by Garreth Connors
The timing and subject matter for this article comes at a unique time as I have spent quite a bit of time recently communicating with investors of the failed AnC Bio project and their attorneys. I mention this only because these individuals add perspective to the question of which documents are the most important to review in an EB-5 offering?
The best answer to the question is that all documents are important as they can be intertwined in the eyes of the USCIS. Therefore all documents must be reviewed and questions should be asked if there is some aspect that is not understood. Projections should be validated because projections are normally being relied upon for job creation and it is job creation that is central to success in EB-5. It is critical that one understand what needs to be proven in order to secure an I-829 approval, as that will focus an individual’s review of the offering documents. It is also important to understand the role of each document, as this knowledge will help one to understand why each document should be read and why questions should be asked if the answers are not clear. The penalty for failure is very high in EB-5, so an appropriate due diligence should be undertaken of all documents.
The USCIS requires very little in order to remove the conditions and to make one’s green card permanent. What is required is (1) evidence that you invested or are actively in the process of investing in a new commercial enterprise and you have sustained your investment in the new commercial enterprise throughout your 2-year period of conditional permanent residence and (2) evidence that you created or will create within a reasonable time 10 full-time jobs for qualifying employees. All of this seems very simple, so the question then becomes why are there so many failures if the requirements for I-829 approval are so clear and simple? My belief is all too often regional centers overlook how likely it is that what they are presenting in their I-526 will actually occur when it is time to begin filing I-829 petitions.
The USCIS uses the terms “you” and “your” when describing what is required for I-829 approval. This is why you must read Business Plans, Jobs Reports, Limited Partnership Agreements, Private Placement Memorandums, Subscription Agreements, Escrow Agreements, Loan Agreements and a host of other documents in order to assess risk and determine if the risk is acceptable to you and your family. Risk can be mitigated but not eliminated. Risk can be found to be acceptable and goals can be accomplished through the EB-5 program; however, you need to read and understand these documents in order to ensure that the EB-5 offering is structured around the success of your goals and not the goals of the developer or someone else. Not all regional centers and their offerings are the same. You want to understand how the concepts of green card and money back work in concert with each other or in conflict with each other. Understanding how jobs are calculated, who is making money in this deal, and exactly how much they make goes a long way towards success in green cards and a return of capital.
You want to measure where potential conflicts of interest exist. You want to understand the roles of the various entities that are involved and if they are serving in more than one capacity. On October 1st, 2013, the USCIS and the SEC (The U.S. Securities and Exchange Commission) issued a joint investor alert containing a reference to what I just mentioned as well as what is commonly referred to as “vertical integration” in the structure of the regional center, the underlying project and the developer.
- Layers of companies run by the same individuals. Some EB-5 regional center investments are structured through layers of different companies that are managed by the same individuals. In such circumstances, confirm that conflicts of interest have been fully disclosed and are minimized.
If your investment through EB-5 turns out to be in a fraudulent securities offering, you may lose both your money and your path to lawful permanent residency in the United States. Carefully vet any EB-5 offering before investing your money and your hope of becoming a lawful permanent resident of the United States.
Seeking immigration to the United States through EB-5 is likely one of the most important decisions you will ever make. A decision of this magnitude takes preparation if you want to enhance your likelihood of success. My belief has always been that you should (1) ask questions (2) demand answers and (3) require independent proof of what you are being told.
I have worked with clients from a number of failed regional centers and projects. I have also worked directly with a large number of CMB’s nearly 5,000 clients. There is no way to eliminate the worry, but there are ways to help someone worry less. One of the best ways is to help a client become knowledgeable about EB-5 and any offering they may be considering. The more the individual understands, the more likely this person is to know if a specific EB-5 project is right for him or her.
I hope this information is helpful. As always, CMB is just a phone call or an e-mail away for any questions you may have. Thank you.