EB-5 Immigrant Investor Program: Key Considerations for Selecting an Investment Project
Misleading Claims to Watch Out for When Selecting an EB-5 Immigrant Investor Project
Attorneys:Attorney Jeff Zhengquan Xie,Attorney Jiarui Yin,Attorney Qian Zhao,Attorney Haochun Ling, Xiao Xiang
All investments carry risks, and every project is no exception—EB-5 immigrant investor projects are certainly not immune.
However, the magnitude of these risks can be exaggerated or downplayed, depending on the motives behind the project’s promotion.
While the authors are not investment advisory experts, as seasoned immigration attorneys who have handled hundreds of EB-5 cases, we take this opportunity to shed light on some misleading claims commonly seen in the EB-5 industry.
What we are doing here may offend some project developers or immigration intermediaries, but it will undoubtedly help investors who are still searching for suitable EB-5 projects.
Readers are welcome to comment and refute our views, but please refrain from spreading rumors or launching personal attacks.
Let’s examine the following common promotional claims and share our insights:
I. “XX Investment Project is a government-approved program by USCIS… Investment is **** safe…”
This claim is particularly effective at attracting Chinese investors, who tend to view government-backed projects as the strongest and most reliable options.
Unfortunately, this is also one of the most misleading claims, as it uses a genuine document (a USCIS approval notice) to disguise a false narrative—that the project is a “government-run initiative” in the sense understood by Chinese investors.
It is true that the promotional materials of ongoing EB-5 projects often include USCIS approval documents, or that the regional centers sponsoring these projects are duly approved by U.S. Citizenship and Immigration Services (USCIS). However, this does not mean that the ownership, operation, or management of the investment project has any affiliation with USCIS or any other U.S. government agency.
Even if a USCIS regional center approval is issued directly to a U.S. government entity (e.g., a city or state economic development department), the development and management of the specific investment project will still be owned and operated by private entities.
To put it plainly: no EB-5 investment project in the U.S. is owned, operated, managed, or financially liable for by local, state, or federal governments. If you hear a claim like “XX Investment Project is a government-approved program by USCIS… Investment is **** safe”, remember our words—it is a deceptive sales pitch.
II. “XX Investment Project has government funding or government participation… Your investment is fully guaranteed…”
It is true that in some cases, local U.S. governments may offer tax incentives or even limited funding (typically through special tax allocations) to attract EB-5 projects to their jurisdictions. Once the project is up and running, it is expected to boost local economic growth, drive real estate appreciation, and increase tax revenues, among other benefits.
However, U.S. local governments will never bail out a failed investment project.
In other words, if the project fails or even collapses entirely, government coffers will not be used to compensate foreign EB-5 investors for their losses.
Financial expenditures of the U.S. government are generally fully transparent. There is no dedicated budget item for compensating EB-5 investors, nor will there ever be. Furthermore, no government official can authorize a fund disbursement from the national treasury with a single verbal instruction or a written note. Readers who have lived in the U.S. for a long time or are familiar with how U.S. government agencies operate will undoubtedly agree with this point.
That said, it would also be inaccurate to claim that EB-5 projects have no relationship whatsoever with local governments. Governments do have a vested interest in the project’s success, as it will generate higher tax revenues in the future.
Nevertheless, governments provide no form of guarantee for EB-5 investors’ capital. In other words, the government will never cover losses incurred by an EB-5 project.
If you hear a claim like “XX Investment Project has government funding or government participation… Your investment is fully guaranteed”, remember our words—it is also a deceptive sales pitch.
III. “The developer of XX Investment Project has strong financial strength… They are billionaires in the U.S…”
The financial strength of a project developer is indeed critical to the potential success of an investment project. The key question, however, is: how much of that financial strength has actually been invested into this specific EB-5 project?
Investors should ask to review the project’s audited financial statements, and verify the exact amount of the developer’s own capital that has been injected into the EB-5 project.
They can even look into the amount of outstanding debt and loans owed by the billionaire developer. Sometimes, what you find may come as a shocking surprise.
IV. “The manager of XX Investment Project is a former senior U.S. government official… They have extensive connections.”
In countries where personal connections and networks carry significant weight, this claim can be a major selling point. After all, former senior government officials may be able to leverage their resources and connections to accomplish things that others cannot.
However, it is highly questionable how much a former senior U.S. government official can actually contribute to risk control or the ultimate success of an EB-5 investment project in the United States.
If the project runs into a capital chain crisis, can this former official step in to inject their own funds or secure additional financing to rescue the project? The answer is likely no.
V. “XX Investment Project is insured by XX Insurance Company… The project carries zero risk.”
Anyone with basic knowledge of insurance knows that reputable, mainstream insurance companies will never underwrite an EB-5 investment project.
This means that any insurance company offering coverage for an EB-5 project is certainly not a reputable, well-established one.
Investors should conduct due diligence on the total assets of such an insurance company to see if it has sufficient financial capacity to compensate for losses from an EB-5 project failure.
They should also check how many projects the insurer has underwritten, and whether its assets are enough to cover potential claims from even a fraction of those projects.
Most importantly, investors must carefully review the terms and conditions of the insurance policy to clarify exactly what risks are being covered.
Is it insurance for project completion? Or is it insurance to compensate EB-5 investors for the loss of their principal?
Chances are, it is neither.
In any case, any mention of insurance coverage in EB-5 promotional materials should be viewed with strong skepticism.
VI. “XX Investment Project is in a prime location… It has enormous potential for future appreciation…”
Do not be tempted to invest impulsively the moment you hear this claim.
Unless the EB-5 investment structure is equity-based—meaning the EB-5 investor is a shareholder of the project—the potential future appreciation of the project is completely irrelevant to the EB-5 investor.
Why is this the case?
Because the vast majority of current EB-5 projects adopt a debt-based investment structure. Under this model, the EB-5 investor’s capital is essentially a loan extended to the project developer, who is obligated to pay a predetermined rate of interest over a specified period.
The future appreciation potential of the project has no bearing on the developer’s legal obligation to pay interest or repay the principal loan to EB-5 investors.
Even if the project does appreciate significantly in value, if the developer becomes insolvent and cannot meet its debt obligations, EB-5 investors may not even have the legal right as creditors to seize the project assets for recovery.
[To be continued?]
The above overview is prepared by XIE LAW OFFICES,LLC. to provide legal information to the Chinese community. It is primarily for academic discussion purposes and does not constitute legal advice on specific cases. If you already have legal representation, please consult your own attorney, who is familiar with the details of your case. Clients of Xie & Associates Law Firm, as well as readers who have not yet retained legal counsel, may contact Attorney Xie for specific legal questions. If you wish to reprint this document, please do so in full without any deletions, and clearly indicate the source.
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