Redeployment services

Do the right thing now. Because wrong things can happen later.

Schedule a meeting

Through a partnership with Dalmore Group, we offer redeployment services.

Many EB-5 issuers are faced with a need to redeploy funds for their immigrant investors in order to keep those funds “at- risk.” Experience has shown that redeployment is a challenging responsibility full of conflicting investor goals and potential conflicts of interest and liabilities for the EB-5 fund Manager. 

Even with best intentions and planning, it will be extremely difficult to optimize a redeployment for every investor’s capital sustainment period and risk tolerance. And even if the investors are not complaining now, they may complain later, and your actions will be judged in hindsight, after liquidity issues, USCIS policy shifts, defaults or other unforeseen circumstances that may have occurred. And these challenges may come when the EB-5 fund lacks cash reserves to pay its own or its Manager’s legal defense costs.

Duty of Loyalty requires the Manager to put the fund’s interests ahead of its own.

These duties are especially critical to observe in redeployment transactions where the Manager sits “on both sides” of the transaction — controlling both the EB-5 fund’s investment and the recipient of the funds.

Where such a fundamental conflict of interest exists, in the event of a legal challenge, a court may employ the strict "Entire Fairness Standard." Under this standard, a court facing a challenge to the redeployment will independently evaluate both whether the price/terms of the redeployment were fair and whether the Manager used a fair process to select the redeployment investment and determine its price/terms.

How does a Manager show 'fair process' without an independent 3rd-party evaluation?

The Manager may have the burden of showing both fair price/terms and fair process. How will the Manager meet that burden without an independent third-party evaluation?

The Manager of an EB-5 fund that has waived fiduciary duties in its organizational documents still has a duty of good faith to the fund, and that duty can be challenged in a redeployment transaction, particularly one involving conflicts of interest.

In the event of a court challenge, what does an EB-5 Fund Manager need to prove? Fair process.


State laws governing EB-5 investment funds impose fiduciary duties on fund Managers. These fiduciary duties include a "Duty of Care" and a "Duty of Loyalty."

Duty of Care requires the Manager to act in the same manner as a reasonably prudent person in their position would act. 

eb5-redeployment-services-court

Duty of Loyalty requires the Manager to put the fund’s interests ahead of its own.

These duties are especially critical to observe in redeployment transactions where the Manager sits “on both sides” of the transaction — controlling both the EB-5 fund’s investment and the recipient of the funds.

Where such a fundamental conflict of interest exists, in the event of a legal challenge, a court may employ the strict "Entire Fairness Standard." Under this standard, a court facing a challenge to the redeployment will independently evaluate both whether the price/terms of the redeployment were fair and whether the Manager used a fair process to select the redeployment investment and determine its price/terms.

How does a Manager show 'fair process' without an independent 3rd-party evaluation?

The Manager may have the burden of showing both fair price/terms and fair process. How will the Manager meet that burden without an independent third-party evaluation?

The Manager of an EB-5 fund that has waived fiduciary duties in its organizational documents still has a duty of good faith to the fund, and that duty can be challenged in a redeployment transaction, particularly one involving conflicts of interest.

Duty of Process is always argued in hindsight. A Manager that can provide evidence of fairness of both process and price/ terms from a FINRA/SIPC registered firm, experienced with EB-5 due diligence and suitability determinations, can have a major advantage in litigation versus a Manager that has only whatever internal documentation it may have created to support their redeployment decision.

And keep in mind that the cost of defending an action for breach of fiduciary duty almost always falls on the fund’s investors if the fund has assets. And if the fund does not have assets, the cost falls on the Manager.

Protecting the EB-5 fund & the Manager


An independent and comprehensive analysis of a proposed redeployment will make a significant difference in the defense of any allegation of breach of fiduciary duty or bad faith. Indeed, the absence of such an independent analysis for a redeployment involving conflicts of interest may itself demonstrate a breach of fiduciary duties.

Duty of Process is always argued in hindsight. A Manager that can provide evidence of fairness of both process and price/ terms from a FINRA/SIPC registered firm, experienced with EB-5 due diligence and suitability determinations, can have a major advantage in litigation versus a Manager that has only whatever internal documentation it may have created to support their redeployment decision.

And keep in mind that the cost of defending an action for breach of fiduciary duty almost always falls on the fund’s investors if the fund has assets. And if the fund does not have assets, the cost falls on the Manager.

Failure to provide this disclosure, or the provision of disclosure that is later deemed misleading, can undermine the protection that would otherwise be afforded by an investor vote.

Soon, it will no longer be a question of whether to retain a regulated entity to provide due diligence and investment advice before making a reinvestment decision. The question you might then be asked is, “Why didn’t you use a service like this”?

 

Duty of disclosure: essential for investor votes & Manager protection


It has become difficult to obtain favorable investor votes on redeployment. Migration agent support of the Manager’s recommendation is no longer a given. We provide transparency and accountability to the decision-making process.

When an EB-5 fund seeks the vote of its investors for a redeployment, it has a duty to disclose all material information to inform that vote.

Failure to provide this disclosure, or the provision of disclosure that is later deemed misleading, can undermine the protection that would otherwise be afforded by an investor vote.

Soon, it will no longer be a question of whether to retain a regulated entity to provide due diligence and investment advice before making a reinvestment decision. The question you might then be asked is, “Why didn’t you use a service like this”?

 

  • Conflicts of interest and mechanisms for addressing
  • Exposure to systematic and non-systematic risks
  • Pending or threatened condemnations or other public use projects
  • Capital stack including leverage, senior loan terms and subordination terms
  • Background/credit checks on borrower, investment partners, sponsors, guarantors and other counter-parties
  • Exit scenarios and projected exit valuations
  • Comparison of proposed redeployment to other available alternatives

Schedule a meeting

From A to Z for the NCE: Our redeployment services

We provide the client with a written report for reliance by EB-5 fund Managers that includes a detailed review, analysis and critique of:

  • Feasibility and market studies
  • Historical financial statements
  • Projections
  • Property management reports
  • CapEx budgets
  • Management experience
  • Lien and litigation searches
  • Evaluation of rate of return and associated risk and coverage of NCE expenses
  • Conflicts of interest and mechanisms for addressing
  • Exposure to systematic and non-systematic risks
  • Pending or threatened condemnations or other public use projects
  • Capital stack including leverage, senior loan terms and subordination terms
  • Background/credit checks on borrower, investment partners, sponsors, guarantors and other counter-parties
  • Exit scenarios and projected exit valuations
  • Comparison of proposed redeployment to other available alternatives

Schedule a meeting

Get a copy of our redeployment service pamphlet.