EB-5 investments are different from other investments. EB-5 investors are foreign nationals looking to immigrate to the United States through their investments. Many EB-5 investors, especially those in countries where there is a language barrier, do not have much investment experience. Importantly, for EB-5 investors, the goal is not primarily high financial returns—instead, the main goal is to obtain a Green Card. For many EB-5 investors, an EB-5 investment will be the largest investment they have made.
Some regional centers and/or sponsors and/or developers take advantage of this inexperience by withholding or obscuring key information that most investors would demand to see before investing. Many EB-5 investors are unaware that material details that affect both the project and immigration risks are not being properly communicated.
At EB5AN, however, we believe EB-5 investors deserve the same respect and consideration as any other kind of investors in non-EB-5 related transactions. To this end, we have created the “EB-5 Investor Bill of Rights,” a collection of basic “rights” we believe EB-5 investors should expect from regional centers and EB-5 projects.
The EB-5 Investor Bill of Rights is inspired by the historic U.S. Bill of Rights—a foundational document that amended the U.S. Constitution to enshrine certain protections and freedoms for American citizens. These rights are held dear by the people of the United States and include the right to freedom of speech and the right to a jury trial if accused of a crime.
Just as the U.S. Bill of Rights safeguards U.S. citizens, the EB-5 Investor Bill of Rights reflects the need to safeguard investors in the EB-5 program. The U.S. Bill of Rights embodies the essence of American legal and cultural norms and sets the standard for how the U.S. government treats its citizens and residents. In the same way, EB5AN believes that EB-5 investors are entitled to a certain standard of treatment from regional centers.
The 10 fundamental rights we believe every EB-5 investor should expect and demand include the following:
1. Right to Speak Directly with the Regional Center or Sponsor Principals and Have Your Questions Answered in Writing
2. Right to Personally Visit the Project Site before Investing
3. Right to Transparency about Conflicts of Interest between the Sponsor, the Regional Center, and the Developer
4. Right to Hire an Independent Immigration Attorney
5. Right to Review Financial Statements of the Project Company and, if applicable, the Guarantor, before Investing
6. Right to Review the Project’s I-956F Filing Package
7. Right to Information on the Regional Center’s and the Developer’s Track Records (Successes and Failures)
8. Right to Know SEC Complaints or Litigation against the Regional Center
9. Right to Receive Quarterly Reports on the Project
10. Right to Review Financial Documents Illustrating the Flow of Your Investment Funds
1. Right to Speak Directly with the Regional Center or Sponsor Principals and Have Your Questions Answered in Writing
Speaking with a regional center and asking questions before investing in an EB-5 project is crucial. Be wary if a regional center is unwilling to speak to you or answer your questions in writing. Verbal answers to your questions are good, but unless a response is also in writing, proving what the regional center said will be difficult. Always ask the regional center to provide written evidence to support what they say.
Speaking directly with the regional center and asking pointed questions is a vital part of performing your due diligence. By asking the regional center questions about its project, you can learn what you need to know before committing your funds. Most importantly, you should ask questions about the following project details:
- potential for success and risks
- the regional center management team’s experience
- the developer’s track record
- legal compliance with EB-5 and securities laws
- financial projections
- job creation
- exit strategy of the EB-5 investment
Like all investments, EB-5 investments carry risk. By talking with the regional center, you can better understand the risks of investing in that specific EB-5 project.
Job creation is one of the core requirements of the EB-5 program, and you need up-to-date information on how many jobs have been created. When you review an offering’s documents, be aware that they could be over a year old. In that time, many facts can change. Consequently, you should ask for current information on the project’s progress and the number of jobs it has already created.
You should also ask about the terms and conditions of the EB-5 investment’s exit strategy. You need to know when and how the EB-5 investment will be repaid by the developer.
Additionally, when speaking with the regional center, you should ask how many investors have already subscribed to the EB-5 fund and how many slots are still open for investment. This will help you understand how much time you have left to make your investment decision.
As an investor, you should have clear answers to all of your questions about a project before you wire any funds. Do not settle for an EB-5 investment with a regional center that is unresponsive. You deserve to have all of your concerns addressed in a timely and thorough manner.
2. Right to Personally Visit the Project Site before Investing
A site visit is a hands-on way to become more informed and engaged in your investment. By seeing the project site for yourself, you can confirm that the project is real and is progressing as it has been described to you. Additionally, during a visit, you can evaluate potential risks firsthand.
Visiting a project allows you to assess its status. During your visit, you will see what stage of development it is in, whether it is on schedule, and its business operations. Such an assessment can help you understand the timeline for both job creation and the return of your money.
