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National Association of Federal Equity Receivers

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  • 22 Sep 2017 10:37 AM | NAFER (Administrator)

    We're glad to have Dottore Companies, LLC as the Receivership Training Camp Sponsor for our Oct. 18-20 NAFER Annual Conference! You can learn more about their services here:


    For a new NAFER member who may not be familiar with your company and/or its solutions, can you tell us a bit about how your company/organization is formed and its key value propositions to receivers?


    Dottore Companies LLC is unique in that we offer all necessary receivership services under one roof: business management, legal and accounting. When appointed as receiver, we normally do not hire additional outside attorneys or accountants. We have learned that courts know and trust each battle-tested team member and therefore have confidence in our team approach. Over time, distressed companies have called on us for out of court restructuring services for the same reasons: the restructuring advice is multifaceted and all services are available in one place.


    What advice would you give someone who has recently entered into the receivership industry based on your interactions with so many in this line of work?


    A receiver must have the hide of a rhinoceros and the patience of Job and the negotiating skills of King Solomon. A receiver must know when to fight and when to try to mediate. A good receiver order is the best tool for the efficient management of receivership assets. Develop your order as a template, keep it updated, and provide it to persons seeking to identify you to a court as a proposed receiver. Have professional resumes available for all team members, with a list of the types of cases that they have worked on.


    What are some of the tools that you feel are unknown or underutilized to some clients/NAFER members that you provide that you feel would be beneficial to be exposed to for their practice?


    We regularly offer receiver-related services in divorce cases. Often, a substantial business is involved. The business becomes a target of the divorce dispute because of distrust between husband and wife. A receiver can (1) provide transparency; (2) remove issues of distrust between the parties by, for example, verifying the income of the business; and (3) sell the business or other assets in a neutral environment. Providing receiver services in divorce cases leads to other engagements within the divorce case, such as mediation services.


    What have you found valuable in your membership in/involvement with NAFER?


    The high level of receivership expertise and the different backgrounds of NAFER members (lawyers, accountants, and business people) provide an unequaled learning environment. The different ways that members approach problems and their proposed solutions are incredibly creative and instructive and their willingness to share their experiences is gratifying. Membership in NAFER has provided us with the credibility we need to land bigger and more profitable cases.


  • 06 Sep 2017 9:01 AM | NAFER (Administrator)

    We're grateful to have FTI Consulting as a Platinum Sponsor for our Oct. 18-20th Conference! Learn about their services in this Q&A:

    For a new NAFER member who may not be familiar with your company and/or its solutions, can you tell us a bit about how your company/organization formed and it's key value propositions to receivers?
     

    FTI Consulting is a leading global provider of integrated professional services of most benefit to complex receiverships.  Under one roof, and from offices in the major financial centers of 26 countries, we offer world-class turnaround and reorganization consulting, operational improvement, forensic investigations, litigation and e-discovery support, crisis communications and economic consulting.
     
    Are there any specific industry topics you'd like to discuss as we look towards the NAFER conference to showcase your viewpoint(s) as a service provider for many in this industry?
     
    Best practices to contain administrative/professional costs and ensure high value-added (cost/benefit) services.  Innovative provisions in receivership orders to promote efficient and effective receiverships.
     
    What advice would you give someone who has recently entered into the receivership industry based on your interactions with so many in this line of work?
     

    There is no substitute for having “been there, done that”.  Find the most experienced and knowledgeable receiver and/or service provider to the industry and team with him/her to benefit from their invaluable expertise.  Minimizing rookie mistakes, and there are many potential pitfalls, is essential if one wants to succeed quickly in this highly competitive and complex field.
     
    What are some tools that you feel are unknown or underutilized to some clients/NAFER members that you provide that you feel would be beneficial to be exposed to for their practice?

    Great ideas.  I never leave a meeting without new insights and ideas to improve the administration and outcomes of my receiverships.

    Harnessing the power of “big data” and emerging artificial intelligence are now crucial for efficient and effective forensic investigations.  For example, de-duplicating email and document archives, through automated processes, can reduce storage costs (and search time) by a factor of 3x-5x.  Similarly, powerful e-discovery programs can greatly streamline and economize litigation and, as importantly, enhance outcomes.


    What have you found to be most valuable in your membership in / involvement with NAFER?

    Great ideas.  I never leave a meeting without new insights and ideas to improve the administration and outcomes of my receiverships.

