we jointly launched the project with the Governor of Illinois. However, after our U.S. project management department conducted research, we found many significant suspicious points about the Chicago Convention Center project, which were vastly different from the five major advantages claimed by the project party. Therefore, in October 2011, we summoned Mr. Anshoo R. Sethi and announced that Worldway Group would resign as the only chief agent for the Chicago Convention Center in China, withdraw from promoting the project, and terminate cooperation with the Chicago Convention Center project party.
To clarify the facts and allow the industry and EB-5 investors to quickly understand the truth, Worldway disclosed the lawsuit by the U.S. Securities and Exchange Commission against the Chicago Convention Center project party and published the "Worldway Group Statement" (www.worldwayhk.com) on its official website on February 9, along with an English version of the statement on relevant EB-5 professional websites in the U.S. This responsible action by Worldway Group has been praised and supported by the immigration community in both China and the U.S. as well as EB-5 investors.
Reporter: Why were there no issues discovered before the project launch in August 2011?
Worldway Group Project Director: Firstly, the problems with the Chicago Convention Center project are not about how to objectively assess the project itself, but rather serious commercial fraud issues, as the project party engaged in intentional fraudulent behavior. These fraudulent actions are difficult to detect through conventional project analysis and require time for careful study and verification, especially since the project party promised to provide the required legal or official documents to investors.
After the launch of the Chicago Convention Center project, within just one month, Worldway Group's U.S. project management department continuously conducted due diligence on the project. Two senior project analysts professionally studied the project issuance documents provided by the project party, and the U.S. project management department commissioned senior EB-5 experts to conduct on-site research in Chicago, discovering that the project materials provided by the project party were untrustworthy. Some important official proof documents were still not provided despite repeated requests.
Reporter: What issues did Worldway discover with the Chicago Convention Center project? Can you elaborate?
Worldway Group Project Director: The project has five major doubts:
1. The valuation claimed by the project party is severely inaccurate. Investigations revealed that the project party claimed to contribute 3.2 acres of land (in reality only 2.8 acres), with a shocking valuation of $177 million, but failed to provide the promised formal appraisal report.
2. The funds claimed by the project party were not transferred to the project company, Chicago Convention Center (ACCC). Investigations found that the land claimed to be contributed actually belonged to another company established by Mr. Anshoo R. Sethi and his father. Mr. Sethi had promised to transfer the land ownership to the project company as soon as possible but later refused to proceed with the transfer procedures, citing his father's disagreement.
3. The project party could not provide official proof documents for its claimed government funding support. Investigations revealed that the project party claimed that the project had government investment participation, accounting for more than 50% of the total project investment, but never provided official documents to prove this.
4. The experience and capability of controller Mr. Anshoo R. Sethi and his father in hotel management are questionable. Investigations found that Mr. Sethi and his father owned a low-end small hotel on the land claimed to be contributed, which was poorly managed. This is far from their claimed experience and strength, making it hard to believe they have sufficient experience and capability to build and operate the so-called "world's first zero-carbon platinum LEED-certified" hotel conference center with 995 rooms.
5. The construction budget is inflated, increasing employment risks. Investigations revealed that the total investment budget for the Chicago Convention Center, including land costs, is $913 million, with a staggering cost of $917,000 per room. Making such a dense capital investment in such a small space is the highest average cost per square foot among all EB-5 construction projects. Since construction costs are related to employment calculations, the inflated construction budget will inevitably lead to inaccurate employment calculations, and the claimed 1.73 times employment target lacks a credible basis.
The five major doubts raised by Worldway Group's U.S. project management department as early as October 2011 unfortunately proved to be correct. On February 6, 2013, the U.S. Securities and Exchange Commission detailed these doubts and other issues in a 26-page indictment, which can be viewed on the U.S. Securities and Exchange Commission's official website.
Reporter: In what areas did the project party primarily commit fraud?
Worldway Group Project Director: According to the indictment document from the U.S. Securities and Exchange Commission dated February 6, it was learned that the Chicago Convention Center project party deceived and misled EB-5 immigrant investors and the immigration bureau in the following seven aspects:
1. There were false statements and fraud regarding cooperation agreements with Starwood Hotels, Intercontinental Hotels, and Hyatt Hotels. The agreements with Starwood and Intercontinental were terminated in 2009 and 2010, respectively, and the agreement with Hyatt was entirely fabricated.
2. The project party falsely claimed to have obtained project construction permits without having secured formal construction permits in Chicago.
