EB-5 Investors: Financial Advisor Misconduct

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“EB-5 Investors have legal rights to pursue action against financial advisors that mismanaged EB-5 Investments.”

Thousands of foreign investors, including their spouses and unmarried children under 21, seek lawful permanent residence in the United States each year by investing in commercial enterprises that create jobs, through the U.S.’s Immigrant Investor Program, also known as the EB-5 Investor Program. 

The SEC previously issued an alert related to foreign investors’ risk of EB-5-related fraud and scams. EB-5 investors may be at risk of having their funds exploited or misappropriated, leading to financial losses, and in some cases the denial of their green card applications.

Further, EB-5 investments may be high-risk due to being exempt from certain securities laws. For example, EB-5 investments that qualify as private placements are not required to comply with certain SEC regulations that protect investors. 

If you suffered EB-5 losses due to misconduct, fraud, and/or securities violations by your financial advisor, contact securities attorney Lawrence L. Klayman to discuss your recovery options at (888) 997-9956 or lawrence@klaymantoskes.com. All consultations are free and confidential. 

What is the EB-5 Immigrant Investor Program?

According to the SEC’s Testimony on the EB-5 Immigrant Investor Program, congress created the EB-5 program in 1990 to “​​stimulate the U.S. economy through capital investment by foreign nationals seeking a legal path to U.S. residency.” The program is known as “EB-5” due to the employment-based “fifth preference visa” that its participants receive.

The EB-5 Investor Program is administered by the U.S. Citizenship and Immigration Services (“USCIS”). The original provisions of the Immigration Act of 1990 allocated 10,000 visas annually for non-citizens who made investments ranging from $500,000 and $3,000,000 in a U.S.-based commercial enterprise that generated a minimum of ten full-time employment positions for U.S. citizens or lawful permanent residents of the U.S.

According to the program’s current guidelines, the standard minimum investment amount has “increased to $1.8 million (from $1 million) to account for inflation.” In addition, the minimum investment in a TEA (Target Employment Area), “has increased to $900,000 (from $500,000) to account for inflation.” USCIS estimates that future adjustments tied to inflation (per the Consumer Price Index for All Urban Consumers, or CPI-U) will occur every five years.

What Are the Types of EB-5 Investments?

EB-5 investors generally meet the program’s requirements by choosing from two types of investments, direct investments and regional center investments. 

Direct Investments:

  • When an EB-5 investor directly invests a minimum of $1.8 million (or $900,000 in a Targeted Employment Area/TEA) in a New Commercial Enterprise (NCE) that they establish or acquire, and create at least 10 full-time jobs for qualifying U.S. workers within two years. 
  • Generally this is considered a hands-on approach, whereby the investor maintains control over what type of business they want to invest in.

Regional Center Investments: 

  • When an EB-5 investor invests a minimum of $1.8 million (or $900,000 in a Targeted Employment Area/TEA) in an entity, organization, or agency approved by the U.S. Citizenship and Immigration Services (USCIS), that focuses on promoting economic growth within a certain geographic area. 
  • Typically, regional centers pool EB-5 investments from several investors into a larger project, such as a real estate development, infrastructure project, or other job-creating venture. Generally, this is considered a more passive approach, as the regional center manages the project and job-creation program requirements. 

What is a Targeted Employment Area (TEA)?

Both direct and regional center investments have a reduced minimum investment requirement of $900,000 if the investment is made in a Targeted Employment Area, known as an area with high unemployment or a rural area. Regional centers may offer pre-approved projects located in TEAs, making it easier for investors to qualify for the reduced investment amount.

What Are Private Placement EB-5 Investments?

Private placement EB-5 investments are typically structured as partnerships or limited liability companies (LLCs) and are often managed by regional centers or individual developers. 

Private placements or “Reg D” (non-public) securities offerings can be high-risk investments for investors, as they are not bound to the same Securities Exchange Commision (“SEC”) disclosure requirements as public investment offerings. Further, in order to qualify for Registration D exemption, these EB-5 securities cannot be resold, making them highly illiquid.

If you suffered losses in EB-5 private placement investments due to misconduct, fraud, and/or securities violations by your financial advisor, contact securities attorney Lawrence L. Klayman to discuss your recovery options at (888) 997-9956 or lawrence@klaymantoskes.com. All consultations are free and confidential. 

EB-5 Investment-Related Fraud and Misconduct

EB-5 investment fraud, misconduct, and resulting investor losses are unfortunately a growing concern within the EB-5 program. While the majority of EB-5 investments are legitimate and comply with the program’s requirements, there have been several instances of fraudulent activities which have impacted investors. 

Fraudulent activities can take place in various forms, including the misappropriation of investor funds, falsification of documents, inflating job creation numbers, and misleading representations about the investment’s viability or compliance with program requirements. Fraudsters often target foreign investors, as they are seeking opportunities for immigration and are less familiar with the U.S. regulatory environment.

Instances of fraud within the EB-5 program may arise from the misconduct and/or securities violations by investors’ financial advisors/account managers, regional centers, or other parties involved in the investment process. To mitigate these risks, financial advisors must exercise due diligence by conducting thorough research on the regional center and project developers, while reviewing project documentation, financial statements, and track records. 

Some examples of EB-5 -related misconduct include mismanagement of funds, improper disclosure of project risks, or breaching fiduciary duties to investors. In cases where EB-5 investments have devastating financial consequences, investors’ financial well-being and immigration plans may be jeopardized. 

Lost Money in an EB-5 Investment, What Are My Options?

KlaymanToskes can help you determine if your EB-5 investment loss is due to fraud, investment advisor misconduct, or unsuitable investment advice. Depending on your circumstances, you may be entitled to recover your losses through FINRA arbitration.

If you suffered losses due to an EB-5 private placement as a result of fraud or misconduct in your account, contact securities attorney Lawrence L. Klayman to learn about recovery options at (888) 997-9956 or lawrence@klaymantoskes.com.