  • 05 Sep 2017 2:30 PM | NAFER (Administrator)

    NAFER is pleased to have Epiq as a Gold Sponsor for our Oct. 18-20th Conference! Here are a few things you can learn about them and how their services can benefit you as a NAFER member:

    What is the Epiq difference?

    Epiq is able to provide services to the receivers, trustees, and fiduciaries from the time they are appointed to final distribution and final report filed to the court. We understand that the initial needs of the receiver are very time sensitive, and we quickly jump in to allocate time and necessary resources to address your needs right after your appointment. We have services and software for every point and turn of the process, and solutions for any industry complaint or matter. We like to partner with you to ease your burden, and plug in wherever you need us most!

    How can the Epiq software help in legal cases and matters?

    The unique software can provide any type of service that a legal case or matter would require. It provides online integrated banking, asset management, case management, and a whole series of reports. It offers a comprehensive application that clients can use, perfectly geared toward trustee and fiduciary matters, as well as specific receivership services.

    We’ve also incorporated some of the receiver requirements into our unique software. SEC filings require a SFAR, and we’ve incorporated that into our software application so a receiver can just do it there! Our software is very robust in helping receivers through the distribution process. It can calculate out and track the names, the amounts, if people have been partially paid back, or any security in place that has to be handled. We know it’s a very involved and complex process, and our job is to help with that. We have a distribution out of our Portland office that can handle big cases in a matter of minutes, and our software has the ability to handle that for smaller cases if a receiver wants to handle it themselves.

    How do you stand out from your competitors?


    Our competitors do bits and pieces of what we do, but we have everything you could need to manage a case. One essential part of what we do is the banking side, in which we partner with multiple banks in key areas (LA, NY, Chicago) and have contracts with them. We can negotiate terms of banking. Often times when a receiver is assigned a case, the money disappears. They freeze the account, and they try to get control of the money before it disappears. We can help because we can ramp up in all of these areas. Our banking partners know these are cases we deal with, and they’re equipped to open bank accounts immediately and discuss terms when needed.

    We have a full fleet of services that handles every aspect of the legal industry. We tie our software offerings with our service offerings to provide any support you may need, and we are unique in that sense. Some companies might have trustee-specific software, but not necessarily for all the other services. If there is a need for someone to handle data, retrieve it and secure it before they disappear, Epiq has a huge e-discovery group that does just that. If a website is needed for investors and victims to go and look for information on a case, we can set that up and host it for them. If a company is in need of a call center where people can call in and get their questions answered, we can provide that in multiple languages. We can also provide strategic communications and public relations services when receivers don’t know how to get certain messages across or FAQs written.  No one can do that using one company, so these are the things that set us apart!

    Do you have any examples of client success stories you'd like to share with the NAFER audience?

    There was a retail fraud that utilized almost every very aspect of our services. They needed their data secured, a website, and call centers in multiple languages because there were 160,000 victims worldwide that were being defrauded. In this retail case, money was going to an individual, so they engaged us to secure data, retrieve the servers, clean everything up and present it in a way that was useful to the receiver.

    In another example, the depth of services we were able to provide for a financial services SEC complaint filing was very unique. They had a flow of funds unique to SEC cases, with several entities set up. They had to be reporting not only individually, but also the collective flow of funds. We were able to maneuver software in a way to meet the receiver’s needs. In this particular case, we had directed the receiver and staff to manage the case and entities with our software. The benefit was that the receiver was able to go to one place and see full reports on all entities regarding the case and flow of funds. We were able to get bank accounts opened quickly and get the flow of funds over to control by the receiver.

    Whether it be a small, medium, or a large case that needs every service we have, we’re able to plug in where the need is and provide services and solutions to the receiver!

    To learn more, visit us at www.epiqsystems.com.

  • 05 Sep 2017 2:20 PM | NAFER (Administrator)

    We're grateful to have PwC as a Diamond Sponsor for our Oct 18-20th Conference! Learn a bit more about their services here in this Q&A!

    For a new NAFER member who may not be familiar with your company and/or its solutions, can you tell us a bit about how your company/organization formed and it's key value propositions to receivers?

    At PwC, our purpose is to build trust in society and solve important problems. We're a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services.  Our industry-leading knowledge and exceptional resources can help you with your many receivership/trustee challenges across the globe. Our experience extends across numerous industries, including financial services (banks, investment companies, broker-dealers, securities firms, etc); real estate; manufacturing; and retail. Our restructuring advisory and forensic services professionals have direct experience in the industry of the entity in receivership, liquidation, or conservatorship. To find out more and tell us what matters to you by visiting us at www.pwc.com.

