Just because I am an EB-5 Regional Center Investor, must I necessarily make a bad bargain?
Managing the Expectations of an (EB-5) Investor
Immigration Attorneys are not investment advisers and we (should) take great pains to shield ourselves from liability in this regard.
Even those of us brave enough to practice ‘EB-5 law’, frequently tell our clients that we do not (and should not) recommend Regional Centers or their projects.
That said, what are the duties we owe our clients when it comes to examining the terms of the Regional Center project they have chosen as their ‘qualifying investment’? If we have done our jobs well (protecting ourselves) then the Clients will have reached their own decision as to where and with whom to invest at least $500,000 and pay an administrative fee of between $25,000 and $50,000.
But are we selling ourselves (and our Clients) short? Can we not honor our duty and at the same time protect ourselves from liability?
In my experience, a very small percentage of EB-5 investors actually read the Offering. Many are not aware of how and when they might expect a return on their investment, let alone an exit strategy. In this regard, USCIS has created a ‘perfect storm’ and its restrictive interpretation of the phrase “at risk” has given unscrupulous Regional Center promoters the opportunity to mislead and confuse, so that investors are led to believe that somehow, after a magical period of 5 years, the investor will receive the return of his or her principal but that this cannot be guaranteed or even described in the offering. “When the time is right it will simply present itself”.
Many investors are led to believe that they will receive a significant return on their investment and many believe yet still that this return will manifest itself as soon as they have invested. The truth is that most Regional Center projects will have paid little or nothing by the time the investor comes to apply to remove conditions. In fact, in many cases, the subscription is not filled by the time the I-829 Petition is filed and so the project is not complete.
As an EB-5 investor myself, I invested on the basis that I was gaining for myself and for my family a new life in the US and that, beyond condition removal, I may not receive either a significant return on my investment or, indeed, even a return of my principal. I can ill-afford to lose $500,000. However, I was realistic in my expectations and, having invested in 2006, the world economic recession has obviously had an impact. It may be some time before I see a return of my $500,000 if, indeed, at all.
I tell my clients that in selecting a Regional Center project they should expect three things (the first two being important, the third less so):
(1) I-526 Approval. I try to ensure that the Regional Center in which they have invested will refund the principal and all or part of the administrative fee (a) in the event of an I-526 denial and (b) in the event of a Visa denial (other than for fraud or misrepresentation on the part of the investor).
(2) I-829 Removal of Conditions. If this is achieved, the investment strategy has been successful from an Immigration perpsective and my job is seemingly done.
(3) A return on investment and a return of investment when an exit strategy arises. This is where many investors feel abandoned. There is little we Immigration Attorneys can do for them if they signed a contract (as accredited investors) in which these issues were clearly spelled out, prior to retaining our services. However, merely because our clients are accredited investors, does this absolve us of our duty to ensure that the Client understands the terms of the bargain he/she has entered into? There are some who might think that permanent residence for an investor, spouse and as many unmarried children under the age of 21 at the time of filing as the investor may have been able to progenate is a pretty good deal. Those of you who file E-2’s and L-1’s will probably agree that, financially, an EB-5 Regional Center filing is good value for the investor when compared to some of the sad stories attached to those non-immigrant visas: Denials, failed businesses, lost money, children being sent “home” at age 21 after many years of life in the US, USCIS interpretation of the terms “manager” and “executive”, constant need to renew in home country every few years etc.
However, the EB-5 investor also has the right to expect to receive some return on the investment and eventual repayment, especially if this has been promised by the promoters and owners of the Regional Center, many of whom frequently talk of ‘returns on investment’ and ‘exit strategy’.
The ABA Model Rules of Professional Conduct provide as follows:
Rule 1.1 Competence
A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.
Rule 1.2 Scope of Representation and Allocation of Authority Between Client And Lawyer
(a) Subject to paragraphs (c) and (d), a lawyer shall abide by a client’s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client’s decision whether to settle a matter. In a criminal case, the lawyer shall abide by the client’s decision, after consultation with the lawyer, as to a plea to be entered, whether to waive jury trial and whether the client will testify.
(b) A lawyer’s representation of a client, including representation by appointment, does not constitute an endorsement of the client’s political, economic, social or moral views or activities.
(c) A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent.
(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.