Visiting the project also allows you to evaluate how marketable it is. While visiting, you can get a sense of the area’s economic health, the local infrastructure, and other key factors that may impact the project’s success. Moreover, a visit will reveal if the developer is doing poor quality work, which may lower the project’s market appeal.
Importantly, when visiting a project site, you can meet with the project’s developer and possibly members of the regional center team. Such a visit enables you to ask questions directly to those most familiar with the project. As a result, you will be able to gather information that you might not find in project documents. For example, you may get a sense of whether the people involved in your investment are professional and competent. You can also learn the current state of the project, up-to-date sales figures, and any challenges the project is facing.
You should be suspicious if a regional center is unwilling to arrange for you to visit a project site. As a prospective investor, you ought to be able to see what you would be investing in. Refusing to let you visit the project site is a major red flag—it suggests the regional center has something to hide.
3. Right to Transparency about Conflicts of Interest between the Sponsor, the Regional Center, and the Developer
Any conflicts of interest between the sponsor, the regional center, and the developer must be disclosed. If a conflict of interest exists between a project’s regional center and its developer but you do not know about it, you cannot make an informed investment decision. This point is vital, so you should always ask for a full written disclosure of the relationship between the regional center and the developer.
Conflicts of interest may or may not introduce risks to an investment. For example, if the same entity owns both the regional center and the developer, the regional center may act in the interests of the developer rather than those of the EB-5 investors. Such a conflict would pose a major financial and immigration risk to EB-5 investors. If a conflict is properly managed, however, the risk to EB-5 investors may be negligible. The crucial point is that any conflict must be disclosed to you.
If the regional center discloses a conflict, you may find the relationship is acceptable—or not. The main issue here is transparency. With a conflict fully disclosed, you may decide to invest, or you might choose not to. But lack of transparency on this issue presents a significant risk.
Ultimately, the existence of any conflicts of interest and how they are managed can have a significant impact on the viability and success of an EB-5 project. As an EB-5 investor, project success is directly tied to your immigration and financial outcomes. As a result, you should make sure to ask the regional center about any conflicts of interest it may have. Expect them to provide a clear, detailed description of its relationship with the developer in writing, which you can then examine to see if you find their relationship to be acceptable. If they refuse to provide this information, they may be hiding a conflict, and you should be wary.
4. Right to Hire an Independent Immigration Attorney
Hiring an independent immigration attorney is critical. Specifically, you want an attorney with experience successfully representing EB-5 investors. He or she will provide expert guidance on the complex legal requirements of the EB-5 program. While skill and experience are essential, you also need an independent attorney who is totally unaffiliated with the regional center.
Just as discussed regarding the developer, if your attorney has represented the regional center, this creates a conflict of interest that may pose a risk to your immigration success. Conversely, an attorney who is independent from the regional center serves as a safeguard to you. You can have confidence that, since your attorney is independent, he or she will provide legal advice with your best interests in mind, not the regional center’s. You deserve this peace of mind as you navigate the complex EB-5 and immigration process.
Independent representation is vital since your attorney will help you perform due diligence on the investment, the regional center, and the project. A good immigration attorney will ensure that the investment you are considering meets EB-5 requirements and complies with all U.S. immigration laws and regulations. Such compliance is essential for the success of your visa application.
An independent attorney will represent your interests and help protect your rights. Your attorney should not have a direct interest in the regional center or project. As with any other conflicts of interest, the regional center should disclose whether your attorney has ever represented it. You should ask your attorney and the regional center whether they are working together in any capacity—or whether they have in the past. If they are working together or have in the past, you should consider a different project and/or new counsel. If the regional center and/or attorney refuse to answer, this is a major red flag.
5. Right to Review Financial Statements of the Project Company and, if applicable, the Guarantor, before Investing
Before you invest, you need to know some basic information about the company that will receive your money. Real estate developments tend to rely on investments and large senior loans to fund construction costs. Besides the EB-5 investment, you need to know where the project is getting its money. This is where financial statements come in, as these documents show whether the project company has the resources it needs to complete the project. As such, you should be given the opportunity to review the financial statements of the project company and any guarantors in a real estate development project before wiring your funds. This basic due diligence is standard for all other kinds of investments, and it should be the norm for EB-5 investments, too.
By reviewing financial documents, you will be able to gauge the financial health and operational capability of the project company and any related guarantors. The goal is to understand how likely you are to get your money back on time and earn a profit. Also, since the financial success of a project directly impacts job creation, it affects your immigration outcome, too. Reviewing financial documents will help you properly assess how risky the project is and its potential for success. Without this information, you will not be able to make a fully informed decision.
