Who’s Looking Out for the Investor? Part 1

Much has been written lately about the importance of having a broker dealer involved in your EB-5 project if you are a developer or regional center, or both.  The importance of this is both compliance, and to ensure that the investors can confidently invest knowing that someone with a license has reviewed the documents and found them to be compliant.  It is absolutely important to have a broker dealer involved in such a transaction, and far be it from me to take anything away from the broker dealers, but an investor placing reliance upon a broker dealer’s opinion of the project documents misses the real danger in any project.

The Danger of Funds Invested

The biggest danger to the investor is the misappropriation of funds after the funds are invested.  While doing so may make a PPM materially false, the PPM was not materially false if and when it likely was reviewed by the broker dealer.  This leaves a gaping hole in the investor’s chances of obtaining approval of his or her I 526 or I 829, and an even more troubling hole in the investor’s chances of recovering his or her investment.

Conflict of Interest with Immigration Attorneys

Immigration attorneys disavow any knowledge, understanding or advice in relation to the legal structure of a New Commercial Enterprise (NCE) or Job Creating Enterprise (JCE) or the arrangement between the two, except (maybe) as to whether the business plan as written is compliant with immigration standards.  Further, once the I 526 has been filed, the immigration attorney closes his or her file unless or until the client hires him or her to handle a request for evidence, notice of intent to deny or I 829 petition.  There is a good reason for this.  Most immigration attorneys do not have commercial law experience, have not spent time developing businesses with their clients or dealing with distressed businesses.  Therefore, the immigration lawyers stick with their specialty, and rightly so.

Also, in many projects, the regional center selects the attorney who will prepare the documents for the investor, and the investors are forced to sign conflict waivers, which may or may not be in their best interest.  The immigration attorney is likely working for the regional center as well, but that leaves the investor open to more difficulties when the immigration attorney has to deal with a topic (such as whether to utilize escrow accounts) regarding which the interests of the clients (regional center / developer and investor) do not align.  

Prioritization of the Investment Over the Investor

Migration agents, like broker dealers, deal with the project as presented in the documentation.  Good migration agents do their due diligence to ensure compliance with U.S. immigration law, and develop relationships with regional centers allowing the migration agents to determine whether the regional center or its operator is trustworthy.  However, their obligations run to the promoter of the investment, not the investor.  This is not to say that good migration agents do not look out for the investors who they procure; quite the opposite is true.  

Migration agents operate on their reputation, and will not be an effective sales force if they continually sell bad investments.  But how can one know at the outset whether the investment is good, aside from a review of the documents and trust that the promoter will do as he or she says?  And, when something goes wrong, the migration agents are likely to double down on the side of the developer and regional center, passing along information that the regional center or developer wants passed along.  This leaves the investor in a space where he or she is not receiving good information.

Protection for the Investor

In the end, the problem is clear.  No one is looking out for the investor.  The investor has no one to stand by his or her side from the day he or she chooses to invest through the day he or she has the conditions on his or her green card removed and receives the return on his investment.  

This void must be filled.  In the Blogs that follow this one, I will provide a potential solution, along with concrete examples as to the benefits my proposed solution holds.  For a general overview of the investor-centered solutions Oppenhuizen Law Firm, PLC offers, please visit www.oppenhuizenlaw.com and look at the EB-5 page as well as the related brochures, which are available in English and Mandarin.  Soon they will be translated into Portuguese (Brazilian) and Spanish as well.