By Russell Weigel
Recovery of your EB-5 investment money from a failed new commercial enterprise or job creating entity is likely to be challenging. However, there are steps you can take to maximize the possibility of recovering some or all of your investment funds.
Investment recovery claims in the United States are usually based on a legal theory that the investor was not told of all the investment risks, was given false facts, the investment offering did not comply with U.S. laws or the people communicating with the prospective investor before the investor purchased the investment did not have proper licenses. Proof of the legal theory must be coupled with evidence of the amount of loss. Merely losing money on a properly offered investment is an insufficient reason to be repaid.
Proof Needed for Recovering Investment Funds
Typically, the investor will need to show proof by providing a copy of the private placement memorandum or private offering memorandum from the U.S. company that offered the allegedly EB-5-compliant investment opportunity, a summary of investment documents provided to the investor by the sales agent or broker, evidence of the license status of the sales person or broker, oral statements made to the investor by the sales agent or broker, written sales communications and proof of payments the investor made to purchase the investment.
Along with information or concern that the investment opportunity is not behaving as the investor was led to believe, these sources of information typically are the primary bases of information to evaluate whether the investor has a claim for compensation. Being one of the earliest people to make a claim for repayment often produce the best chance for the greatest amount of monetary recovery.
Active Communication and Monitoring
How does the investor learn whether there may be a problem with the investment? Oftentimes, if the investor learns about a problem with the investment on the news or other public media, it may be too late to get a full recovery of funds. Therefore, the investor must be diligent in obtaining and reviewing any financial reports and progress updates from the new commercial enterprise or job creating entity.
Learning at the earliest possible time of any problem is critical for the investor to take action and attempt a recovery of invested funds.
Although relevant state and federal statutes of limitation vary, most statute-based investment loss recovery claims can be barred after one or two years from the date of investment unless the investor can show good cause for filing after those time periods. Therefore, it is very important for the investor to maintain frequent communications with the new commercial enterprise to obtain as much information in writing as possible.
Oftentimes, financial updates will not be made available because the operating agreement or limited partnership agreement of the new commercial enterprise provided to the investor with the private placement memorandum did not provide for regular information disclosure. If the investor does not receive information or received negative news, the investor should consult a private securities litigation attorney as soon as possible.
Investors can use Private Attorneys to Assist in Recovery
If you believe that there is a problem with your investment or you are unable to get the new commercial enterprise to respond to reasonable requests for information, your best resource to help you evaluate your situation will be a competent EB-5 securities litigator.
There are websites listing some attorneys with this expertise. A private securities attorney can assist you since government agencies may not react to your inquiry and most likely will not assist in the recovery of your investment directly. If a government agency investigates, it is more likely to pursue claims on behalf of all investors in the investment and if there are any funds recovered you will have to share equally with the net amount of funds to be distributed.
If there are any funds left to be distributed, many times the recoveries for investors are a small percentage of their original investment amount. A private attorney can be hired to recover your funds only, and if you pursue a claim early enough, it may be possible to receive a larger sum than if you wait until other lawsuits have been filed by other investors.
However, if there are a number of investors, perhaps more than twenty, a claimant could allege that he or she is suing the new commercial enterprise on behalf of all investors. If that suit succeeds in establishing that a “class action” on behalf of all investors is appropriate, the lawyers representing the claimant could receive a percentage of the total amount of funds recovered as their fee.
This fee-sharing procedure can be cost-effective for investors in some cases, but each investor will get the same pro rata payout after payment of legal fees and expenses, which often is a substantially lower amount than if the investor succeeded in suing on his own.
Costs Involved with Using an Attorney
The costs of pursuing the recovery of your funds depends on who you hire and the style of fee agreement that you agree on with the attorney. There are four basic fee models: hourly, capped hourly, hourly with a success fee and contingent fee. Hourly fees can be the least cost for you if the case results in a recovery of funds at an early stage after filing a lawsuit in court.
