Recently, news that the developers of the U.S. EB-5 Chicago Convention Center project defrauded 250 investors, primarily from China, has caused a stir in the U.S. immigration community. To understand the latest developments and reveal the full story to Chinese investors, our reporter interviewed a relevant executive from Worldway Immigration, which previously served as the sole chief agent for the Chicago Convention Center project in China.
Reporter: Worldway Immigration was the first to report on its official website that the U.S. Securities and Exchange Commission (SEC) had formally charged the Chicago Convention Center project developers. Could you disclose the latest developments in this case?
Worldway Group Project Director: We learned immediately from U.S. sources on February 8, 2013 (Washington time) that the SEC filed a lawsuit on February 6 in the U.S. District Court for the Northern District of Illinois against the Chicago Convention Center (ACCC), the Intercontinental Regional Center Trust of Chicago (IRCTC), and their controller, Mr. Anshoo R. Sethi (the three parties collectively referred to as the "Project Developers"). The SEC issued an announcement regarding this event on its official website on February 8.
Currently, the U.S. District Court for 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 in EB-5 investment funds. Meanwhile, given that Mr. Sethi misappropriated the vast majority of the $11 million in administrative fees without the I-526 petition being approved (of which $2.5 million was wired directly to Mr. Sethi's private Hong Kong account), leaving less than $1 million in the administrative fee account, the SEC has requested through the U.S. District Court for the Northern District of Illinois that Mr. Sethi return all used/remitted administrative fees. The U.S. Citizenship and Immigration Services (USCIS) has also ceased processing this project. More than 250 EB-5 investors have been affected, the majority of whom are Chinese.
Reporter: According to the information we have, Worldway was once the sole chief agent for this project in China?
Worldway Group Project Director: Yes. In August 2011, Worldway Group was appointed by the project developers as the sole chief agent in China. In September, we were invited to attend the launch ceremony in Beijing and jointly inaugurated the project with the Governor of Illinois. However, after our group's U.S. Project Management Department conducted research, we discovered many suspicious points regarding the Chicago Convention Center project that were vastly different from the five major project advantages claimed by the developers. Therefore, in October 2011, we summoned Mr. Anshoo R. Sethi, announced Worldway Group's resignation as the sole chief agent for the Chicago Convention Center in China, withdrew from promoting the project, and terminated our cooperation with the Chicago Convention Center project developers.
To clarify the facts and allow the industry and EB-5 investors to understand the truth as soon as possible, while disclosing the SEC's lawsuit against the Chicago Convention Center project developers, Worldway published the "Worldway Group Statement" on its official website (www.worldwayhk.com) on February 9, and released the English version of the "Worldway Group Statement" on relevant professional EB-5 websites in the United States. This responsible approach by Worldway Group has been praised and supported by the immigration community and EB-5 investors in both China and the United States.
Reporter: Then, in August 2011, before the project launch, why were the problems not discovered?
Worldway Group Project Director: First of all, the problems that emerged with the Chicago Convention Center project were not issues of how to objectively evaluate the project itself, but rather serious commercial fraud; the project developers engaged in intentional fraudulent behavior. These fraudulent acts were difficult to detect through routine project analysis and required time to carefully study and verify, especially since the developers promised at the time to provide the requested legal or official documents to investors.
After the Chicago Convention Center project launch ceremony, in just one month, Worldway Group's U.S. Project Management Department continued to conduct due diligence on the project. Two senior project analysts professionally studied the project offering documents provided by the developers. At the same time, Worldway Group's U.S. Project Management Department commissioned senior U.S. EB-5 experts to go to Chicago to conduct actual research on the project, thereby discovering that the project materials provided by the developers could not be trusted, and some important official certification documents were still not provided after repeated urging.
Reporter: What problems did Worldway discover about the Chicago Convention Center project at that time? Could you introduce them in detail?
Worldway Group Project Director: There were five major suspicious points in the project:
1. The valuation of the capital contribution claimed by the project developers was seriously inaccurate. Investigation revealed that the developers claimed to contribute 3.2 acres of land (actually only 2.8 acres), and the price was astonishingly high, reaching $177 million, but they could not provide the formal appraisal report they had promised to provide.
2. The capital contribution claimed by the developers was not transferred to the project company, Chicago Convention Center (ACCC). Investigation revealed that the land claimed by the developers as a capital contribution actually belonged to another company established by the controller, Mr. Anshoo R. Sethi, and his father. Mr. Anshoo R. Sethi had promised to transfer the land title to the project company as soon as possible, but later refused to handle the title transfer procedures on the grounds that his father did not agree.
3. The developers could not provide official certification documents for the so-called government funding support they claimed. Investigation revealed that the developers claimed the project had government investment participating in the construction, and the investment ratio accounted for more than 50% of the total project investment, but they never provided official documents to prove it.
4. The experience and ability of the controller, Mr. Anshoo R. Sethi, and his father in operating hotels were questionable. Investigation revealed that Mr. Anshoo R. Sethi and his father owned a low-grade small hotel on the land claimed to be used for the capital contribution, and the business was bleak. This was far from the experience and strength they claimed, and it was impossible to believe that they had sufficient experience and ability to build and operate a so-called "world's first zero-carbon platinum LEED-certified" hotel and convention center, which claimed to have meeting space and 5 high-end hotels with a total of 995 rooms.
