Michael Bowen, CFA is the Director of Finance for Southeast Regional Center, LLC (“SRC”), an EB-5 Regional Center operating across 10 states with a stellar track record since 2010.

The US EB-5 Immigrant Investor Program enables non-US foreign nationals to acquire a US Green Card by investing in a for-profit commercial enterprise in the US.

The program is enjoying a tremendous rebound in popularity.  For example, there were 1,687 new filings for I-526 during the first three quarters of 2023 alone, compared to 829 filings and 814 filings in the entire years of 2022 and 2021 respectively.

Investors are excited because they now enjoy stronger protections than ever, thanks mainly to the Reform and Integrity Act of 2022 (“RIA”) which now requires additional, strict financial and anti-fraud mechanisms for each new project in the program.   This new law aims to enhance the program for investors by clarifying the duties and responsibilities of project developers, promoters, and regional centers while also lowering the required investment amount in certain cases. 

But with these improvements, we encourage our investors to remain focused.  After all, the risks remain the same: 

1) Will this project’s underlying business plan work financially?  Will I get my original investment back, and what will protect me from financial loss if things do not go as planned?

2) Will this project yield the required jobs and comply with all the rules set forth by USCIS – in other words, will I get my Green Card?  Can the sponsor produce documentation about the project that is verifiable and credible?

In this series, we will focus on the financial risk component of EB-5 investment. If the immigration process moves sideways or slowly, will investors still get their money back? Investors must protect their capital in case they have to re-attempt the process due to a shortcoming on the immigration paperwork.

Our hope is that investors will come away from this series equipped with better information and tools to be successful in the EB-5 investment process. 

Last time we explored an EB-5 Private Placement Memorandum (the “PPM”), and its risk categories in general.  Let’s now take a deeper dive into the risk protections that sponsors can offer to maximize the safety of the investor’s capital.

Financial Downside Protections in a PPM 

Most reputable project teams will employ experienced securities attorneys, immigration lawyers and expert economists to satisfy many of these financial risk disclosure requirements.

But the project team is free to make choices about how they plan to protect your investment.  Some examples of those protections are listed further below.  But first, why is it that any protections are potentially available at all? Why are they being important to the safety of your capital?

The American investment markets differ significantly from many other markets in terms of property rights and how courts protect investors. 

In the United States, the legal and regulatory framework is designed to protect investors and maintain market integrity. The Securities and Exchange Commission (SEC) ensures that investors have access to high-quality, reliable disclosure, including financial reporting.  These requirements differ for public and private companies, but in all cases a minimum level of quality disclosure is required.  

Congress and the judiciary branch back the SEC up in its mission by regularly passing, interpreting and enforcing laws designed to protect the individual investor.

In contrast, many non-US investment environments is characterized by a different set of challenges. This is particularly true in terms of property rights. 

The US grants investors most of the rights under US law no matter what their nationality.  These includethe right to due process and protection from expropriation, and  also the right to seize assets so that the investment is paid back in the event the project runs into trouble.

The right for investors to potentially access a project’s assets to get paid back is very important.

– For real estate projects, will the developer grant the EB-5 investors a security interest in the real estate as part of the collateral?

– For manufacturing or industrial projects, will the developer grant a security interest in the building, the factory equipment and/or the underlying real estate?

– Who will be paid back before the EB-5 investors are paid back? Who has seniority? If the project goes bankrupt, what will happen to the EB-5 investors’ investment capital and interest?

– Will the project developer provide additional corporate or personal guarantees behind the repayment of the EB-5 investment capital under certain conditions, such as insolvency of the underlying project?  

o This type of guarantee is sometimes called a “Repayment Guarantee,” and it is all about investment capital.  

o A Repayment Guarantee is only as strong as the finances of the person or entity issuing it.  Investors must evaluate the financial health and creditworthiness of the guarantor.

o The developer/promoter may also promise to return investment fees if something goes wrong with the immigration process that is beyond the foreseen control of the investor, but that is separate and distinct from a promise to repay the at-risk investment capital.

We will explore how projects can be made safe through these payback protections in more detail.  For now, Please stay tuned for our next article, “____________”.

The information provided here is not investment, tax or legal advice. You should consult with a licensed professional for advice concerning your specific situation. 

This article is educational and informational, and items including policy, program structures, financial models, feasibility studies, and other documentation may change without notification. 

Information prepared on electronic media such as PowerPoint, websites, blogs, WeChat, or other methods of delivery are often truncated and summarized to improve readability; details of any financial, tax or legal nature should only be addressed with a trusted licensed professional.