3. The land valuation injected into the project was severely inflated. The 2.8 acres of land purchased for less than $10 million in 2008 was valued at $177 million as equity contribution to the project, and to avoid taxes, the land was previously valued at $600,000. The SEC document mentioned that in 2011, a 20-acre parcel of land with basic facilities near the convention center site was sold for only $7.7 million.
4. There were false descriptions of Mr. Sethi and the developer's qualifications. The false statement claimed that 29-year-old Mr. Sethi had over 15 years of real estate development and management experience, particularly in the hotel industry, and that the developer, established only in 2010, had 35 years of industry experience.
5. The issuance documents falsely fabricated that approximately $340 million in support would be obtained from the Illinois state government, and when the immigration bureau requested additional documentation (RFE), they provided forged support documents to the immigration bureau.
6. The issuance documents promised a refund of issuance fees if the I-526 was not approved. Mr. Sethi used most of the $11 million management issuance fees without approval (with $2.5 million directly transferred to Mr. Sethi's private account in Hong Kong), leaving less than $1 million in the issuance fee account.
7. Employment estimates were based on inflated capital expenditure budgets and unrealistic revenue forecasts, making it difficult to achieve employment. The Chicago Convention Center estimated hotel construction costs at $740,000 per room, and when including land costs, the cost per room is nearly $920,000. This far exceeds the average cost range of $210,000 to $610,000 per room in the U.S. The hotel revenue forecast was based on the assumption of 100% occupancy for all 995 rooms throughout the year, with a nightly rate of nearly $300, which is highly unrealistic.
Reporter: Why did the governor attend the project launch of such a fraudulent project?
Worldway Group Project Director: In fact, this was also a carefully woven scam by the project party. They took advantage of the governor's visit to China to invite the governor and state senators to attend a press conference for a so-called investment project that could create 8,493 jobs, launching the project together with us, using our trust in the governor and the state government to create the illusion of government support, thereby deceiving Chinese immigration intermediaries and investors. Later, we learned from the U.S. side that the Illinois state government strictly prohibited the Chicago Convention Center project party from promoting the project using the name or official logo of the governor and government.
Reporter: How many clients of Worldway regarding the Chicago Convention Center have been affected?
Worldway Group Project Director: None of Worldway's clients invested in the Chicago Convention Center. After discovering the issues, Worldway Group terminated cooperation with the project party and required all subsidiaries to promptly inform clients of the truth with a high sense of responsibility. Our sincerity was understood and supported by our clients, and all clients, without exception, transferred to other EB-5 projects.
Reporter: It is well known that U.S. investment immigration carries risks. However, this time, 250 people were involved in the Chicago Convention Center project scam, with losses amounting to $145 million. Will this have a significant impact on the promotion of EB-5 in China in the future?
Worldway Group Project Director: This incident can be said to be the biggest scandal since EB-5 entered China, which will have a certain impact on the immigration communities in both China and the U.S. Worldway proposed the "Era of Selected EB-5 Projects" in the industry as early as early 2009 and allocated professional project analysts. Now, Worldway's risk monitoring of EB-5 projects has extended from project selection and due diligence to establishing project monitoring mechanisms after investment, which is also a first in the industry. I believe that after this incident, various immigration intermediary agencies will strengthen their due diligence on EB-5 projects to varying degrees, and the selection of EB-5 investment projects will become stricter.
At the same time, we also believe that EB-5 projects will develop more healthily. The U.S. Securities and Exchange Commission's actions this time, in cooperation with the U.S. Citizenship and Immigration Services, aim to protect the interests of EB-5 investors, which is beneficial for the healthier development of EB-5 projects, and has thus received support and endorsement from the U.S. immigration community.
This incident indicates that U.S. regulatory authorities have strong oversight over EB-5 projects, and the investments of EB-5 investors are legally protected. Any fraudulent behavior against investors will be subject to legal sanctions. This incident serves as a warning and can effectively deter commercial fraud. I believe that more quality investment projects will enter the EB-5 field in the future.
Reporter: What will happen to the 250 investors who were defrauded, and is it expected that the investment funds can be fully recovered?
Worldway Group Project Director: Currently, the $145 million EB-5 investment funds have been frozen, and under the injunction of the Northern District of Illinois, the safety of the investment funds can be assured.
The project party originally planned to recruit 499 investors, aiming to raise $249.5 million in investment funds and $20.7 million in issuance fees. Due to the scam being discovered early by the U.S. Securities and Exchange Commission and the immigration bureau, greater losses were avoided. The $10 million in issuance fees that have been misappropriated by the project party have been requested to be returned by the SEC, which is also seeking a permanent injunction and related economic penalties/compensation from the court.