Rule 2.1 Advisor
In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors that may be relevant to the client’s situation.
The fact that our clients are accredited investors may satisfy SEC regulations and requirements designed to prevent unscrupulous sales practices. However, simply ticking a box on a questionnaire that one has a net worth of at least $1 million or an annual income of $200,000 and a reasonable expectation of the same for the next year or two, does not bestow financial acumen. The cautious and conscientious attorney should ensure (i) that the Client has read and understood the Offering (ii) has had the opportunity to consult with a financial adviser or attorney able to provide investment advice and (iii) that the Client is fully aware of the terms of the investment as they relate to irrevocable commitment and refund, return on investment and how this is calculated, who pays the expenses of the project and whether and when the investor might be able to recoup his investment. Even if the Client has already chosen the project and executed all required documents, we should ensure that the client has a firm understanding of the terms of the subscription so as to avoid dissapointment and unpleasantness subsequently.
All this on a flat fee?
Sadly, yes. Although the EB-5 Regional Center Program is seen by some as a license to charge exhorbitant fees, whatever the fee and however modest it may be in the face of unlimited client contact, RFE’s and subsequent liaison, our duties to our clients remain the same. If we are to do our jobs properly, it is essential that we read the terms of the Offering – often hundreds of pages – so as to be able to advise our clients that while someone may be getting rich, it will not be the investor. That way, expectations may be tempered with reality, no matter what may have been promised by an eager promoter.
To file or not to file?
Most Regional Center escrow agreements are worded in such a way that the invested funds are only refunded in the event of an I-526 denial. Some extend this to a Visa denial. More still refund part or all of the administrative fee in such circumstances. But what is the attorney’s duty if the Client has already invested (before retaining the Attorney) and the Attorney discovers that there is or may be a problem? What is at risk?
Is it sufficient to file and be damned, knowing that if the Petition is denied the Client’s funds are safe? What is the additional cost to the client of a denial? Does he have a child approaching its 21st birthday? Will the Regional Center program be renewed, extended, made permanent? True, the client may get his money back if his petition is denied, but that may not be the extent of his loss. He may have foregone his only opportunity to obtain permanent residence for himself and his family.
What does one do if the Regional Center is oblivious to the Attorney’s concerns or if they cannot or will not make changes?
Clearly, the Attorney should communicate his concerns to the client indicating the potential problem. If there have been I-526 Approvals, it may be that those concerns will be assuaged. However, in such a case is it sufficient to simply point out the problem and let the client decide whether to proceed or withdraw? Can the client withdraw? What problems may occur at the I-829 stage?
Many clients see Regional Center approval by USCIS as a sort of guarantee that their I-526 Petition will be approved. More still think that if the I-526 Petition is approved, I-829 approval will automatically follow. Given the recent changes in the way Regional Center Applications are now considered, Investors may find that even if they invest in a Regional Center with a successful track record, new projects may not necessarily be approved.
“My investment is ‘At Risk’”. What does this mean at the I-829 Stage?
If the project fails, the ramifications for the EB-5 investor are huge. In addition to losing his/her investment, it is likely that the required jobs will not be created and so the I-829 Petition will be denied. Although an investor may try to remove conditions before an Immigration Judge or the BIA, if unsuccessful, the conditions will not be removed and the Investor, Spouse and other derivatives will be deemed removable.
The prudent investor will keep watch on his investment. It may be that an amended I-526 will need to be filed. It may be that the investor will have to re-invest and file a new I-526 and then commence the process from scratch. I am not suggesting that it is our duty as Immigration Attorneys to keep a watch and regularly review the project, unless expressly retained (and remunerated) for doing so. However, it is probably wise to point out the pitfalls and to suggest a strategy for the client in the event of a failed investment at the outset of our Retainer.
Business Losses, departures from the original business plan to take account of economic factors, even a failure to create jobs in one entity requiring a move of the investment to another do not necessarily lead to a denial at the I-829 Stage. However, the investor (and perhaps his/her attorney), must be proactive in their approach. Problems at the I-829 stage can often be avoided by filing an amended I-526 or filing a new I-526 and starting again. While this may not be a cure-all for the whole family (as in the case of children who may by now have aged out) such a strategy can minimize the consequences of a denial or avoid a denial altogether.