    Are there any specific industry topics you'd like to discuss as we look towards the NAFER conference to showcase your viewpoint(s) as a service provider for many in this industry?

    We have a long history helping receivers and trustees navigate their challenges. Tap into our detailed knowledge and experience in resolution and receivership management to address a variety of matters including:

    • Early risk identification and resolution strategy planning
    • Transition of operations to the Receiver
    • Managing operations and executing the Receivership strategy
    • Tracing funds and conducting other forensic analyses
    • Gathering and preserving electronic evidence
    • Recovery of lost and/or mismanaged assets
    • Disposition/conversion of assets
    • Entity wind-down and close out of the estate
    • International Asset Searching / Global Intelligence
    • Expert or Fact Witness Testimony

    What advice would you give someone who has recently entered into the receivership industry based on your interactions with so many in this line of work?

    Utilize NAFER as one of your primary resources for meeting colleagues, networking and professional development.

    What are some tools that you feel are unknown or underutilized to some clients/NAFER members that you provide that you feel would be beneficial to be exposed to for their practice? 

    I think many Receivers primarily think of PwC related to the Forensic Accounting services that we provide.  However, many Receivers forget that PwC can also; 1) help a receiver to preserve, collect and analyze electronic information; 2) perform global asset tracing services; and 3) assist the Receiver related to the strategy, operation and disposition of a business with significant ongoing operations.

    What have you found to be most valuable in your membership in / involvement with NAFER?

    NAFER has assisted me in broadening my exposure and network with the Receivership community.  This community can then be leveraged for expertise and advice as you navigate the issues on each unique receivership engagement.

  • 05 Sep 2017 2:07 PM | NAFER (Administrator)

    NAFER is grateful to have East West Bank as a Diamond Sponsor for our Oct. 18-20th Annual Conference! Here are a few things you can learn about them and the services they offer:

    For a new NAFER member who may not be familiar with your company and/or its solutions, can you tell us a bit about how your company/organization formed and it's key value propositions to receivers?
     
    Headquartered in California, East West Bank is a top performing commercial bank with exclusive focus on the United States and Greater China markets.  East West Bank is one the few American banks that have a full banking license in China; it operates in more than 130 locations across the United States with branches/offices in California, Georgia, Nevada, New York, Massachusetts, Texas and Washington. In the Greater China Region, East West has locations in Hong Kong, Shanghai, Shantou, Shenzhen, Beijing, Chongqing, Guangzhou, Taipei, and Xiamen.
     
    East West Bank’s Specialty Deposit Services group provides nationwide private banking services for court appointed fiduciaries such as federal equity receivers.
     
    Are there any specific industry topics you'd like to discuss as we look towards the NAFER conference to showcase your viewpoint(s) as a service provider for many in this industry?
     
    Maximizing return to the estate:  with the anticipated continued rise in interest rates, now is a perfect time to review the return that is accruing on receivership estates. 
     
    What are some tools that you feel are unknown or underutilized to some clients/NAFER members that you provide that you feel would be beneficial to be exposed to for their practice?

    Banking products such as foreign exchange and positive pay.  With the global economy we operate in, foreign exchange trades are a large part of the corporate world. Maximizing foreign exchange return is an essential tool receivers.

    Positive pay is an automated fraud detection tool. In its simplest form, it is a service that matches the account number, check number and dollar amount of each check presented for payment against a list of checks previously authorized.  All three components of the check must match exactly or it will not pay. It is an essential tool for receivers making large distributions.

    What have you found to be most valuable in your membership in / involvement with NAFER?

    The development of new relationships and the strengthening of existing relationships; as well as the sharing of ideas.  The NAFER organization and the structure of events is  very conducive to networking; which, of course, facilitates productive dialogue; ultimately resulting in us learning more and becoming better professionals.

  • 04 Sep 2017 2:00 PM | NAFER (Administrator)
    We are happy to have BMS as a Diamond Sponsor for our Oct. 18-20th Annual Conference! Here are a few things you can learn about them and the services they offer:

    For a new NAFER member who may not be familiar with your company and/or its solutions, can you tell us a bit about how your company/organization formed and it's key value propositions to receivers?

