Feds Sustain Suspension of Victorville’s Investment For Visas Program

VICTORVILLE—The administrative appeals office of the U.S. Citizenship and Immigration Service has sustained the termination of Victorville’s EB-5 visas-for-investments program.

The EB-5 program is a federal one that allows entities such as cities or redevelopment agencies to arrange for the provision of visas for foreigners who invest at least $500,000 in projects pre-qualified by the federal government, in particular ones aimed at the civilian-use conversion of former military bases. In April 2008, the city entered into a relationship with CMB Export, LLC to manage an EB-5 program for Victorville at and around Southern California Logistics Airport, now being built on the grounds of the former George Air Force Base, which was shuttered by the Department of Defense in 1992.

Under its agreement with CMB, that company was supposed to recruit foreign nationals, in this case mainly ones from China and Korea, who were to put up at least $500,000 each in investments pertaining to the base. In exchange, the investors would receive visas, or green cards, for themselves and the members of their immediate families. The city, however, abrogated its contract with CMB in June 2008. In December 2008 CMB filed a $33 million lawsuit against the city, claiming breach of contract, fraud, unfair competition and business interference. CMB refiled the claim in February 2009, including charges of misrepresentation and fraud by former city manager Jon Roberts and former mayor Terry Caldwell.

Despite the lawsuit, U.S. Citizenship and Immigration Services approved Victorville’s application to participate in the EB-5 Program in 2009, allowing foreign nationals to supply at-risk loans to the city, with the proviso that the loans underwrite efforts to convert the former air base to civilian use and simultaneously create local employment opportunities. Investors were to be paid back with interest within five years. Nineteen Asian investors put up $500,000 each under the program. The city then committed to utilizing the money to refund a restricted municipal water department account from which money had been used to construct a wastewater plant at Southern California Logistics Airport.

In April 2010, the city of Victorville settled the lawsuit brought by CMB for $200,000. The following month, however, the U.S. Citizenship and Immigration Service suspended Victorville’s EB-5 program pending review, stating that city officials had misrepresented the projects to be funded by the investment program. In October 2010, the U.S. Citizenship and Immigration Service terminated Victorville’s program, citing “material factual discrepancies” in financial documents. It was the first time the federal government had moved to terminate an entity’s EB-5 authority.

In response, Victorville filed a lawsuit in Washington, D.C. District Court against the U.S. Citizenship and Immigration Service, the Department of Homeland Security and several senior federal officials. It also filed an appeal of the program cancellation with the U.S. Citizenship and Immigration Service’s Administrative Appeals Office, and temporarily agreed to a stay of the suit pending that appeal.

In a letter dated December 21, the administrative appeals office of the U.S. Citizenship and Immigration Service upheld the decision to terminate Victorville’s program, referencing Victorville’s failure to meet several EB-5 criteria. The appeals office determined Victorville had fallen short in generating jobs using the foreign investments. “At issue is whether the alien investors can be credited with job creation when, in actuality, they are merely preserving jobs,” according to the letter. The appeals office found examples of misrepresentation or contradiction between what councilman Mike Rothschild and the city’s attorneys said about the program and discrepancies in city representations about the city’s interdepartmental loans and their use. The wastewater plant, which is already running, is operating without an infusion of EB-5 money, though the city had declared its intent to pay the interfund loans with the EB-5 money.

Victorville has refunded the entirety of the $9.5 million in investments it received under the EB-5 program. At present, it is looking to sell the wastewater treatment plant to the regional Victor Valley Wastewater Reclamation Authority.

The city council is now scheduled to discuss on January 17 whether to proceed with its lawsuit against the U.S. Citizenship and Immigration Service and the Department of Homeland Security. That issue is problematic for several reasons. One is that public representations by Rothschild are at issue in the federal agency’s action. Another is a conflict involving city attorney Andre DeBortnowski, whose firm stands to make money if the city proceeds with the suit. DeBortnowski and his firm’s representations in documents have been cited as inconsistent with Rothschild’s statements. Bortnowki’s firm also failed to monitor the EB-5 program adequately in the past to ensure that it maintained federal certification. Pursuing the lawsuit in federal court will likely prove very costly.

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