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. 

Let’s start with the EB-5 Private Placement Memorandum (the “PPM”).

What is a PPM?

The PPM is a critical document for EB-5 investors as it outlines all the information about a project, including the business plan, the legal and capital requirements, and potential financial risks that investors face when making an investment in an EB-5 project.  

Investors should expect the PPM of an EB-5 project to emphasis risk disclosures more heavily than PPMs for non-EB-5 projects. That is because EB-5 project sponsors are held to a higher standard when writing offering documents.  

The government recognizes that investors in the program are often new to US securities law and the US immigration process all at the same time.  The documents presented to investors must be written to address this dynamic.  That is why they are often lengthier and thorough. 

Financial risks are of paramount importance in the PPM for several reasons.  The following list is not exhaustive but covers the main bases:

• Investor awareness: the USCIS requires disclosure of all material facts to investors, especially those related to the Program requirements such as providing reasonable evidence of potential job creation ^[2].  This is really an immigration and financial risk combined into one.
• Legal compliance: the SEC also requires their own set of disclosures, especially because private placements are non-traded. The PPM must outline the reporting requirements the project team must satisfy, rules and restrictions on distributions, and guidelines on taxes and liquidation.
• Project risks: these vary depending on the project, but almost all PPMs disclose risks pertinent to the project’s potential performance, its long-term viability, what can go wrong, and any financial downside protections if things do go wrong.
• Fraud prevention: One of the primary purposes of the RIA was to strengthen the Program’s effectiveness and reputation for preventing financial fraud, which means the PPM must disclose information about key personnel, active lawsuits against the project team, explanations of how financial controls will be implemented to comply with regulations and sound business practices, and much more.

In the next article, we will talk about how the project sponsor and its professional team of economics and lawyers use the PPM to properly convey and disclose the key risks presented above.

Please stay tuned our next article about Analyzing an EB-5 PPM for Financial Downside Protections.

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.