    BMS started out as a division of a bank in 1987 that eventually became a part of Chase. This division provided software to assist fiduciaries manage their cases in exchange for placing deposits with the bank. Initially, our primary clients were Chapter 7 Bankruptcy Trustees; however, over the years, as our software and banking services have expanded, our client base has become more diverse and now includes a large number of receivers. In 2003, BMS split off from Chase to become an independent company.

    BMS provides receivers and other fiduciaries with tailored depository services through our network of banking partners and end-to-end case administration software for your receivership engagements. With decades of experience in the industry, our services are designed to ensure your success by keeping your expenses down and allowing you to maximize value to the estate.

    Our banking services are offered with absolutely no monthly fees and no charges for common banking transactions including wire transfers and stop payments. In addition, all deposits are FDIC insured and we offer master signature cards to allow quick opening of new accounts. Plus, you’ll work with a single team of banking experts at BMS regardless of which of our partner banks holds your deposits.

    You can learn more of our services by visiting http://www.bmsadvantage.com/corporate-restructuring/.

    Are there any specific industry topics you'd like to discuss as we look towards the NAFER conference to showcase your viewpoint(s) as a service provider for many in this industry?

    From our many years of working with receivers, we believe topics such as Accounting and Reporting or Asset Liquidations and Claims Distributions can help receivers in the day-to-day operations of their practices. Unlike bankruptcies, which tend to have a more structured process, no two receiverships operate exactly alike. This is good and bad as it allows for much greater flexibility but also leaves a receiver wondering what they can do (or not do).


    What advice would you give someone who has recently entered into the receivership industry based on your interactions with so many in this line of work?

    We would advise that the receiver develop a plan early on as to how you would like to oversee the receivership then engage quickly with the judge and be transparent with them regarding what actions they wish to take. We also recommend that the receiver engage legal counsel early in the engagement to protect the estate.

    We also recommend that a receiver carefully evaluate their administrative and banking systems. One of the areas that many receivers have challenges with is being able to keep track of all the moving parts of a receivership and ensuring the timely flow of monies.

    What are some tools that you feel are unknown or underutilized to some clients/NAFER members that you provide that you feel would be beneficial to be exposed to for their practice?

    The NAFER database is a rich source of information that may be used to reach out to other receivers in order to get advice from their peers since there are a lot of nuances to receiverships and much of what can and cannot be done is situational and not written down.

    What have you found to be most valuable in your membership in / involvement with NAFER?


    NAFER has given us the opportunity to expand our knowledge of receiverships to better support our existing clients – several of whom are on the NAFER board. NAFER has also allowed us to interact with other receivers who are yet to become clients of BMS.

  • 16 Jun 2017 10:52 AM | NAFER (Administrator)

    NAFER is excited for the continual growth in our membership! We would like to welcome the newest members, and we look forward to the expertise each of you will bring to our community.

    Agency Member:
    Roberto Anguizola with the Federal Trade Commission (Washington D.C.)

    Full Members:
    Daniel Burstein with Guide Post Solutions  (New York, NY)
    Eric Goodman with BakerHostetler (Cleveland, OH)
    Neil Gordon with Arnall Golden Gregory LLP (Atlanta, GA)
    Jeffery Schneider with Levine Kellogg Lehman Schneider Grossman LLP (Miami, FL)

    
Associate Members:
    Folashade Abiola-Banjac – CliftonLarsonAllen (Arlington, VA)
    Lois DeLucia - Schiff Hardin LLP (New York, NY)
    Terri Gardner - Nelson Mullins Riley & Scarborough,LLP (Raleigh, NC)
    Geoff Winkler – Bates Group Lake Oswego, OR)

    International Associate Members:
    Monika Sheldon-London with ALPHA Financial Technical Service (France)
    Ayodele Kusamotu with Kusamotu & Kusamotu (Nigeria)

    Industry Members:
    Garry Hayes - Law Office of Hayes and Welsh (Henderson, NV)
    Jocelyn Szekretar – Oak Pointe Partners (New York, NY)

    If you'd like to become a member of NAFER, please contact: Natalie Wonnacott at Natalie@NAFER.org

  • 14 Jun 2017 2:35 PM | NAFER (Administrator)

    We would like to invite you to participate in our new blog! This will be a space on our website where members can extend value to other members in the community through an article, as well as connect and network with others. Each article will be posted on the blog section of the NAFER website, and links to the article will be shared across our social media platforms to all followers. Members are invited to create and submit articles to share insights, opinions, thoughts on interesting cases, regulatory updates within the industry, and other topics that may benefit other members.

