What to Do in the Case of EB-5 Project Failure

The EB-5 program is one of the most direct paths to U.S. permanent residency (also known as obtaining a Green Card). Despite the attractiveness of the program, it is not without risk. As with all investment activity, EB-5 projects involve a degree of uncertainty, and not all EB-5 projects succeed.

This article will explore the reasons why some EB-5 projects fail, the immigration and financial consequences of project failure, and steps that an investor can take to avoid this worst-case scenario.

What Is the EB-5 Program

The EB-5 program, also known as the Immigrant Investor Program, offers eligible investors a pathway to U.S. permanent residency for themselves, their spouses, and their unmarried children under the age of 21. This initiative, established by Congress in 1990 to stimulate U.S. economic growth, requires foreign investors to make a substantial capital investment in a U.S. enterprise and create at least 10 full-time jobs for qualifying U.S. workers through the venture.

Depending on the location of the investment—whether in a targeted employment area (TEA) or elsewhere in the U.S.—the minimum required amount is either $800,000 or $1,050,000, respectively.

The EB-5 program boasts several advantages, including the fact that no employment offer is needed, and that the investor and their family can live anywhere in the U.S. that they choose.

The EB-5 program allows foreign investors to choose between making a direct investment in a business they will own and operate, or making an investment in a regional center approved by the United States Citizenship and Immigration Services (USCIS). Regional centers are organizations authorized by USCIS to serve as vehicles for economic growth in the country.

The vast majority of EB-5 investors choose regional centers over direct investments for their EB-5 projects. This is mainly because regional centers allow for diversified financial risk, require less direct involvement in the project by the investor, and assume responsibility for meeting the complex job creation requirements of the program.

Since most EB-5 investors ultimately invest in a regional center, this article will focus on EB-5 regional center projects.

Why Do Some EB-5 Projects Fail?

Common factors that have contributed to EB-5 project failures in the past include the following:

Insufficient Funding

Adequate funding is necessary to ensure the success of an EB-5 project. Sufficient investment capital is needed not only to launch the project, but also for the project to remain operational. Insufficient funding can result in project delays, an inability to meet project targets, legal challenges, and even project failure.

Project Mismanagement

EB-5 project mismanagement by project leaders, including poor planning, poor accounting practices, lack of transparency, deviation from the project plan, and frequent changes in leadership can all create significant challenges to the project and result in project failure.

Fraud

Instances of fraud, including embezzlement by project managers, false guarantees of returns on initial investment, misuse of funds, and misrepresentation of a project’s viability can all put EB-5 projects at risk and result in project termination.

Failure to Generate the Required Number of Jobs

When an investor’s original EB-5 application (also known as an I-526E application) is approved, they are eligible for conditional permanent residency status for an initial two-year period. At the conclusion of the two-year period, the investor must file a second application, known as an I-829 application, to have their status changed from conditional resident to unconditional permanent resident. If the EB-5 project has not created 10 full-time jobs for U.S. workers by the time that the investor files their I-829 application, the investor’s petition will be denied.

What Are the Consequences to an Investor if an EB-5 Project Fails?

To a degree, the financial consequences to an investor in the event of project failure depend on the terms of the offering by the specific regional center. Some regional centers, for example, hold investor funds in escrow accounts until certain milestones in the immigration process are reached.

In general, however, both the financial and the immigration consequences of an EB-5 project failure can be grim. If a project fails, part or all of an investor’s funds can be lost. The failure of an EB-5 project can also mean that the investor’s U.S. immigration journey has come to an end.

Is There Any Path Forward for an EB-5 Investor in the Event of a Project Failure?

A limited number of options are available to investors when an EB-5 project fails. These include the following:

Filing a Lawsuit

In circumstances where the EB-5 project failure was due to fraud, breach of contract, misrepresentation or other legal misconduct, investors may be able to recover their funds by filing a lawsuit. While this avenue may address the financial losses suffered by the investor, it will not change the negative consequences of the failure to the investor’s immigration goals. Further, litigation can be expensive and take a long time. It is therefore important for investors to consult with an experienced securities attorney to assess the costs and benefits of filing a lawsuit before pursuing this route.

Protection Under the EB-5 Reform and Integrity Act of 2022

In March of 2022, the U.S. Congress passed the EB-5 Reform and Integrity Act of 2022 (RIA). The RIA added a new provision to U.S. immigration law wherein, under certain circumstances, good faith investors may retain visa eligibility in cases where a regional center project has failed. Specifically, an investor may be able to retain eligibility if the new commercial enterprise (NCE) in which they originally invested associates with an approved new regional center. An investor may also be able to retain eligibility if they make a qualifying investment in another new commercial enterprise. In either scenario, the sufficient job creation requirement must still be met.

Is There Anything EB-5 Investors Can Do to Prevent Project Failures?

In order to safeguard their investment, investors can and should conduct exhaustive due diligence prior to investing in an EB-5 project. EB5AN recommends that investors take the following steps:

• Research the background of the regional centers under consideration and carefully evaluate their historical performance.
• Review EB-5 project business plans and financial forecasts to assess a given project’s feasibility.
• Understand how project funds will be allocated and the risks associated with the funding allocation plan.
• View job creation plans and ensure that projects have a solid plan for meeting the strict EB-5 job creation requirements.
• Reach out to prior and current investors for direct feedback regarding their experiences.
• Remain vigilant over the ongoing management and oversight of the investment once it has been made.
• Seek out projects managed by teams with a strong and proven track record.

Investing in Low-Risk EB-5 Projects

The failure of an EB-5 project can have severe consequences for an investor. Fortunately, an investor can safeguard both their financial interests and their immigration process by taking the right steps.

With years of experience, EB5AN has helped more than 2,300 families from 60 countries relocate to the United States as lawful permanent residents. Our expert team guides investors on how to avoid pitfalls, both large and small, as they navigate the EB-5 program.

You can schedule an appointment to speak with our expert team today to learn more about how to select an EB-5 project that will increase your chances of success in both obtaining a Green Card and getting your EB-5 investment funds back.