May 16, 2022

Volume XII, Number 136

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May 16, 2022

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Borrowers in EB-5 Deals Not Insulated from Securities Litigation by the SEC

While issuers and regional centers are the focus of EB-5 litigation right now and into the foreseeable future, if you are taking direct proceeds as a borrower in a transaction facilitated by an EB-5 regional center or issuer you need to have legal advice on the scope of your liability in a deal. Many large-scale EB-5 transactions are driven by a regional center that is facilitating a loan to a project or EB-5 borrower. Borrowers in such transactions often operate under the misconception that they are insulated from liability because they are not an issuer, and that this “insulation” means no accountability to the SEC or to investors.

Nothing could be further from the truth.

The SEC may name an EB-5 borrower in a transaction as a relief defendant in a civil action against a regional center or issuer. An asset freeze, disgorgement and reputational harm, among others, are all possible outcomes if a borrower receives direct proceeds of a toxic EB-5 deal that lands in litigation. The SEC also has the power to sue persons who aid and abet a violation of the securities laws. In the EB-5 context, where borrowers may accompany a regional center on a roadshow or participate in marketing efforts, caution is warranted.

Borrowers in EB-5 transactions should have protective indemnification agreements in place before receiving EB-5 proceeds; review offering materials to ensure the accuracy of any facts represented to investors about their projects; know the background and experience of the EB-5 regional center before closing a deal; and have separate counsel from the EB-5 regional center controlling the offering process.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume V, Number 335
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About this Author

Douglas Hauer, Corporate Immigration Attorney, Mintz Levin, Immigration EB-5 Financing Securities & Capital Markets Israel
Member

Doug is a noted authority on the EB-5 investor visa program, which gives developers a path for securing capital for real estate, hospitality, and infrastructure projects. His fluency with the program makes Doug an essential resource for companies looking for financing from offshore sources. International entrepreneurs and companies also rely on him when launching a business within the borders of the US. He is ideally positioned to advise clients on immigration and corporate law issues that arise in doing business in the US. 

Doug is a Member in the firm's Corporate & Securities...

617-348-3044
Francis J. Earley, Mintz Levin, Complex Commercial Disputes Attorney, Class Action Suits Lawyer
Member

Frank is a litigator who skillfully handles a broad range of complex commercial and securities disputes. He frequently represents individuals and public and private companies across numerous sectors, advising on corporate governance issues in cases that challenge, among other things, the terms of a merger or acquisition and directors’ and officers’ actions with regard to the transaction. Representing a wide array of clients in class action cases, SEC investigations and enforcement proceedings, FINRA proceedings, and other arbitration matters is another major part of his practice. Frank is...

212-692-6230
Adam Sisitsky, Mintz Leving Law Firm, Boston, Corporate and Litigation Law Attorney
Member

Adam is an experienced trial attorney and litigator whose practice encompasses a wide range of matters focusing on business and securities litigation, internal investigations, and government enforcement actions. Adam represents corporations, officers, directors, accountants, and other individuals in SEC investigations and enforcement proceedings, as well as in civil litigation. He routinely counsels public and private companies and others in matters involving compliance issues, including matters arising under the Foreign Corrupt Practices Act (FCPA).

...
617-348-1689
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