The ability of the project company to service its debt is critical. This is especially true for real estate projects, which often involve extensive borrowing. Financial statements show how much debt a company has and whether it can make payments on time. In real estate, a high amount of debt, or leverage, can significantly enhance financial returns, but it also increases risk. To see how much the company is leveraged and to assess the risk involved, investors need to see the company’s financial statements.
Financial statements also provide information on the value of the project’s underlying assets. This valuation is important for understanding the collateral value of the investment. Additionally, if the EB-5 investment is secured with a repayment guaranty, you need to review the financial statements of the guarantor. The strength of the guaranty is based on the value of the guarantor’s net equity and the diversity of its assets, so any guaranty must be evaluated in the context of this information.
Additionally, the quality of the financial statements can show whether the project is professionally managed. Low-quality financial statements could be a sign of inexperience or accounting issues.
Reviewing financial statements can also reveal whether the company is in compliance with financial regulations. Any failure of the project company to comply with all laws and regulations poses a serious risk to EB-5 investors since it can impact the project’s legal standing.
If a regional center is unwilling to share any of the financial documentation related to the project, you should be cautious. The project will have to provide these documents to get any bank financing or investments from non–EB-5 investors, and you should expect the regional center to make them available to you, too. The only reason to withhold these documents is to hide information.
6. Right to Review the Project’s I-956F Filing Package
Form I-956F is a critical document used by regional centers to apply for project approval from USCIS. The form must be filed before a project can receive EB-5 investor funds. Approval of this application effectively shows that a project is eligible for EB-5 investment. If a project’s Form I-956F is denied, EB-5 investors’ immigrant petitions will also be denied. Due to its importance, an EB-5 investor should have the opportunity to review the I-956F filing package for a project before investing. Typically, a careful review of this application requires the help of an experienced EB-5 attorney—the use of a professional here helps ensure you are fully informed about the project.
The I-956F filing is made up of the offering documents for the EB-5 project, such as the business plan, offering memorandum, and legal agreements. By reviewing these documents with a professional, you can verify that what you have been told about the project is true. These documents explain the project’s business model and all investment terms. The offering memorandum in particular gives details about the project’s risks. All investments carry risk, and you should review all risk factors carefully.
The I-956 filing outlines the structure of the investment. It will detail all of the sources of project financing, such as senior loans and developer equity. These documents will also reveal what financing has payment priority ahead of EB-5 funds. This information is vital, as it explains your position in the capital stack and how your repayment position impacts you.
The level of detail and transparency in the filing package can reveal the regional center’s integrity and business ethics. If the documents in the I-956F filing package are not comprehensive and clear, you should be concerned.
The I-956F filing will additionally outline the expected timeline and milestones of the project, which are key to your immigration success. The filing should also explain what measures are in place to monitor and oversee the use of your funds. You should know whether the investment has third-party oversight, which can give you confidence in the ongoing management of your money.
Reviewing the I-956F filing package gives you the opportunity to spot red flags. You may, for instance, find that the regional center and its project are not in full compliance with the EB-5 program. In any event, you should ask to review the entire I-956F filing package. If a regional center is unwilling to give you access, you should be wary.
7. Right to Information on the Regional Center’s and the Developer’s Track Records (Successes and Failures)
You should ask the regional center to provide detailed information on both the regional center’s and the developer’s track records. By reviewing this information, you will have a better idea of whether you can trust these companies with your funds. Specifically, you will learn whether these companies have a proven record of EB-5 project success or a history of failure, which will help inform you of the risk of the investment.
While a company’s track record does not guarantee similar future performance, it does provide insights into the company’s processes and potential performance. The records of the regional center and the developer will indicate their experience and success rate. Have they delivered EB-5 projects that meet EB-5 program requirements in the past? Have these projects created all of the necessary jobs for EB-5 investors? Have these projects returned all EB-5 funds to their investors once eligible? These are key questions that you deserve to have answered before entrusting your money to a project.
Crucially, a company’s track record shows how well it manages investment funds and whether it completes projects as proposed. Therefore, by knowing the track records of an EB-5 project’s regional center and developer, you can have greater confidence about whether to invest or not. A regional center or developer with a good track record may present less risk to investors. Conversely, those without a history of successful projects—or even a record of failure—may present more risk to investors. The records of these companies suggest whether you can trust and rely on them as partners.
Investing through a regional center with a solid track record will make you more likely to enjoy a successful immigration outcome. Regional centers with records of success tend to have in-depth knowledge of the EB-5 program. Such regional centers also tend to have efficient practices, and they are often skilled at managing investor relations, particularly by providing transparent communication throughout the investment period. Such expert knowledge, efficiency, communication, and transparency all contribute to the immigration success of EB-5 investors.