    Blog articles would be 300-350 words, and we will credit you as the author and list your contact information if you'd like.  If interested, please send a draft to Steve at steve.donell@fedreceiver.com.

    Thank you, and we look forward to building this blog space for our community!

  • 09 May 2017 12:47 PM | NAFER (Administrator)

    When I wrote my first article for The Receiver (January 2017), I indicated that I had new appreciation for the work of my predecessors.  Now that I have held this office for six months, that appreciation for the accomplishments of past presidents Robert Wing, Steve Donell and Ira Bodenstein has grown exponentially. 

    Working from the extraordinary foundation they built, my fellow NAFER Board Members and volunteer committee leaders are working at an accelerated pace to keep up with the phenomenal growth and development momentum that is occurring within our association.  Here are just a few of the highlights:  The Regional Program Committee is planning three Regional Programs in 2017: the first will be in Miami on May 11th at the Four Seasons (Brickell Ave).  Two additional programs are being planned for this year watch for additional announcements for locations and dates.  The Judiciary Outreach Committee is developing a program aimed at opening discussion with federal district court and magistrate judges around the country.  Their goal is to educate these judges about the role of federal equity receivers. The Website Committee is steeped in the process of upgrading our site’s organizational structure.  We are also preparing to launch a new and exciting logo and brand image in the next 60 days.  The Website Committee has also worked to implement a new, targeted, strategic Social Media Marketing Plan that will enhance the value of all top-level Regional and Annual Conference Sponsorships. 

    The International Committee has the British Virgin Islands as the next location for our second annual international conference (stay tuned for more, but save January 28 – 30, 2018 for this very educational - and enjoyable! - event).  Working in conjunction with the Membership Committee, the International Committee’s proposal to create a new category of membership allowing for international insolvency experts to join NAFER was just adopted by the board. The “International Associate Member” category in now officially available for our insolvency peers around the globe.

    Last, but certainly not least, the Annual Conference in Miami is now just under six months away.  The Receiver Training Camp returns this year and will include an international component; six great educational panels are planned (including the ever-popular Judges Panel), and our keynote presentation is one you won’t want to miss.  This year’s keynote presentation will be a unique look at the case history of an actual Ponzi scheme featuring the fraudster, SEC enforcement counsel, the receiver, and receiver’s counsel. In an open, “fireside chat” format, the SEC’s Marshall Gandy joins NAFER President Greg Hays and Troutman Sanders Managing Partner David Dantzler as they discuss the development – and eventual unraveling – of convicted Ponzi scheme perpetrator Travis Correll's $100M Ponzi scheme.

    You’ll find more information on the conference and the Receiver Training Camp in this issue and additional information is on our website at www.NAFER.org/annual-conference.  That’s all for now, but watch for additional updates and news in our next issue of The Receiver, scheduled to be published this summer.

  • 09 May 2017 12:43 PM | NAFER (Administrator)

    By: Catherine DeBono Holmes, Esq., Daniel B Lundy, Esq. and Jeffrey E. Brandlin, CPA, CIRA, CFF

    Managers and Investors in EB-5 Investment Funds should regularly monitor their investments in EB-5 Projects and be ready to take protective actions if their EB-5 Projects show signs of trouble.

    It is vitally important for managers and investors in EB-5 investment funds to stay informed of the status of their EB-5 projects , because EB-5 investors must demonstrate that the projects in which they invested were completed and, in some cases, that those projects are operating in accordance with projections, in order to qualify for approval of their I-829 petitions to remove conditions to their residence.  If the manager or EB-5 investors in an EB-5 investment fund discover signs that their EB-5 project may be experiencing financial distress or other difficulties that could prevent the project from being completed or operated in accordance with the original business plan for the project, the manager, the investors or their representatives need to evaluate whether there are any actions that could be taken to save the project, so that the EB-5 investors will ultimately qualify for approval of their I-829 petitions.  The manager or investors are in a far better position to take protective actions before the problems with their EB-5 project result in litigation, foreclosure, or SEC enforcement action, although it is still possible to take protective actions after one of these events occurs.  This article is the first of a series of articles that will describe how managers or investors can monitor their EB-5 projects to discover potential problems before they become a crisis, and the protective actions that may be taken to protect EB-5 investors if their EB-5 projects are in trouble.

