Kang Haggerty News
Each country has its own business sensibilities, many of which are more focused on interpersonal relationships or norms that do not always line up with the United States’ more formalistic business practices.
In the February 6, 2025 edition of The Legal Intelligencer, Kyle Garabedian writes, “EB-5 Immigration Investor Program: a Win-Win Program, or Is It?“
Even if you have not heard of the EB-5 program, you have probably benefited from it, at least indirectly from the many businesses and even infrastructure programs it helped support. Created in 1990 by a bipartisan congress, the EB-5 program is a type of visa program designed to stimulate the economy by attracting foreign investments and creating new jobs. Whether invested directly into a business or larger aggregated funds, EB-5 investors must make a sizeable investment—as much as $1.8 million (though this number is reduced if invested in certain targeted areas)—in a U.S. business and demonstrate that their investment will support ten jobs in the United States. In exchange, the foreign investor gets a path to a green card and, eventually, citizenship. In theory, it’s a win-win for the investor and the U.S. economy.
In practice, however, these projects can be perilous for investors, ranging from bad deals to outright scams. Even under the best circumstances, there are significant language and cultural barriers that can complicate both the initial negotiations and the ensuing working relationship. Anyone who has ever worked with an interpreter knows that the phrase “lost in translation” is more than a cliché. The risk of misunderstanding is even higher when dealing with complex business models or lengthy contracts full of jargon. Cultural differences only compound these issues. Each country has its own business sensibilities, many of which are more focused on interpersonal relationships or norms that do not always line up with the United States’ more formalistic business practices.
While many U.S .sponsors of the EB-5 program participate in the program in good faith, hoping to raise money through foreign investments for their business ventures, some sponsors do not come with good intentions. Unfortunately, some of the sponsors abuse the program by exploiting foreign investors. These sponsors intentionally prey on linguistic and cultural differences to take advantage of trusting Investors. The meaning of a contract can shift completely based on the meaning of a single word, which can easily get lost when one party speaks English as a second language (if they speak it at all). We’ve even seen cases where critical terms of the agreement are completely different when read in English versus the investor’s native language.
When the business starts operating, the investor often has no insight or control over how their investment is spent. In addition to the language issues, the investor may live a continent away from the project, making it challenging to stay informed about the investment. Without local ties, it can be difficult for investors to find anyone to help represent their interests in the company, often leaving investors at the mercy of sponsors or intermediaries with a financial stake in placating the investors instead of getting answers.
These conditions, unsurprisingly, create an environment that is ripe for abuse. In extreme cases, investor money can go missing or wind up in the sponsor’s pocket. That kind of abuse can take a long time for a trusting investor to discover, especially if the sponsor tries to conceal it. Even then it can be difficult to remedy the issue without the assistance of local forensic accountants or business lawyers—professionals that the average EB-5 investor from abroad is unlikely to have in their contacts. In many instances, resorting to litigation is the only hope EB-5 investors have to protect their interests.
While most EB-5 projects are not that kind of blatant scam, even legitimate EB-5 investment programs can pose serious challenges for investors. The sponsors of these investments know that their investors have a purpose for making the investment beyond just getting a return. They know that the chance to get a green card is a powerful draw for investors and leverage that advantage early and often. As a result, the investment documents for EB-5 investments are often horribly one-sided, giving virtually all the rights and profits from the investments to the sponsor, while providing the investors with minimal prospects to make money and minimal protection against losses.
For instance, it is not uncommon for EB-5 sponsors to combine EB-5 investors into a fund and then loan the money to another business controlled by the same managers of the EB-5 fund. While EB-5 investors could potentially get a return on their investment from interest on the loan, these loans are frequently unsecured or under-secured, leaving investors last in line to get paid behind a laundry list of other creditors. Many foreign investors are not told about this kind of risk adequately before they make their investments. They also do not know what to do even after discovering their predicaments.
It also takes a long time to process an EB-5 application. It is not uncommon for investors to have their money tied up for over a decade without receiving their final green card. Many investors hesitate to “rock the boat” for fear that it will jeopardize a pending application. Those same investors are often completely in the dark about the state of their investment and or the businesses that they funded. In effect, the investors can be trapped in limbo for years, uncertain when-if ever-they will get their money back.
Fortunately, EB-5 investors do have options. Investors should seek advice from their counsel on the business relationship they are entering before investing. Frequently, the only advice these investors receive is about whether the investment will qualify for the EB-5 program, with little attention to what happens if something goes wrong or the relationship sours. Getting a clear picture of their rights before investing can save a lot of headaches in the future.
Even if the investment does take a bad turn, other options may be available to protect the investors’ rights. The managers of the EB-5 projects will still have fiduciary duties that require them to act in the best interest of investors and administer these funds reasonably. Additionally, under the laws of most states, investors are entitled to seek recourse if management refuses to share information about the state of the business. Plus, even a one-sided contract almost always provides some rights to the investors that can be enforced if the investment documents are carefully reviewed. Whatever investors decide to do, they should act fast before their investments disappear completely.
Like any human system, the EB-5 program is not perfect. But with appropriate engagement and occasional pushback from investors, the EB-5 program can be the “win-win” for foreign investors and local communities that Congress intended it to be. Sometimes that requires investors to fight for their rights.
Kyle T. Garabedian is a member with Kang Haggerty. He represents clients in a wide range of complex and general civil litigation, including contract claims, business torts, professional malpractice, consumer fraud and other commercial disputes. His practice includes prosecuting and defending claims for clients both large and small.
Reprinted with permission from the February 6, 2025 edition of “The Legal Intelligencer” © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.