The EB-5 program has grown substantially in recent years but do many firms know how to prevent fraud in an EB-5 fund? The EB-5 program has grown by increasing foreign direct investment in the U.S., supporting tens of thousands of new jobs for U.S. workers, and driving development in communities across the country. However, recent isolated incidents of alleged fraud and abuse have troubled the EB-5 program of late, leaving many wondering not only what went wrong, but also how these failures could have been prevented. NES Financial has surveyed EB-5 fraud cases to determine just how you can prevent fraud in EB-5.

Across the board, the release of funds from escrow has been a common inflection point for fraud and abuse. In some cases, though investors had been promised funds would remain in escrow until I-526 approval, improper escrow structure and lack of third party oversight allowed funds to be released much earlier, sometimes as soon as being wired into the escrow account. In other cases, including the recent allegations against Jay Peak, funds were held in escrow until stated release triggers had been met, but were misappropriated, commingled, or misused soon after being released.

NES Financial has built solutions designed to address these risks. By working with a third-party escrow administrator experienced in EB-5, projects can assure investors funds will only leave escrow when conditions have been met. Furthermore, our proven escrow structures are designed to balance EB-5 project needs with investor risk, providing additional confidence to a project’s investors.

Once funds have left escrow, Draw Down Accounts extend oversight of EB-5 capital to help reassure investors and regulators funds are used appropriately and not commingled with other sources of capital.

This is the first in a series of blogs examining cases of alleged fraud in EB-5. Other blogs in this series cover:

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