5. The construction budget was falsely high, increasing employment risks. Investigation revealed that the total budget for the Chicago Convention Center, including land costs, was $913 million, with each room costing as much as $917,000. Making such intensive capital investment in such a small space is the project with the highest average construction cost per square foot among all EB-5 construction projects. Since construction costs are related to employment calculations, the falsely high construction budget inevitably leads to inaccurate employment calculations, and the claimed 1.73 times employment indicator lacks a credible basis.
The five major suspicious points raised by Worldway Group's U.S. Project Management Department as early as October 2011 unfortunately proved to be true. On February 6, 2013, in a 26-page complaint, the SEC made detailed accusations regarding the above-mentioned suspicious points and other issues. For details, you can log on to the SEC's official website to view the original report.
Reporter: In what aspects did the project developers mainly commit fraud?
Worldway Group Project Director: According to the SEC complaint document dated February 6, we learned that the Chicago Convention Center project developers deceived and misled EB-5 immigrant investors and the USCIS in the following 7 aspects:
1. The cooperation agreements with Starwood Hotels, Intercontinental Hotels, and Hyatt Hotels contained false statements and fraud. The cooperation agreements between Starwood and Intercontinental with Mr. Sethi were terminated in 2009 and 2010, respectively, and the cooperation agreement with Hyatt was purely forged.
2. The project developers falsely stated that they had obtained project construction permits when they had not obtained formal construction permits in Chicago.
3. The valuation of the land injected into the project by the developers was seriously overestimated. The 2.8 acres of land purchased in 2008 for less than $10 million was valued at $177 million as an equity investment in the project. To avoid taxes, the plot had previously been valued at $600,000. The SEC document mentioned that in 2011, a 20-acre plot of land with basic infrastructure near the convention center site was sold for only $7.7 million.
4. False descriptions of the qualifications of Mr. Sethi and the developers. It was falsely stated that the 29-year-old Mr. Sethi had more than 15 years of real estate development and management experience, especially in the hotel industry, and it was stated that the developer, which was only established in 2010, had 35 years of industry experience.
5. The offering documents falsely fabricated that they would receive approximately $340 million in support from the Illinois state government, and when the USCIS issued a Request for Evidence (RFE), they provided forged supporting documents to the USCIS.
6. The offering documents promised to return the administrative fees if the I-526 was not approved. Mr. Sethi misappropriated the vast majority of the $11 million in management and administrative fees without the I-526 being approved (of which $2.5 million was wired directly to Mr. Sethi's private Hong Kong account), leaving less than $1 million in the administrative fee account.
7. The employment estimate was based on an overestimated and inflated capital expenditure budget and unrealistic revenue estimates, and employment will ultimately be difficult to achieve. The Chicago Convention Center estimated the hotel construction cost at $740,000 per room. If land costs are included, the cost per room is nearly $920,000. This far exceeds the U.S. average cost range of $210,000 - $610,000 per room. The hotel operating revenue forecast is based on the assumption of 100% occupancy of the hotel's 995 rooms throughout the year, with a room rate of nearly $300 per night, which is very unrealistic.
Reporter: For such a fraudulent project, why did the Governor attend the project launch ceremony?
Worldway Group Project Director: In fact, this was also a scam carefully woven by the project developers. They took advantage of the Governor's visit to China to invite the Governor and state senators to attend a launch conference for a so-called investment project that could create 8,493 jobs, and to jointly inaugurate the project with us. They used our trust in the Governor and the state government to create the illusion that they had obtained government support, thereby deceiving Chinese immigration agencies and investors. Later, we learned from U.S. sources that the Illinois state government strictly prohibited the Chicago Convention Center project developers from using the Governor's and the government's name or official logo to promote the project.
Reporter: How many Worldway clients were affected by this Chicago Convention Center project?
Worldway Group Project Director: Not a single Worldway client invested in the Chicago Convention Center. After Worldway Group discovered the problems and terminated its cooperation with the project developers, we required all subsidiaries to explain the truth to clients immediately, in a spirit of high responsibility toward our clients. Our sincerity was also understood and supported by our clients, and all of them, without exception, switched to other EB-5 projects.
Reporter: As everyone knows, U.S. investment immigration carries risks. However, in this Chicago Convention Center project alone, 250 people were involved in the scam, and the amount defrauded reached $145 million. Will this have a huge impact on the promotion of EB-5 in China in the future?
Worldway Group Project Director: It can be said that this event is the biggest scandal since EB-5 entered China, and it will have a certain impact on the immigration community in both China and the United States. As early as the beginning of 2009, Worldway was the first in the industry to propose the "era of selecting EB-5 projects" and equipped itself with professional project analysts. Now, Worldway's risk monitoring for EB-5 projects has extended from project screening and due diligence to establishing a project monitoring mechanism after investment, which is also a first in the industry. I believe that after this incident, all immigration agencies will strengthen their due diligence on EB-5 projects to varying degrees, and the screening of EB-5 investment projects will become more stringent.
At the same time, we also believe that EB-5 projects will develop more healthily. The SEC's action this time, with the full cooperation of the USCIS, is aimed at protecting the interests of EB-5 investors and is conducive to the healthier development of EB-5 projects, and therefore has also received the support and backing of the U.S. immigration community.