The actions taken by the U.S. Securities and Exchange Commission in conjunction with the U.S. Citizenship and Immigration Services are protective measures aimed at safeguarding EB-5 investors from further losses. Due to the time required for U.S. judicial procedures, the unfreezing and return of investment funds and the recovery of issuance fees will take time. Worldway will maintain close contact with the U.S. side, closely monitor the development of the situation, promptly inform investors of the truth and consequences of the incident, and welcome investors to call for inquiries.
The U.S. Securities and Exchange Commission has sued the Chicago Convention Center project party.
Worldway, February 9. On February 8, 2013, Washington time, the U.S. Securities and Exchange Commission issued a statement that, after cooperation with the immigration bureau, to protect the legitimate rights and interests of current and future immigrant investors, based on the SEC's earlier indictment this week and the subsequent emergency court order from the Northern District of Illinois, the assets of the Chicago Convention Center (ACCC), the Chicago Intercontinental Trust Fund Regional Center (IRCTC), and Mr. Anshoo R. Sethi (collectively referred to as the "project party") were frozen, and the promotion of this investment immigration project was halted, while the immigration bureau stopped the approval of this project.
The U.S. Securities and Exchange Commission stated that it will continue to conduct in-depth investigations into this project and seek a permanent injunction and related economic penalties/compensation from the court. The $145 million EB-5 investment immigration funds in the project party's account have all been frozen, and Mr. Sethi has been requested to return all used/transferred issuance fees.
Mr. Anshoo R. Sethi established ACCC and IRCTC, using false information to raise $145 million from over 250 EB-5 immigrant investors, mainly from China, and collected $11 million in issuance fees to build the so-called "world's first zero-carbon platinum LEED-certified" hotel conference center near Chicago O'Hare Airport.
According to the indictment document from the U.S. Securities and Exchange Commission dated February 6, it was learned that the Chicago Convention Center project party deceived and misled EB-5 immigrant investors and the immigration bureau in the following seven aspects:
1. There were false statements and fraud regarding cooperation agreements with Starwood Hotels, Intercontinental Hotels, and Hyatt Hotels. The agreements with Starwood and Intercontinental were terminated in 2009 and 2010, respectively, and the agreement with Hyatt was entirely fabricated.
2. The project party falsely claimed to have obtained project construction permits without having secured formal construction permits in Chicago.
3. The land valuation injected into the project was severely inflated. The 2.8 acres of land purchased for less than $10 million in 2008 was valued at $177 million as equity contribution to the project, and to avoid taxes, the land was previously valued at $600,000. The SEC document mentioned that in 2011, a 20-acre parcel of land with basic facilities near the convention center site was sold for only $7.7 million.
4. There were false descriptions of Mr. Sethi and the developer's qualifications. The false statement claimed that 29-year-old Mr. Sethi had over 15 years of real estate development and management experience, particularly in the hotel industry, and that the developer, established only in 2010, had 35 years of industry experience.
5. The issuance documents falsely fabricated that approximately $340 million in support would be obtained from the Illinois state government, and when the immigration bureau requested additional documentation (RFE), they provided forged support documents to the immigration bureau.
6. The issuance documents promised a refund of issuance fees if the I-526 was not approved. Mr. Sethi used most of the $11 million management issuance fees without approval (with $2.5 million directly transferred to Mr. Sethi's private account in Hong Kong), leaving less than $1 million in the issuance fee account.
7. Employment estimates were based on inflated capital expenditure budgets and unrealistic revenue forecasts, making it difficult to achieve employment. The Chicago Convention Center estimated hotel construction costs at $740,000 per room, and when including land costs, the cost per room is nearly $920,000. This far exceeds the average cost range of $210,000 to $610,000 per room in the U.S. The hotel revenue forecast was based on the assumption of 100% occupancy for all 995 rooms throughout the year, with a nightly rate of nearly $300, which is highly unrealistic.
U.S. Securities and Exchange Commission announcement (including original indictment) webpage: http://www.sec.gov/news/press/2013/2013-20.htm
As a responsible enterprise, Worldway Group will continue to maintain close contact with the U.S. side, closely monitor the development of the situation, and promptly inform investors of the results of the U.S. Securities and Exchange Commission, U.S. Citizenship and Immigration Services, and the Northern District of Illinois court's handling of the case. For detailed information, please feel free to call for inquiries.
