Why EB-5 Investors Should Prefer Projects Using a Fund Administrator

With a fund administrator: a second signature before each applicable transfer

A fund administrator reviews and approves the use of your capital at two points.

1. When your investment passes from escrow into the NCE, the administrator, as a party to the escrow agreement, co-signs each release.

2. When money leaves the NCE for the project, the administrator co-signs each applicable transfer after confirming two things: the draw carries the documentation a commercial construction lender would expect, and the disbursement matches the offering documents USCIS reviewed with the project’s I-956F. These are the same documents you relied on when you invested.*

This gives you a layer of accountability you would not otherwise have. The developer cannot move EB-5 capital on its own say-so; an independent reviewer has to agree that each applicable transfer follows the plan you invested in. Problems are caught before the money moves. Examples include an expense outside the approved use of funds, a missing consultant certification, or a bridge repayment that is not in compliance with USCIS policy. When a budget or funding source changes, the administrator helps the project adjust and stay in compliance, so the change is handled when it happens and not discovered years later during your I-829 review.

Review does not have to slow construction. Draw routines change little from month to month, so approvals settle into a predictable schedule. At PRXY, approvals usually happen the same day if the request is made in the morning and there are no issues with the transfer.

With an annual audit: a review after the year has closed

An annual audit examines a year of financial activity after it closes. An error made in February may not surface until the following spring, when correcting it costs more or, in some cases, is no longer possible. By then your capital has already been spent. An uncorrected error can put your I-829 petition at risk and leave you with the costly and uncertain option of pursuing claims against the NCE, the regional center or their principals.

Auditors face two further limits. Most work to GAAP, or “generally accepted accounting principles,” which do not address whether an expense counts toward EB-5 job creation or complies with the offering documents. And auditors review the documents their client chooses to provide. That client is the NCE, not you, which can leave gaps in the record of how your capital was spent.

The record behind your I-829

Your I-829 petition is where all of this comes due. To remove the conditions on your green card, you must show that your capital reached the project, was used as approved and created at least 10 jobs. USCIS expects the supporting record to include tax returns, financial statements, bank statements and expenditure reports from both the NCE and the job-creating entity. For many projects, that record covers close to ten years.

You cannot build that record yourself. It comes from the NCE and the project, and its quality depends on how carefully it was kept from the start. A fund administrator assembles the expenditure record at each disbursement of funds, beginning with the first. When your I-829 is filed, the evidence already exists and ties the project’s spending to the approved budget, which lowers the risk of a request for evidence. Under an annual audit, the NCE may have to assemble that record when petitions are due, years after the money moved.

Why your regional center’s compliance matters to you

Two other filings belong to the regional center, not to you, but you still have a stake in both.

1. Form I-956G

   Each year, the regional center reports capital invested, capital committed, project progress and job creation. Because a fund administrator gathers records at each draw, the filing uses documents already on hand.

2. The USCIS regional center audit

   At least once every five years, USCIS may audit the regional center and its projects. It can request subscription agreements, wire records tracing funds from escrow through the NCE to the project, and 24 months of bank statements, with about two weeks to respond. Under an annual audit, the regional center has to assemble most of this material on its own.

A regional center that falls short on these obligations can face sanctions, suspension or termination by USCIS. If that happens, its investors can face delays, added cost and uncertainty in their own petitions. Records kept by a fund administrator help keep your regional center in good standing.

What to ask before you invest

In many cases the two main compliance options cost a project about the same. Choosing the annual audit typically does not save the project any money, but it removes the review that happens before your capital moves.

Investors and their advisors have started to ask about this. Some offshore placement agents now ask whether a project uses a fund administrator, and some have requested lists of projects that do. Before you subscribe, consider asking the regional center or placement agent:

• Does the project use a fund administrator or an annual audit to meet the RIA requirement?
• Do the administrator’s principals have experience in immigration, lending and securities law?
• Will the administrator’s expenditure record be available to support your I-829, and who will provide it to your immigration attorney?
• Does the administrator support the regional center’s I-956G filings and five-year audit?
• What reporting will you receive on how your capital is being deployed?
• How quickly does the administrator turn around approvals, so that review does not delay construction?