Everyone in the EB-5 world is aware of the complaint filed by the SEC against a Chicago regional center and its principal. I would like to share some perspectives.
Let me first state that I’m fully aware that a complaint involves allegations and accusations that may or may not be true.
Whether true or not, the complaint has created shock waves on an international basis. It is front page headlines in China. What are its impacts?
In my opinion, there could be some positive impacts. EB-5 will thrive only if good projects are made available by developers acting in good faith. If there are enough negative headlines, the entire program could die. Hopefully, the complaint will serve as a warning signal to stave off developers looking to lure foreign investors into untenable (or worse) investments through the EB-5 program. Developers should be more concerned if the allegations had been more nuanced. If the allegations are true, this developer engaged in outright theft of funds and blatant fraud. There is nothing borderline about these charges.
However, I am very concerned whether these headlines, and others like it, could result in the Chinese Government taking action to prevent the outflow of funds to the U.S. for Chinese EB-5 investors. Certainly, this will be yet another reminder to Chinese agents to be cautious and perform extra due diligence before encouraging investors to invest in a particular project. For investors, this is clearly a warning to retain a financial professional to research an investment project before investing. Investors need to understand the use that will be made of their money, what has to happen for the project to go forward, what milestones must be reached for the jobs to be created and whether the developers’ assumptions on which job creation projection is based make sense. The good news is that the watchdog agency did its job, stepping in quickly enough to preserve the investors’ capital before it was disbursed. However, investors and their representatives may insist on increased internal control mechanisms to enhance the safety of their investments, consistent with the legal requirement that the investment be at risk.
From the lawyer’s point of view, it is another wake up call to be diligent regarding review of projects in which his or her investor clients choose to invest or projects which he or she will be representing before USCIS. To a great extent, the attorney is unable to go behind the documents to ascertain definitively whether the documents or information provided are true or not. However, certain warning signs may exist.
In my capacity as Chair of the Best Practices Committee of IIUSA, I have been working with industry leaders in developing best practices for regional centers, project developers and others involved in the EB-5 industry. This development adds even further importance and urgency to this effort. We plan to release the results of our deliberations in June.
The EB-5 program clearly does not need any further negative publicity. Everybody involved in the program – from project developers to regional centers to immigration attorneys to securities attorneys to economists to business plan writers to migration agents to escrow agents – have an important role to play in making certain that the EB-5 program thrives and meets the estimable goals that Congress had in mind when it created the program.