EB-5 Project Manager role under EB-5 Process

Michael Homeier: Balancing the EB-5 project Manager’s role and responsibilities and specifically the extent to which the Manager is obviously looking out for his own interests, but must also be aware of and must honor his legal obligations to look out for the interests of his investors at the same time. 

It’s typical of EB-5 investments that the principals run the show and are the Manager of both the project company and the funding company, whether it be a direct investment with investors coming in as minority owners of the business, or as an indirect investment with investors investing into a funding company that intends to deploy the EB-5 funds to a separate project company.

Investors naturally have a concern that the Manager will be looking out for the Manager’s own interests, sometimes at the expense of the investors’ interests, and by making a passive EB-5 investment the investor is to a considerable degree at the mercy of management. 

The EB-5 issuer is required to make reports to investors, to retain appropriate personnel to handle the bona fides of not only evaluating the investment, but to evaluate the internal controls of the manager.

Most of the time in a private placement memorandum (PPM) or in the operating agreement, an EB-5 fund will require some basis of an annual report to be provided to investors, either in the form of financials or in the form of a written report. But there's no state corporate laws requiring the issuance of annual reports, nor is there a requirement for audits.

When you review EB-5 offering documents you ought to concern yourself with:

1. Are you being provided annual reports?
2. Is there an audit?
3. If there is an audit, who’s actually doing the audit. You clearly want people who are experienced in the fund business.

Rupy Cheema: We typically see operating agreements and partnership agreements go to great lengths talking about possible tax allocations and treasury regulations language and these provisions are very confusing unless you're a tax expert and I can't imagine the typical investor understanding what those provisions are saying. 

Is this language relevant to EB-5 investors considering that in most cases investors are receiving 1/4% to 1% which is a trivial amount.

Robert Cornish: Those provisions are pretty important because they all relate to the investment vehicle as a partnership with flow-through tax treatment to the investors.