The Good, the Bad, and the Ugly – Episode 15

EB5 The Good, The Bad, And The Ugly

The Good, the Bad, and the Ugly – Episode 15

The Good, the Bad, and the Ugly

The world of EB-5 projects large and complicated. Investors have a number of projects to choose from but not every project is created equally. Join us for a discussion with Michael Gibson on good (strong), bad (weak), and ugly (fraudulent) projects.

The world of EB-5 projects is full of opportunities but not every project is the same. Due to factors outside their control, it is possible that an investor’s dreams are not meet. The market is full of many good projects, but some projects are better than others. In order to avoid a fraudulent or weak project, it is necessary for investors must research and fully understand a project before investing. Special guest Michael Gibson, Managing Director of the Registered Investment Advisory Firm USAdvisors, discusses what investors need to be aware of before investing in a project. Additionally, the distinctions between what make a project: bad (weak), good (strong), and ugly (fraudulent) are discussed in detail. Additionally, legislation which proposes increased oversight to the EB-5 program, is discussed.

• The motivation of a fraudulent project is to swindle and defraud the investor, where as a project deemed weak can be discovered through research prior to investing. The exact number of fraudulent EB-5 projects isn’t known.
• From the investors point of view it does not matter if a project is bad or fraudulent, the end result is the same – they can face removal from the United States and loss of their investment.
• If fraud is committed, there is the potential of clients seeking damages from their attorney. By making sure that clients understand the risks associated with a project, an attorney’s liability is lessened.
• Attorney’s should counsel their clients and have the client’s best interests in mind. But, they may not know or understand what all of the associated risks are. As a result, clients should not hesitate to seek outside advice.
• Investors need to think of the consequences of a failed project when considering the cost of a due diligence report. When compared to total costs and consequences of a bad investment, the cost of a report is minimal because, if the investment fails, investors can lose:

1) The total amount of their investment
2) Related subscription fees
3) Residency in the United States

• Types of risks that are looked for are:

1) Immigration risk
2) Investment risk / return of capital

• Mr. Gibson explains that some immigrants may be ok with a partial loss of their investment if the project was not successful. A near complete loss in principle would make them question if the failure was due to something beyond their control, like a market event or a natural / environmental risk, or a bad decision.
• For a project to clear the associated immigrations and investment risk, clients need to look at:

1) Is there a need in the market for the project?
2) How long will it take to achieve profitability?
3) How much can they return to the investor?

• EB-5 projects bring it much needed capital into the United States and produce thousands of jobs but the majority of investors are receiving a rate of return of 1% or less on their investment.
• A good (strong) project is one that becomes profitable as soon as possible and produces jobs.
• A bad (weak) project is not able to perform as promised and there is a substantial risk that the project will not be completed.
• An ugly project is fraudulent and meant only to deceive investors.
• The Integrity Bill proposes to increase powers and oversight to the USCIS and SEC, as well as require site visits. This would increase transparency and provide more security to investors.