    Both managers and investors in EB-5 investment funds should continuously monitor and evaluate the progress of their EB-5 projects, and collect documentation of transfers of EB-5 funds, payments of project expenditures, and other financial records that will be required as part of the I-829 petitions.  An unwillingness to provide such documentation, which is mostly generated in the normal course of business, can be a red flag indicating that something is wrong.  The manager of each EB-5 investment fund is the primary party responsible for monitoring the EB-5 fund’s investment in the EB-5 project.  However, in cases in which the manager is affiliated with the EB-5 project developer, or the manager is not fulfilling its obligation to properly supervise and monitor the EB-5 project, the EB-5 investors should have their own independent representatives monitor the EB-5 project and evaluate if and when protective actions are necessary to protect the E-5 investors.  The manager of an EB-5 investment fund, or third party service provider where the manager is affiliated with the developer, should provide regular reports (preferably on a quarterly basis) to the EB-5 investors in the fund regarding the status of construction and financing of the project, payments made to the EB-5 investment fund and whether or not the EB-5 project is in compliance with the terms of the investment made by the EB-5 investment fund in the project.  EB-5 investors should insist that the manager of their EB-5 investment fund make these periodic reports if the manager is not already doing so.  If EB-5 investors do not receive these reports, they should engage an independent representative to meet with the manager, review the EB-5 project and advise the EB-5 investors directly regarding the status of the project and any problems that are discovered as a result of the review.  In the paragraphs below, we provide further information regarding how that may be done.

    Managers and investors in EB-5 investment funds should be aware of the warning signs that their EB-5 project may be in trouble.

    Listed below are some of the warning signs that an EB-5 project may be in trouble:

    • Failure of the EB-5 project developer to deliver regular reports to the EB-5 investment fund manager of the status of the financing, construction and/or operation of the project
    • Failure of the EB-5 project developer to provide documentation of expenditures and the use of EB-5 funds on a regular basis
    • Failure of the EB-5 project developer to obtain all necessary financing to commence or complete the project
    • Failure to make payments on an EB-5 loan or equity investment, or on any other financing obtained by the EB-5 project
    • Failure to deliver required financial and other reports to EB-5 lender and/or EB-5 investors
    • Receipt of notice of default from the senior lender to the EB-5 project
    • Receipt of information that the EB-5 project is not paying its contractors
    • Receipt of notice that litigation has been filed against the EB-5 project or developer
    • Evidence that the EB-5 project has not commenced or has ceased construction
    • Failure of the EB-5 project to meet the dates specified in the project construction schedule
    • The fact that one or more of these events has occurred may not necessarily indicate that the EB-5 project is in trouble, but it is an indication that there may be a problem, and that further investigation should be done to determine if there is a problem.

    The manager of the EB-5 investment fund should hire an experienced construction monitor and/or accountant when it suspects the EB-5 project is in trouble to conduct a thorough review of the status of the EB-5 project.

    An experienced construction monitor and/or accountant will take the following steps to evaluate the status of the EB-5 project:

    • Interview the developer, architect and engineer for the EB-5 project
    • Obtain copies of the EB-5 project entity financial statements
    • Visit the office where the EB-5 project related books and records are maintained, and review the books and records, including general ledger, invoices and other financial records of the EB-5 project
    • Review all cash transfers of the EB-5 project entities above a specified dollar amount to determine if improper payments are being made
    • Conduct a site visit to assess construction activity and compare it to the project construction schedule and project construction reports
    • Conduct a public records search to determine all liens filed against the EB-5 project property
    • Review zoning approvals and building permits for the EB-5 project
    • Assess the market valuation of the EB-5 project with local real estate brokers

    Depending upon the results of that evaluation, the construction monitor and/or accountant will present a report to the manager regarding the status of the EB-5 project and any problems that have been discovered.  The construction monitor and/or accountant will also be able to assist the manager in determining the severity of the problem and evaluating potential solutions to the problem.  The manager and its consultants should review the options available for completing the project and determining which of those options should be pursued. In a future article, we will discuss options for saving an EB-5 project in trouble and how those options may be pursued.

    If EB-5 investors are concerned that the manager of their EB-5 investment fund is not performing its obligations, the EB-5 investors or their agents should hire their own experienced construction monitor and/or accountant to act as the representative of the EB-5 investors and report directly to the EB-5 investors.

