EB5 INVESTORS M AGAZINE
10
...the EB-5 sponsor could
engage an independent third
party to review the proposed
reinvestment.
”
until the last EB-5 investor in their fund is eligible
for repayment. If an EB-5 fund does not provide for
staggered distributions to EB-5 investors as they
become eligible for repayment, the EB-5 sponsor is
not authorized to make distributions in that manner.
The sponsor could be subject to litigation if some EB-5
investors suffer losses while other EB-5 investors
in the same fund do not because they were repaid
earlier. Therefore, it may be necessary to amend the
applicable corporate documents that were prepared
when the issue did not exist to permit the change.
Another position that could be taken, depending upon
the language of the applicable operating/partnership
agreement could be to allow the manager/general
partner to amend the agreement to comply with EB-5
Program guidelines.
HOW TO REDUCE EB-5 FUND SPONSOR
RISKS OF LITIGATION
T h e c o n c e r n s o f E B-5 i n v e s t o r s r e g a r d i n g
reinvestment are reasonable. EB-5 fund sponsors
must address these concerns if they wish to avoid
l it ig at ion a nd a l l of it s at tenda nt e x pense a nd
reputational harm. To avoid litigation, EB-5 fund
sponsors should adopt the following redeployment
practices for the benefit of their EB-5 investors.
USE AN INDEPENDENT REVIEW PROCESS &
AN INDEPENDENT INVESTMENT ADVISOR TO SELECT
THE REINVESTMENT
An independent review of the proposed reinvestment is
an essential element to establish fairness in the selection
process. This is most important in cases where there is any
affiliation between the EB-5 fund manager and the parties
with economic interests in the project being funded with
the reinvestment. If the party making the selection of the
reinvestment will receive an economic benefit from the
reinvestment in the project chosen, the EB-5 investors
would have ample reason to question whether the choice
of that project is fair to the investors. For this reason, the
EB-5 sponsor could engage an independent third party
to review the proposed reinvestment. This independent
review should include due diligence on the project, the
track record of the owner or developer of the project,
the terms of the reinvestment, and any other financing
used for the project. The EB-5 fund manager should
consider the engagement of an independent registered
investment advisor as part of this process. This is because
it establishes not only the independence of the process but
the qualifications of the reviewer to act as an independent
party in the reinvestment process.
IF A PROJECT BY THE SAME DEVELOPER
AS THE ORIGINAL PROJECT IS AVAILABLE,
CONSIDER THE BENEFITS OF THAT INVESTMENT
TO THE EB-5 INVESTORS
Many EB-5 investors selected their EB-5 investment
based on their confidence in the developer of the project
in which their capital was originally invested. These
EB-5 investors may therefore prefer that their capital
be reinvested in a project with the same developer
because of their familiarity with the developer, the fact
that their original investment was successfully repaid,
and the ease of transition from the original investment
to a new investment, perhaps with the same forms of
investment documents as the original investment. In
addition, the fact that the reinvestment is with the same
developer may provide some immigration benefits by
demonstrating that the reinvestment is “within the
scope” of the EB-5 fund’s business.
CONSIDER & COMPARE OTHER
REINVESTMENT OPPORTUNITIES
EB-5 f u nd m a n age r s shou ld con sider w he t her
there are other reinvestment opportunities that
are reasonably available that would better protect