Hourly fees can also be expensive and going to trial on an hourly fee basis could cost more than the amount of money you lost depending on which law firm you choose. Hourly capped fee arrangements can prevent the hourly fee from being excessive, but when the cap is reached the lawyer may be under-incentivized to remain aggressive for you. An hourly success fee can be useful.
In this arrangement, you pay a discounted hourly rate up to a point in time and thereafter pay a percentage of the recovery of funds, which often times may be a bonus fee of between 10 and 20 percent. This can keep you overall fees lower but may still incentivize your lawyer to remain aggressive. A contingent fee often is structured so that the lawyer receives 20 to 40 percent of the total amount of funds you recover.
The advantage is that you do not have to pay legal fees if there is no cash recovery. However, the lawyer is risking not getting paid and therefore the amount of the fee can be greater than an hourly fee in some cases for the same amount of work done.
How Investors use the U.S. Government for Recovery
The U.S. Securities and Exchange Commission is a federal agency with civil jurisdiction in investment-related matters. It can investigate and bring civil cases against individuals and companies that violate the federal securities laws, which means that it can seek to impose fines and obtain forfeitures of money from defendants. Complaining to the commission does not mean that it will investigate your complaint because it receives thousands of tips each year and pursues only a percentage of them.
However, it sometimes pays monetary awards to a whistleblower when his or her tip has led the agency to get a large cash recovery from a defendant. To file a free whistleblower complaint, visit www.SEC.gov.
The Federal Bureau of Investigation is a criminal investigative agency. It has general jurisdiction to investigate many types of federal crimes and can make a complaint to the U.S. Securities and Exchange Commission. However, a complaint made may not be investigated due to the large volume of cases reported to the agency each year. Unlike the SEC, the FBI investigates EB-5 related defendants to put them in jail.
Many times, the sentence imposed in a criminal prosecution will include a requirement that the defendant pay restitution to victims of the crime. However, many times the restitution amount is never paid by the defendant. Thus, the investor complaining to the FBI most often seeks the punishment of the defendant instead of a return of funds. To submit a tip for free, visit www.FBI.gov.
What Happens with the Visa Status if a Project Fails?
The status of a pending I-526 or ability to file an I-829 petition are impacted when a new commercial enterprise fails. There are different options depending on whether the I-526 has been adjudicated prior to or after the financial issue with the project. If the project has failed before its approval, it is likely that you will have to amend the petition to disclose the details of a new EB-5 investment you have chosen.
This means you have to go back to the end of the line for your country’s quota for that year. If you have been adjudicated and received approval of your I-526 and you can demonstrate that the mandatory minimum number of jobs were created for a period of time before the failure, you may still receive approval of your I-829. These results depend on the policies of the United States Citizenship and Immigration Services at the time the issues arise and you should consult your immigration attorney.
How to Prepare in Case of Failure
Check the performance and status of your investment every four months. You cannot rely on your immigration attorney to do this for you as most immigration attorneys will not be aware of the status of your investment after they have filed your I-526 petition.
If you do not receive a response or do not like the information you receive from the new commercial enterprise, contact a securities litigation attorney to review your concerns and evaluate whether you have a potential claim. It is not as important to hire a securities attorney in the state or city where the project is located but to hire a securities attorney who is an expert in EB-5 issues.
Whether the investor uses a private attorney or waits for the agencies of the U.S. government to act, any court-filed claim usually will take more than 18 months and perhaps more than three years to be determined, depending on how hard and how long the defendant fights and whether any party appeals a final trial court decision. Winning a civil lawsuit in the U.S. court system means only that the court has determined that the loser owes the money - the judgment amount – to the winner.
But whether the loser has the funds to pay the winner at that time or later and whether the winner can locate where the funds are determines whether the winner will get any money back after litigating. An early compromise settlement is often in the investor’s interest to get some money back without spending an excessive amount of legal fees and to attempt to win a greater settlement or judgment amount. This is often achieved by your early action to make a claim.
(Editor’s Note: Chinese translations may vary slightly as published.)