Changes may be in store for the EB-5 visa program that is used mostly by Chinese immigrants to obtain US citizenship following allegations that developers of a rural Vermont ski resort funded through EB-5 spent $50 million of investor funds on personal expenses.

Owners of the resort operated a "Ponzi-like" scheme, spending the $50 million intended for an expansion of the property on personal expenses, US financial regulators charged on April 14.

"The current situation is a body blow to EB-5 because the Vermont program was the iconic one, with money to a rural part of the country, and managed by a squeaky clean state government. If the program can go badly, as it did in Vermont, it can go badly anywhere," said David North of the Center for Immigration Studies in Washington.

EB-5 is an alternative way for immigrant investors to obtain a US visa. It was created in 1990 to help stimulate the US economy through job creation and foreign investment.

With a minimum of $1 million - or $500,000 in low employment or rural areas - an EB-5 investor must create at least 10 full-time jobs through the project they are working toward completing. In return, the investor is eligible for permanent US residency.

China accounts for more than 80 percent of EB-5 visas issued.

Reuters reported that a federal judge in Miami ordered the assets of Jay Peak and related businesses in Vermont frozen after the Securities and Exchange Commission (SEC) charged that its owners raised some $350 million from investors for projects including new resort facilities and a biomedical research facility, but spent the new funds on old projects that had gone over budget.

Bill Stenger and Ariel Quiros raised the money for projects at Jay Peak and Q Burke ski resorts and in Newport, Vermont, from about 800 investors in countries from Brazil to Vietnam. It is not clear if any of the investors were from China.

Stengos and Quiros are accused of civil actions filed by the SEC. No charges have been filed, but a federal criminal investigation is under way, the Burlington (Vermont) Free Press reported.

US Senator Patrick Leahy, a Vermont Democrat who is a ranking member of the Senate Judiciary Committee, which has jurisdiction over the program, has been a proponent of the EB-5 program. But he said he was "shocked and saddened" by the allegations against Quiros and Stenger.

Leahy said the EB-5 program is in "dire need of reform", the Free Press said. "Without reform, I believe the time has come for the program to end," said Leahy.

"The heart of the EB-5 program, the provisions for the $500,000 investments, is up for renewal on Sept 30," North said. "My prediction is that chances for reform of it have been enhanced by these developments. Look for tighter rules about the definition of depressed areas and a higher investment level - maybe $800,000 - as likely reforms."

As interest in the program has increased, so has the controversy surrounding it. EB-5 received applications from 17,691 investors in 2015, up from 11,744 in 2014 and 6,554 in 2013, according to the US Citizenship and Immigration Services. The Government Accountability Office, the investigative arm of Congress, found last year that many EB-5 applications contained a high risk of fraud. The GAO also discovered cases of counterfeit documentation.

There is also controversy over where the bulk of EB-5 funding has been directed. Even though the program is designed to benefit rural and high-unemployment areas, funds are going to projects that are located in big cities, like the Hudson Yards Development in Manhattan in New York City. Leahy and Republican colleague Charles Grassley of Iowa are seeking changes that would better allow low-income and rural areas to find foreign investors.

paulwelitzkin@chinadailyusa.com