EB-5 Investment Report: Due Diligence, Transparency, and Broker Fees the State of the EB-5 Program
Riverside, CA (PRWEB) July 16, 2013 -- Michael Gibson is an investment advisor who was introduced to the EB-5 program in 2006. In the past few years he has seen the program evolve and he is launching a new platform for industry stakeholders to learn about projects. He says, “Our EB5M.com platform will allow for everybody in the industry . . . to log onto the system, see what all of the different projects are in the market and they’ll be some general information on the projects . . . they can also act on that.”
Due Diligence are words heard often in the EB-5 world and Gibson’s goal with his new website is to help provide that. He explains that due diligence means gathering all the information one needs to make a decision on whether the project is a suitable investment for EB-5 purposes.
In 2011, USAdvisors’ due diligence uncovered some major problems with a project that was being heavily marketed in China; Intercontinental Regional Center Trust of Chicago’s convention center project. Gibson explains, “It didn’t take us too long to realize that this was all nonsense, there was no substance to anything they were saying . . . there was no due diligence done by anyone, the whole thing was fantasy.”
Two years later, the SEC filed charges against the regional center for fraud. There were 250 investors on that project who didn’t do their due diligence. But Gibson doesn’t blame investors for not doing their homework. He says that while these investors are very intelligent, they are not sophisticated investment experts and don’t really understand the illiquidity and risk involved in commercial real estate development. He says, “It is our job to explain to them what all the risks are involved in these investments so that they can make a better informed decision.”
Transparency has also been a pressing issue with EB-5, especially as it pertains to immigration broker fees and unregistered brokers. The SEC became involved with the EB-5 program to protect investors and although Gibson doesn’t have a problem with the large fees immigration agents are charging, he does have a problem with them not disclosing that information. He says, “By not disclosing that, the investors think the agents are their friends . . . but we know from the study of ethics, when you have such a large compensation in front of a person they are going to be highly motivated to perhaps not disclose potential issues {with the project} to the client.”
Gibson has seen the fees rise significantly over the years and says because the size of the projects have grown and the intervals of time for the projects has shrunk, agents started charging more and more. He adds, “In some cases we are seeing compensation packages of front-end and back-end fees of over $150,000 per $500,000 investment, which I can guarantee you, none of the Chinese investors are aware of.”
There have been a lot of changes in the industry since Gibson first got involved including the evolving roles of immigration attorneys and regional centers. Some immigration attorneys are accepting fees for referring clients to specific regional centers, which could present problems down the road if the project fails and these attorneys are seen as broker/dealers. He also says that regional centers themselves have become more of a marketing agent, which could also raise securities issues.
With the SEC’s increasing involvement, Gibson foresees greater scrutiny of the industry in the coming years, not only from USCIS and the SEC but also from the mainstream media and Congress.
Dwight Cromie, EB-5 Investment Report, http://eb5investmentreport.com/, 951-781-8624, [email protected]
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