Due diligence, EB-5 Regional Center, EB-5 basics
Aug 31, 2016
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Rupy Cheema
Rupy Cheema
Rupy Cheema is an experienced professional in EB-5 investments and due diligence. She co-founded EB5 Diligence in 2012, a company that reviews EB-5 offerings and creates comprehensive diligence reports. Rupy possesses extensive knowledge of EB-5 deal structures.

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Inferring that EB-5 due diligence firms are not independent and their findings can be procured is a red-herring, designed to maintain the status quo.

CMB - Inferring that EB-5 due diligence firms are not independent and their findings can be procured by a regional center is a red-herring, to maintain the status quo.

Read MoreAug 31, 2016

Inferring that EB-5 due diligence firms are not independent and their findings can be procured is a red-herring, designed to maintain the status quo.

CMB recently published a blog titled EB-5 Due Diligence - Third Party Websites: Considering one of the many independent EB-5 due diligence services? in which they dismiss the notion that investors are served by retaining a due diligence firm before selecting an EB-5 investment.

CMB False accusations

In the article CMB states “virtually all of these companies (due diligence firms) will receive a consultancy or referral fee from whichever Regional Center they refer a prospective investor to. In many cases, they will refer potential investors to whichever EB-5 Regional Center offers the largest fee, regardless of the quality of their projects." These statements are clearly not accurate.

Firstly, as the leading due diligence firm in the industry, EB5 Diligence does not recommend investments whatsoever. The purpose of due diligence is solely to inform investors of the risks and strengths of an offering.

Secondly, the accusation that due diligence firms contort their findings to benefit Regional Centers that pay the largest fees has no basis in fact. Our firm charges a standard flat fee to clients and has a firm policy against taking any payment that would incentivize us to alter our report results.

At EB5 Diligence we conduct in-depth analysis of the investment deal structure and the safeguards put in place to protect investors. We review the EB-5 business plan, capital structure, project viability, exit strategy and job creation. We identify the risk mitigation strategies implemented such as fund administration, construction monitoring, broker-dealer oversight and key insurance policies.

We identify conflicts of interest, provide results from background checks on the control persons and identify corporate governance issues. And we summarize all findings into a 'Strengths and Risks Analysis'.

We also perform a site visit to view the location and condition of the site and visit with management of both the Issuer and the Developer.

So who benefits from this exhaustive review process? Well, EB-5 investors of course. As well as the best EB-5 offerings, rather then the best marketed EB-5 regional centers.

CMB insinuates that because a regional center pays for due diligence, the firm performing the review cannot conduct an objective review or provide transparency into the terms of the offering.

We recognize the inherent conflict of interest in being paid by the entity that is being reviewed, but in the U.S. securities world it is common practice for due diligence to be conducted by a third party which is paid for by the issuer. And EB-5 investments are no different.

In most securities offerings, a broker-dealer is hired by the issuer, and the broker-dealer conducts the due diligence necessary to protect investors, but in EB-5 most issuers do not hire a broker-dealer, which includes CMB.

To imagine that most EB-5 investors are capable of performing the due diligence necessary on an offering they are considering is ridiculous. Beyond the complexity of reviewing an immigration and financial product, English is rarely the first language of EB-5. 

And because the cost to perform thorough due diligence is often higher than what a single investor is willing to spend, few investors undertake the expense.

Another argument put forth in the CMB blog is that immigration attorneys should provide investment guidance to EB-5 investors. The blog states “We at CMB believe that an experienced immigration attorney is a prospective EB-5 investor’s best option when doing EB-5 due diligence as an advocate on their behalf.“    

This statement either means that the EB-5 investor’s immigration criteria, and only the immigration criteria, deserves due diligence, and not the transactional aspects of the investment (such as whether or not the investment is likely to be repaid), or CMB wants to maintain the old way of doing business, whereby immigration attorneys who are familiar with a few high profile regional centers steer their clients in their direction. 

Its true that CMB has had success in getting I-829s for their investors. In fact they claim to have accounted for over 600 I-829 petitioner approvals, but this is only the immigration part of the investment and as any investment advisor will tell you, past performance is not a predictor of future performance and each offering should be carefully analyzed on its own merits.

CMB concludes their blog post with “Again it’s all about EB-5 due diligence and the potential investor must be involved. Please do your homework and check out who you use as an adviser!”  I couldn’t agree more.

Rupy Cheema is President of EB5 Diligence and the firm's lead analyst.

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