Similarly, by investing in a project where the developer has a history of success, you are more likely to enjoy a positive financial and immigration outcome. Developers with proven records tend to complete projects on time, keep to their budgets, create jobs, and earn profits. Such developers understand their markets, so they are able to not only plan but execute on their real estate development projects. Complex real estate projects often pose a variety of challenges to developers—and the record of a company’s experience can show that it is able to overcome these obstacles and challenges.
To ensure you are fully informed, you should ask for a comprehensive record of the projects that a regional center has sponsored and that a developer has developed. You should ask about any failed projects, issues with returning investments to former investors, defaults on loans, etc., and get answers in writing. The records of these companies comprise key information you need, and you should expect nothing less than full transparency from the regional center and the developer. If they have something to hide, you should look for a project elsewhere.
8. Right to Know SEC Complaints or Litigation against the Regional Center
The U.S. Securities and Exchange Commission (SEC) actively litigates against parties that violate laws and regulations. Since your EB-5 investment will be tied to the regional center, you want to verify the regional center’s integrity. To protect yourself from potential fraud or mismanagement, before investing in an EB-5 project, you need to review any SEC complaints or litigation against a regional center or any of its underlying projects.
The following are some example violations:
- misappropriation of funds
- failure to disclose material facts
- making false or misleading statements about the performance of a business
- making false or misleading statements about the use of EB-5 funds
The SEC aims to protect EB-5 investors by regulating EB-5 businesses and by taking steps to deter future fraud. Ultimately, SEC protections should increase investor confidence in the EB-5 program. But you have to investigate a regional center to benefit from these protections.
As part of your due diligence, you should ask the regional center to disclose, in writing, any past, pending, or threatened complaints or litigation. If they are unwilling to answer in writing, this is a problem, as this is vital information that you have a right to know before you invest.
9. Right to Receive Quarterly Reports on the Project
You should expect at least quarterly reports from the regional center. These reports on the project provide you with necessary oversight of your investment. In particular, regular updates on the status of the project help reassure you that your money is safe and creating sufficient jobs to meet the qualifications of the EB-5 visa application process.
Financial reports allow investors to verify that their funds are being used as intended. You should have regular updates showing that the budget is being spent according to the project’s business plan. This is a central requirement of the EB-5 program.
While there is no foolproof way to prevent all fraud, regular reports serve as an important deterrent to fraud and mismanagement. By regularly reviewing project reports, you may detect potential issues early, giving you time to take action.
You should expect regular reports from the regional center. If it is unwilling to provide at least quarterly reports, you may want to consider different projects.
10. Right to Review Financial Documents Illustrating the Flow of Your Investment Funds
You should have the opportunity to review financial documents illustrating the flow of your investment funds from the escrow account to the operating account of the EB-5 investment fund, and then onto the project company. Your funds must be traced to ensure that the money is invested in compliance with the EB-5 visa program.
The EB-5 program has strict rules regarding the amount you must invest and the maintenance of that investment. When it comes time to remove conditions on your Green Card, you will need to provide documentation that your investment has been made and sustained. Financial records serve as part of this documentation by proving that the required investment amount was met, was at risk, and was used by the project to create the required jobs.
As with qualitative reports related to the project, access to the applicable financial records allows you to spot any discrepancies or irregularities in the handling of your investment. Such issues could indicate fraud or mismanagement.
This EB-5 Investor Bill of Rights outlines some of the basic rights that we think all regional centers should provide their EB-5 investors. You can expect these rights to be honored by EB5AN. If a regional center refuses to honor any of the rights listed above, you should be concerned about the transparency of the regional center and should likely look at other regional centers and projects.
To learn more about the EB-5 immigration process and low-risk EB-5 investments, schedule a free consultation with EB5AN.
Authorship
This is a joint article written by Sam Silverman, Mike Schoenfeld, and Ahmed Khan, Esq..
Sam and Mike are the managing partners of EB5AN, an industry leading EB-5 regional center operator and investment fund manager that has worked with 2,300+ EB-5 investors over the past 10+ years. To get in touch with Sam and Mike, please schedule a call using this link.
Ahmed is a vice president of EB5AN. Prior to joining EB5AN, Mr. Khan was an associate at distinguished law firms, including Klasko Immigration Law Partners, BAL, and Fragomen. He also served as a vice president at CanAm Enterprises, leading the firm’s Middle Eastern and Asian business development. Mr. Khan holds a J.D. from the University of South Carolina and a B.S. in Microbiology from the University of Georgia.
Disclaimer: Please note that the blog is not legal advice and only intends to provide helpful tips in connection with the new rules and the guidelines from USCIS. You should not rely on this guidance in making any decisions regarding the topics herein, and you should consult with your own attorneys and professional advisers for such advice.
