An EB-5 immigrant investor visa can be appealing to wealthy individuals seeking permanent residency in the United States. It can create the opportunity for a foreign citizen to live in the United States without the connection to a relative sponsor or the assistance of a business sponsor. However, choosing the wrong EB-5 investment can cause you significant hardship. Your conditional resident card can be lost – along with your substantial investment – if the conditions for the visa are not met and you are forced to leave the United States. Due diligence is always recommended before you make a significant investment, but it is especially critical before you make an EB-5 investment.
Before you invest in an EB-5 program investment, make sure you know the specifics of the investment (i.e., exactly how the investment will achieve the requirements of the program); make sure you know who you are dealing with; and, just as important, thoroughly analyze whether you are investing in a viable project. In answering those questions, remember that although your computer can be a good starting point for information, there is no filter on the internet. As a result, it is hard to distinguish independent advice from sales propaganda. Unfortunately, the internet can lead foreign investors to incompetent advice, to professionals with conflicts of interest, and to scam artists posing as experts. Do not rely on information found on the internet as the only basis for your investment. These days, it is very easy to create a very impressive and official-looking website that may be full of lies and misinformation.
If you begin your search for an EB-5 investment on the internet, the best place to start is the U.S. Government’s web page on this topic found here. Once you have reviewed what the U.S. Government has to say about the EB-5 program, we recommend you hire someone qualified and objective in the United States to conduct due diligence on the possible EB-5 programs you are considering. This means hiring an attorney or investment consultant, separate from your immigration lawyer, who is competent to conduct due diligence and who will receive no financial benefit from any EB-5 program (i.e., no conflicts of interest). This will help you avoid a subsequent loss of your investment and possibly even lose the right to be in the United States. Many people investing in EB-5 incorrectly assume that the U.S. Government has vetted or guaranteed these EB-5 investments. To be clear, the U.S. Government does not support, nor investigate the legitimacy or quality of the EB-5 investments you are considering.
DUE DILIGENCE CHECK #1: WHO ARE YOU DEALING WITH?
Some scammers see a great opportunity to take advantage of people looking for EB-5 visas. As a result, foreign investors could end up giving $500,000 or more to individuals or entities who are simply trying to steal your money. Make sure the people you are dealing with are actually who they say they are. You can never assume that you are dealing with people involved in a legitimate EB-5 investment simply because they wear nice suits, tell an impressive story, meet you at an impressive location, have lawyers on their team, have a fancy website, or are referred by your immigration lawyer or someone else that you know.
Of course, as detailed below, a foreign investor’s due diligence should extend well beyond the determination that they are not dealing with scammers.
As a first step, the United States Citizen and Immigration Service (USCIS) official website will verify whether you are dealing with an approved Regional Center. While Government approval is absolutely no guarantee that you are dealing with competent professionals, the lack of approval is a reason to not invest.
Next, make sure you are dealing with an immigration attorney who does not accept fees from recommending EB-5 investments. This is one indication that an attorney might not act in your best interest (the conflict of interest can hurt the attorney-client relationship). A recent trend has developed among some United States immigration lawyers that have begun accepting compensation or “referral fees” from EB-5 Regional Centers. Regardless of whether this “referral fee” is disclosed to the foreign investor, we believe it creates an unacceptable conflict of interest. Therefore, EB-5 visa investors should not work with an immigration attorney in selecting the Regional Center unless the attorney represents to the investor in writing that no financial benefit will be received from the EB-5 Regional Center.
Moreover, since foreign investors will likely be dependent on other individuals throughout the process to address other issues such as tax filing issues, financial issues, legal issues, and other immigration issues, they should make sure that not just their attorneys, but all of the professionals they are relying on prior to and after the investment, are competent, licensed and free of conflicts of interest.
DUE DILIGENCE CHECK #2: WHAT IS THE INVESTMENT?
Regardless of whether the investor is devoting $1 million or the lesser $500,000 in a “targeted employment area” (TEA) with high unemployment, the major goal of the project must be to create new jobs. Investing in a not well-planned project that no other lender or venture capitalist will consider makes it more likely that foreign investors will lose all of their money and also lose the right to live in the United States. That is why it is crucial to investigate these investments not only for legitimacy and legality but also for viability and likely return on investment.
Because of this risk, we recommend foreign investors considering an EB-5 visa to rely on completely independent (as well as licensed and competent) professionals to investigate the project involved. Due diligence on the project should be conducted by an individual or team completely unconnected to the EB-5 project, the Regional Center, and the attorneys involved.
The investigation should include, but certainly not limited to: The experience of the Regional Center and those responsible for the success of its projects; the need and market for the project being developed; the existence of a quality business plan; and the total funding required. The due diligence on the EB-5 project should also include a separate analysis on how viable is the job creation and job retention for the project (whether direct or qualifying indirect jobs) to maximize the chances the project will be a success and maximize the chances that the investor receives a permanent green card. It is important to keep in mind at all times that the end game is not just obtaining approval of a conditional resident card, but the removal of the conditions without further requirements so that the foreign investor is provided the opportunity to live in the United States permanently.
DUE DILIGENCE CHECK #3: HOW SAFE IS THE INVESTMENT?
Even if it looks like the project appears to be designed to create jobs, it also has to be a safe investment that will remain in business in order to meet the criteria for an EB-5 visa.
Investors should not assume that an EB-5 investment is safe simply because the Regional Center they are dealing with is approved by the U.S. Government. The USCIS website warns that its approval of a Regional Center does not in any way:
Constitute USCIS endorsement of the activities of that Regional Center;
Guarantee compliance with U.S. securities laws; or
Minimize or eliminate risk to the investor.
Furthermore, just because your immigration attorney is licensed and has a good professional reputation, you cannot necessarily rely on your attorney for investment advice. Immigration attorneys in the United States, for the most part, are not trained in analyzing an investment. We want to emphasize again the importance of getting independent advice from a competent investment professional or securities attorney before you invest. If your attorney offers investment advice, ask about his or her training and experience in financial matters.
By their very nature, EB-5 projects can carry more risk of failure than other investments. EB-5 investors are at times viewed as investors of last resort. Often, projects that are offered to EB-5 investors could not find funding from any other source such as a bank, private equity, venture capital, or a government-related bond issue. A project that is funded solely by EB-5 investments should be viewed very cautiously. Before investing, investigate why the project is not being funded in more traditional ways.
THE RISKS AHEAD
Avoid being rushed into an EB-5 investment by internet ads asking you to “Invest before EB-5 expires.” This law has been extended a number of times by the U.S. Government and we anticipate that it will be extended again (although it may be modified in light of recent abuses). Historically, investors from China are most interested in the EB-5 program (as well as investors from Brazil, Great Britain, Mexico, South Korea, Taiwan, Russia, and Iran). Of course, we anticipate that this will become popular with many more foreign countries in the coming years due to a number of factors, including the fact that more and more foreign investors are looking for ways to invest their money in the United States.
At Vernon Litigation Group, our focus is on protecting businesses and investors from professional incompetence, conflicts of interest, and malfeasance which result in significant losses or other damage. Our work includes pre-investment due diligence as well as investigations and prosecutions to recover significant damage that has already occurred. We offer representation to clients throughout the United States and to foreign investors still living abroad.
For more information, contact:
Phone: (239) 319-4434
E-mail: info@vernonlitigation.com
Mr. Vernon handles the litigation and arbitration of complex business and financial disputes, with an emphasis on securities fraud and securities arbitration, throughout the United States.