The recent announcement by the SEC of the alleged fraud committed by the principals of a LA Based Regional Center is yet another reminder that all escrows are not created equal.
According to the details provided in the SEC complaint, it appears that investors’ subscription funds were to be held in escrow until the investor’s I-526 petition was approved. However, one of the principals took cash out of the investors’ escrow accounts without their knowledge and prior to the approval of the investor’s I-526 petition. This happened at a time when the principal was running low on cash and having difficulty obtaining financing for the project.
This case reminds us that not all escrows are created equal and that it is important to perform due diligence on the escrow structures and fund administration practices of issuers offering
EB-5 investments. Since the indictment for fraud in the Chicago Convention Center case, the level of due diligence that is being performed on the project principals, the project viability and the job creation estimates has increased dramatically. Unfortunately, however, the level of due diligence being performed on the fund administration aspects of the project continue to be below standard compared to traditional investment funds.
Before investing in an EB-5 project, prospective investors should examine how their funds are going to be used, determine how they can access visibility of their account activity, and understand the methods and timing proposed for repayment in the event of an I-526 denial. Investors should look for projects who have partnered with experienced EB-5 escrow administrators. NES Financial, the leading provider of EB-5 escrow and fund administration services, developed EB-5 Investor Best Practices to help ensure each investor is afforded the utmost in funds security during the immigration application process.
This week NES Financial also launched its China website to provide a direct source of information for investors and their agents regarding key financial management issues, and characteristics that should be considered when evaluating an EB-5 investment project.
Find out more about our solutions by downloading our EB-5 Solution kit.
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