    EB-5 investors have rights as limited partners or members of an EB-5 investment fund to review the books and records of the EB-5 investment fund and to require that the manager of the fund fulfill its duties to monitor the EB-5 project and protect the interests of the EB-5 investment fund and the EB-5 investors.  EB-5 investors may exercise these rights either individually or as a group.  EB-5 investors who are concerned that the manager of their EB-5 investment fund is not fulfilling its duties should engage an attorney to act as representative of one or more of the EB-5 investors to review the books and records of the EB-5 investment fund itself and the EB-5 project entities, and to meet with the manager of the EB-5 investment fund regarding the steps that should be taken so that the necessary monitoring and reporting is done.  The attorney for the EB-5 investors will undertake the following review and analysis of the protective actions that may be taken on behalf of the EB-5 investors:

    • Review the partnership agreement or operating agreement of the EB-5 investment fund to determine the specific rights of the EB-5 investors to take actions under the terms of the partnership agreement or operating agreement
    • Review the communications, construction reports and financial statements that have been received by the EB-5 investors
    • Review the books and records maintained by the manager of the EB-5 investment fund, including notices, reports and financial statements received by the manager from the EB-5 project entity or developer
    • Review the financial statements of the EB-5 investment fund
    • Review the project financing documents between the EB-5 investment fund and the EB-5 project entity (loan agreement, pledges, guaranties, intercreditor agreements, etc.) to determine the rights of the EB-5 investment fund
    • Interview the manager of the EB-5 investment fund and the EB-5 project developer
    • Review the adequacy of the documentation necessary to meet annual USCIS reporting requirements and the I-829 requirements
    • Evaluate the status of the EB-5 project to determine additional steps necessary to be taken to protect the EB-5 investors (both with respect to their visa petitions and their financial investment) and their investment in the EB-5 project

    The evaluation steps listed above should take two to four weeks, but may take additional time if the manager does not cooperate.  If the manager of the EB-5 investment fund does not cooperate, then the attorney may recommend that legal action be filed by the EB-5 investors to obtain a court order for the manager to turn over the necessary books and records to the attorney for the EB-5 investors.  Upon completing the review, the attorney should prepare a report of the findings of the review and distribute it to the EB-5 investors in the fund.  The report should include an analysis of the actions recommended by the attorney to protect the interests of the EB-5 investors.  These recommendations could include implementation of new reporting requirements by the manager of the EB-5 investment fund or by the EB-5 project entity, or requiring the manager to hire an independent construction monitor or loan servicer, or seeking further court orders if necessary for the protection of the EB-5 investors.  If the attorney discovers problems with the EB-5 project itself, the report would include an evaluation of the problems and discussion of the options available to the EB-5 investors to save the EB-5 project.

    The manager or investors in an EB-5 investment fund should implement a systematic plan for continuous monitoring and reporting on the status of the EB-5 project.

    Every EB-5 investment fund should have a regular process in place for monitoring its investment in the EB-5 project.  This is often referred to as EB-5 compliance, but can also be thought of as on-going due diligence. These processes are similar to those that would be used by any other private lender or institutional investor in a construction project or business, with the additional focus on job creation in addition to the financial health of the EB-5 project.  The following are some of the key components for monitoring an EB-5 project that every EB-5 investment fund should have in place: 

    • Document all money into the EB-5 investment fund escrow account, all money disbursed out of escrow to the EB-5 investment fund, and all money disbursed to the job creating entity for use in financing the EB-5 project, to demonstrate an unbroken chain in the path of funds from the EB-5 investor to the job creating entity
    • Conduct regular inspections of the project and review disbursement requests, and if appropriate hire a construction monitor to make the inspections and/or an independent loan servicer to receive reports and payments made by the EB-5 project entity to the EB-5 investment fund
    • Require requests for disbursement of EB-5 proceeds with detailed use of proceeds of each advance, including contractor invoices, architect or engineer certification, lien releases, and other documents (i.e. a draw package or payment application)
    • Require regular construction reports and financial statements from the EB-5 project developer
    • Require that the senior lender provide copies of notices to the NCE concurrently with delivery to the developer
    • Regularly communicate with the EB-5 project developer to find out as early as possible if problems are developing and if possible work with the developer to help resolve issues before they become a crisis

    If an SEC enforcement action is filed against a manager of an EB-5 investment fund, EB-5 investors should engage their own legal counsel to participate as interested parties in the action.

