How can an EB-5 investor keep their funds secure in escrow?

An escrow agreement is a private agreement signed between the regional center, the investor and a third-party escrow agent. The terms may be negotiable. Once signed, it is binding on all parties. The EB-5 investor''s interest is protected. For the regional center to trigger the escrow to release the funds, the regional center has to present evidence that the condition has been made. Upon such time, the escrow agent, usually a bank, shall release the funds and properly notifies the EB-5 investor. The chance of a regional center secretly siphoning funds off from the escrow account without the investor''s knowledge is pretty slim.

If they do so, they would be in violation of their escrow agreement and, probably, SEC rules. Violations like this may give rise to the rights of rescission, in which the investor could demand repayment of their investment. Please be aware that some regional center projects allow for use of funds upon filing of the I-526 or even earlier, so please consult with an EB-5 attorney for review of project documentation.

Your escrow agreement is with the escrow agent. The agent cannot release the funds until the requirements are fulfilled. Have an attorney review your agreement.

The escrow agreement states the terms under which the funds may be released. If the funds are released prior to that time, the agreement has been breached. The agreement should contain a section regarding your rights upon a breach. Make sure you conduct due diligence regarding the regional center history. Its principals, track record, etc.

The investor and the project principals will sign the securities offering documents which may clearly state that the investor&#39s personal investment funds will remain in escrow until the I-526 petition is approved. If the project withdraws the funds before approval, then the investor will have rescission rights to ask for the funds back and can report this illegal action to the SEC.

You are pointing out a very serious concern. This is exactly why it is important to choose a regional center that you feel comfortable with. As I am sure you are aware, there have been some serious cases of fraud involving EB-5. If you have a reputable escrow agent, your money should be pretty secure - subject to the terms of the agreement. Your recourse, should someone breach the contract, is to sue. But, you run the risk that they will have lost the money, or that they have disappeared. In cases of fraud you should notify the police, USCIS, and the SEC. Before making any investment, make sure you consider more than one investment, inquire about track records, and do some research of your own. There are also services that will do due diligence and evaluate the risks involved in regional center investments.

The investment documents should prevent distributions until the appropriate approvals are received unless you agreed to an early withdrawal of your funds. As long as the early withdrawal is not allowed, the escrow should not make any distributions until the required approvals are received. If such distributions are made contrary to the instructions, you should make demands for repayment, and then file suit if you are not paid back. You might be suing the escrow, the regional center, the lending entity and/or the borrowing entity depending upon how the investment documents read and what has actually happened. There may be other potential defendants as well, depending, again, upon the situation.

Much will depend upon the PPM and operating agreement of the company, as the terms of the transfer of funds from escrow should be addressed. If the transfer is done in violation of a contract, the remedy is to sue the breaching party or enjoin them from transferring the funds. All of this is also dependent upon escrow agreements that may be used in conjunction with the PPM.

When and how the funds could be released from the escrow to the business/project is determined by subscription and partnership agreements, loan documents, etc. You should discuss your options, including reporting the business to the SEC, with your attorneys.

Whether the regional center can use the funds in escrow while your I-526 is pending depends on the terms of the escrow agreement between you and the regional center. Because it takes about 14 months for USCIS to process an I-526 petition, the regional center that needs the funds to develop the project may stipulate in the escrow agreement that it can use the funds when certain conditions are met. You should read your escrow agreement carefully. If the escrow agreement only allows the funds to be used when your I-526 is approved, the regional center cannot use your funds until that condition is met. Otherwise, they will be in breach of the contract.

Under the terms of the escrow agreement, the regional center cannot access the funds. The bank and escrow agent are obligated by law to follow the escrow agreement. Your recourse would be against the bank and escrow agent if the funds were somehow released early or if they were released in a manner not in keeping with the agreement.