2016 New York EB-5 & Investment Immigration Convention

Investor Protection: Ushering in an era of enhanced investor

protection in the EB-5 program

Speakers:Peyman Attari, AISA EB-5

Marc DiFanti, Mark Edward PartnersPaul Heuwetter, Signature Bank

Reid Thomas, NES Financial

Moderated By: Angelo A. Paparelli

Angelo A. Paparelli

Seyfarth Shaw LLP

“Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. It is regrettably the way human nature functions, whether we like it or not. What successful economies do is keep it to a minimum. No one has ever eliminated any of that stuff.”

-- Alan Greenspan

Systemic Failure to Protect EB-5 Investors

• Congress knew some deals would fail.

• It set up a two-stage review process.

• Prove investment was made and sustained, and jobs were created.

• Conditional residents given second chance to get I-829 approved before immigration judge.

• Investor protections and Integrity Bill

Systemic Failure to Protect EB-5 Investors

• USCIS knew some deals would fail.

• Nothing in agency regulations or policy to protect defrauded investors.

• No soft landing despite investor’s due diligence and good faith compliance.

• No movement from fraudulent EB-5 deal to a compliant one without loss of priority date.

Systemic Failure to Protect EB-5 Investors

• USCIS has ample authority to provide relief:

– Preservation of priority date;

– Continuation of conditional residency;

– Parole with travel and employment authorization;

– Entrepreneurial parolee proposed rule.

– Deferred action status.

– Exception for good faith compliance.

Systemic Failure to Protect EB-5 Investors

Peyman Attari

AISA EB-5

Act in investors’ best interest

Be independent

Bring expertise

Apply prudent standard of care

Requirements of a Fiduciary

ResponsibilitiesProject & Offering Review

Oversight of Handling of Funds

Ongoing Monitoring

Representation & Investment Advisory

Communications & Reporting

Benefits to Sponsors

Increase Marketability

Reduce Liability

Maintain Compliance

Facilitate Redeployment

Who Pays

Such costs are legitimate expenses of the NCE

Should be covered by the interest & dividend income generated

May reduce the annual fees earned by managers & agents

Paul Heuwetter

Signature Bank

• Redeployment

• What it Means

• How to Redeploy?

• Private Real Estate vs. Investing in Liquid Securities

• At Risk

• Using a Registered Investment Advisor

• Preset Investment Parameters

• Work With RIA to Determine Parameters

• Investment Policy Statement (IPS)

• Investment Parameters Memorialized in IPS

• Well Constructed IPS

• Asset Allocation

• Allocation Bands

• Fixed Income

• Passive vs. Active Investing

• Discretion

• Prohibited Investments

Reid Thomas

NES Financial

Consistencies Amongst EB-5 Fraud Cases

• Historical focus has been on project and team

• Due diligence needs to include:

– Operational Compliance

• Review of compliance platform

– Systems & Controls

• Insourced vs. outsourced systems

• Independent controls, reviews and audits

• Real-time methods for transparency

Due Diligence 2.0: Security, Transparency & Compliance

Compliance begins with Fund Administration

I-829 Approval

I-829 Audit Trail Starts

Setting up operational plan at outset is key to investor success

• Monitors fund movement

• Verification of compliance with loan docs

• Independent producer of reports

• Independent 3rd party produces

• Due diligence needs to include:

– Operational Compliance

– Systems & Controls

• EB-5 has become mainstream

– Look to traditional markets as examples

Third Party Control/Verification as a Best Practice

Escrow is A Complex Balancing Act

• Early-Release is the new normal

• Developer needs & investor needs

• Stakeholder needs & regulation

• Balancing project denial & individual denial

• Project risk mitigation techniques

– Exemplar, initial I-526 approval, corp. guarantee

• Investor risk mitigation techniques

– Hold back, bridge lending, corp. guarantee

• Insurance

Marc DiFanti

Mark Edward Partners

RISK MANAGEMENT - EB-5 INDUSTRY

• Exclusive and proprietary I-526 and I-829 insurance policies

• Management & Professional Liability coverage for New Commercial Enterprises and their Management

• Fidelity Bond Insurance

• Project-specific Property and Liability programs

• Personal & Life insurance solutions for EB-5 Investors

I-526 INSURANCE POLICY

Allows Project Managers to immediately access capital upon filing an I-526 petition, reassuring investors and escrow banks that a reputable insurance carrier is available to reimburse funds to the investor in the event of a petition denial

• Mandatory participation of all investors

• Policy cannot be incepted until an I-526 petition has been filed

• Policy is non-cancelable and carries a $0 deductible

• One-time premium charge for the $500,000 limit of liability policy

I-829 INSURANCE POLICY

In the event of an I-829 petition denial by the USCIS, the policy provides the return of an Immigrant Investor’s capital upon request, allowing investors to exit the investment should they wish to do so.

• Individual investor purchasing decision

• Policy must be purchased at time of I-526 petition filing

• I-829 policy incepts at the receipt of I-526 approval

• Policy is non-cancelable and carries a $0 deductible

Disclaimer

This presentation outline and the presentation itself are for general education purposes only and are not intended to provide specific guidance or legal advice about what to do or not to do in any particular case. You should not rely on this general information to make decisions about specific immigration matters. If you are not yourself a lawyer, you should seek the assistance of an immigration lawyer to help you resolve these issues. Thank you.