The Department of Homeland Security made the appropriate decision — a denial — in a Florida EB-5 case recently, but it did so very, very quietly.
I was initially intrigued by the decision for two reasons:
- DHS, not the Securities and Exchange Commission or some investor, apparently detected the problem itself, which is highly unusual in immigrant investor cases.
- Instead of the usual questionable real estate scheme, this proposal was for an actual, honest-to-God factory, designed to convert lots of plant waste — the term currently is "bio-mass" — into useful stuff.
An extremely well-informed informant, someone who knows the EB-5 business very well and has remarkable computer skills, told me about the bare bones of the case. He had an obscure public document (which I had missed) and a confidential business proposal linked to the case for the construction of the factory. He provided both to a bunch of federal officials, to me, and presumably to others as well.
As background, alien investors, should they put half a million dollars into an investment approved by, but not guaranteed by, DHS, can get a set of green cards for themselves and their family in the EB-5 program. There were as many as 66 such investors in this situation.
After a bit of detective work I found that the government must have had numerous reasons for denying this project, some of which I cannot find on the public record. This is how I learned about the case:
The Public Document. The promoters of the scheme apparently were turned down by a unit within DHS, the Immigrant Investor Program Office (which bears the initials IPO, when it should be IIPO, but that lacks cachet). The promoters appealed to an in-house review entity, the Administrative Appeals Office (AAO). While the agency decision itself is not a public document, the AAO decision is, but the copies of such decisions are riddled with redactions, as AAO busily denies the public the names of the players in the case, and anything that might reveal anything about them. AAO confirmed the denial made earlier by IPO.
The case is Matter of H-T-B and it was decided on April 24; the partial text of the decision, i.e., what is left after the redactions, can be seen here.
The Public Rationale for the Decision. The nameless administrative judge in this case ruled that:
Considering the record in its totality, we find the Petitioner has not provided a business plan that is comprehensive or credible, because the 2017 plan still contains insufficient details and inconsistencies.
The AAO document indicates that the applicant did not offer adequate data on the sources of the 453,976 tons of bio-mass cited as needed each year for the facility — that's 907,352,000 pounds (my calculation) of lawn trimmings, tree limbs, palm fronds, and other vegetable matter. Nor did the applicant have the numerous permits in hand needed to build the factory, nor was it clear where the millions in needed non-EB-5 funds would come from, and finally, the applicant had cited inconsistent geographical locations for the proposed plant.
All sound, rational reasons for saying no to the petitioner.
Other Considerations. I then looked at the business proposal that my informant had provided and found at the top of the title page "South Atlantic Regional Center". This is the name of the EB-5 middleman outfit that raises the money from the aliens and supervises the work of the developer, in this case the Carbolosic Energy Project. The first is headed by Joseph Walsh and is in Boca Raton, and the second is a subsidiary of AMG Energy Group in West Palm Beach.
I know nothing about the developer except that its proposal was heavy with scientific references and contained 316 footnotes, many of academic journals, but the Walsh name rang a bell, as he was cited in another EB-5 project failure, a hotel, in a posting of ours of some 18 months ago in which several Chinese investors accused Walsh and his associates of fraud.
So IPO had good reason to suspect Walsh's factory proposal but did not announce its denial of the project, or if it did, I did not see it. Further, the AAO opinion, or at least in its redacted form, did not mention Walsh.
The IPO, then, did the right thing in denying the project, but it was clearly wrong, at least in my eyes, for not telling the whole story about its decision. Had it done so, it would have further blackened the reputation of the EB-5 program.