International investors need to do real due diligence before dropping $500,000 or more on an EB-5 investment. As evidenced by recent events in Palm Beach County, the fact that an EB-5 developer appears to be successful and the fact a lawyer is involved in the project are not indicators of success and do not negate real due diligence. According to recent reports, the Palm Beach County real estate EB-5 project is currently the subject of criminal proceedings, which resulted in foreclosure proceedings, as well as code violations, wherein construction long ago ceased and the project is now being run by a U.S. Court-appointed receiver.
Due diligence that is effective on an EB-5 investment is very similar to effective due diligence on other investments, though possibly more crucial because of the significant size of the investment and the fact that the investor is not a U.S. Citizen and not as comfortable with intervening once the investment is made.
What Does Due Diligence Involve
Due diligence involves a lot of things, but certainly involves:
- Determining whether you are loaning money to the project or investing money in the project, which may dramatically impact your potential risks and your potential returns;
- Making sure the written agreements that bind you and the project/promotors are completely consistent with what you are being told about the investment when it was pitched to you; and
- Making sure that what you are investing in is not just a good idea, but the management is competent and ethical, the business plan is comprehensive and sound, and that there appears to be a path not only to a successful business, but also a path to an investment that actually results in both a return of investment and a return on investment within a reasonable amount of time.
We have communicated extensively on this topic in hopes that international investors will benefit from and act on our thoughts before investing, rather than hiring us after they invest to try to recover from the wrongdoers who misled them or concealed problems from them. We have written extensively on this topic and we recommend the following resources to international investors before investing any money in an EB-5 investment:
- What To Look For When Investing In The Next Big Thing
- Foreign Investors, Hope Is Not A Plan
- EB-5: Get on the Path to Residency, Not the Road to Ruin
- Next Steps for EB-5 Investors in 550 Seabreeze | Los Olas Resort Project
One of the Florida EB-5 projects we are currently investigating is now in Chapter 11 bankruptcy court. This project was promoted to EB-5 investors as an Outdoor Adventure Park and Entertainment venue in Punta Gorda, Florida. It appears that the gross revenues of this project were below $1 million in 2016 and have dropped since that time, while creditors appear to be owed almost $5 million. As a result, the outlook for EB-5 investors in this project does not appear to be promising. There are now allegations related to this project against former management that funds are missing or were spent due to fraud and breach of fiduciary duties, including the unauthorized use or withdrawal of company funds for personal use. This is an example of why, sadly, extensive due diligence by an independent due diligence team is necessary before anyone invests through the EB-5 program.
Vernon Litigation Group
At Vernon Litigation Group, we focus on protecting investors from professional incompetence, conflicts of interest, and fraud which result in significant losses or other damage. Our EB-5 practice includes pre-investment due diligence as well as investigations and prosecutions to recover significant damage that has already occurred. We offer representation nationwide and to foreign investors living abroad.
For more information, contact:
Vernon Litigation Group
Phone: (239) 319-4434
Mr. Vernon handles the litigation and arbitration of complex business and financial disputes, with an emphasis on securities fraud and securities arbitration, throughout the United States.