What are the responsibilities of a regional center sponsor and project developer?
Are there general best practices or success models here that would give some guidance in structuring an agreement between an EB-5 Regional Center sponsor and the project developer?
What is the project developer''s exposure and liability here as to regional center exposure and the various regulatory requirements?
There is some limited comment on the IIUSA web site for best practices for regional centers and some reference to the project developer. The Sunbelt RC web site has a list of roles specific to the regional center sponsor and the project developer.
My team is involved with a project developer and EB-5 Regional Center in regard to a possible private equity placement - non EB-5. I am trying to understand the roles and possible problems between the RC sponsor and the project developer.
The regional center monitors compliance with the EB-5 rules and regulations to ensure its regional center designation. The project manager would be more responsible for a business plan, job creation and the success of his/her project for EB-5 purposes.
The regional center usually monitors compliance with the EB-5 rules and regulations, and makes yearly filings to ensure continued designation by USCIS. They should also perform due diligence on the projects associated with it in the best interests of itself and the investors. The project itself is concerned with the actual development of the project as stated in an investor''s I-526 petition, creating jobs, etc.
This is a very good question, and I am afraid there is not a simple answer to it. There are a large number of roles associated with any EB-5 "indirect" offering, and an agreement between an RC and a project sponsor should carefully allocate each and every required role between the RC and the sponsor. With the exception of certain responsibilities of a regional center that arguably cannot be delegated, those allocations are a matter of negotiation between the RC and the sponsor. Unfortunately, we see agreements where these responsibilities are not carefully allocated, which is a formula for later disagreements and perhaps even project failure due to gaps in responsibilities. We encourage both RCs and project sponsors to keep in mind the importance, the complexity and the long life of their relationship when negotiating their agreements with each other. Unless an RC and a sponsor have worked together on a number of prior projects, these should not be considered "template" agreements. Both the RC and the sponsor should be represented by legal counsel experienced in EB-5 transactions, securities laws and in commercial transactions and both should be prepared to spend the time and the money necessary to carefully document a relationship that is frequently worth millions of dollars over a 5+ year life. The last point I would make is that the assignment of roles of the two parties in connection with raising funds from investors can implicate (or avoid) securities laws, including laws creating liability (including personal liability) for misleading disclosures and laws requiring the registration of persons engaged in the activities of a broker-dealer. We again recommend that both parties retain experienced counsel to navigate these issues.
The best advice is to first contact an experienced EB-5 attorney who has the background and successful history of setting up EB-5 Regional Centers and also representing and preparing EB-5 compliant projects. It is recommended that both the EB-5 Regional Center and EB-5 projects, especially if they are separate and distinct, to perform due diligence of each organization to determine the credibility and viability of each organization. There is an EB-5 requirement that regional centers prepare and file a report addressing the business activities and investments by the foreign national investors for each EB-5 project, which is connected to the regional center for that particular year. The EB-5 project should be asking the regional center for a list of other projects associated with the regional center and determine the credibility and viability of the other EB-5 projects. That is, one fraudulent EB-5 project may effect the credibility of the regional center especially for marketing purposes.