    The SEC is aware of the issues facing EB-5 investors whose EB-5 investment funds have become the subject of fraud enforcement actions, and will work with legal counsel for EB-5 investors to assist them if possible to save the EB-5 project so that the EB-5 investors will retain their eligibility for permanent visas.  However, the SEC does not represent the investors, and has limited tools at its disposal to help investors.  The legal and financial representatives of the EB-5 investors can assist them in the following actions:

    • Communicate with the SEC, receiver (if appointed by the Court) and USCIS regarding EB-5 investors’ desire to analyze viability of completing the EB-5 project
    • Hire (or coordinate with the receiver to hire) an experienced construction monitor/accountant to conduct the investigation described above and determine if the EB-5 project can be completed
    • Determine what additional capital sources would be required to complete the EB-5 project and assist in the transactions required to bring in those capital sources
    • Determine what changes in the business plan would be required to accept the additional capital and work with the USCIS to preserve the eligibility of the EB-5 investors in the project under the new capital structure

    In a future article, we will provide further information regarding the process of an SEC enforcement action and the steps that can be taken to assist EB-5 investors during that process. 

    Conclusion: Managers and EB-5 investors can and must take appropriate steps to monitor their EB-5 investment in order to discover any problems that arise and if possible participate in the resolution of those problems so that the EB-5 investors will retain eligibility for their permanent visas and if possible receive a return of their capital.  Managers should implement a process for regular monitoring of the EB-5 project status and reporting of any problems that develop.  Managers should provide regular reports to EB-5 investors so that the investors know that their investment is being properly monitored.  If managers do not fulfill their obligations, EB-5 investors should hire their own representatives to take the steps necessary to investigate the status of the EB-5 project and to implement a better monitoring process in the future.  If necessary, the manager or EB-5 investors need to be prepared to evaluate options to save their EB-5 project if it experiences financial or other problems.

    About the Authors:

    Daniel B. Lundy is a Partner and a member of the EB-5 practice of Klasko Immigration Law Partners, LLC. Mr. Lundy leads the Regional Center/Developer and EB-5 Compliance practice areas, and represents developers and others who seek to use foreign investment funds under the EB-5 program to fund their projects, either through the formation of a Regional Center or by joining with an existing Regional Center.  Mr. Lundy works with various securities lawyers, economists, business plan writers and other professionals in the preparation and filing of Regional Center designation and Regional Center amendment applications.  Mr. Lundy is experienced in reviewing Regional Center and project business plans, economic reports, securities offering documents, and corporate documents for compliance with the EB-5 program requirements, and in consulting and advising clients on the specific immigration requirements of the EB-5 program. Mr. Lundy has experience working with court appointed receivers in EB-5 matters involving SEC actions, and helping investors and regional centers with troubled projects.  Mr. Lundy has also successfully represented numerous immigrant investors in their EB-5 petitions and applications. Mr. Lundy is also experienced in litigating immigration cases in Federal Court.  For the last two years, he has been named as one of the top 25 immigration lawyers in the country by EB5 Investors magazine.

    Catherine D. Holmes is Chair of the JMBM Investment Capital Law Group, and she has practiced law at JMBM for over 35 years. She has also worked as a senior member of the JMBM Global Hospitality Group and JMBM Chinese Investment Group. Within the Investment Capital Law Group, she helps real estate developers and business owners, brokers, investment advisers and investment managers raise and manage investment capital from U.S. and non-U.S. investors. In the last five years, she has represented over 100 real estate developers obtain financing through the EB-5 immigrant investor visa program for the development of hotels, multi-family and mixed use developments throughout the U.S. She has also acted as lead counsel on numerous hotel and mixed-use developments and transactions in the U.S., Europe, China, South America and Asia Pacific regions, as well as hotel management and franchise agreements and public-private hotel developments. She has also represented private investment fund managers, registered securities broker-dealers and investment advisers on securities offerings, business transactions and regulatory compliance issues.  For the last two years, she has been named as one of the top 25 securities lawyers in the country by EB5 Investors magazine.

    Jeffrey E. Brandlin, CPA, CIRA, CFF founded Brandlin & Associates in 1980 to provide clients with tangible, timely and action-oriented insight. During his 40 year career, Jeff has pursued numerous financial frauds, accounting malpractices and trust fund embezzlements including recent work done on behalf of the SEC under enforcement actions pertaining to the EB-5 Program. Jeff and his team have restructured and rehabilitated more than $10 billion of real estate projects. Jeff and his team have also provided thorough financial due diligence in support of hundreds of successful transactions for equity and debt capital providers.  Jeff is a frequent speaker to industry organizations and law firms on the topics of fraud, forensic accounting and financial statement analysis. He earned his Bachelor of Science degree in Accounting and has been licensed to practice accountancy in California since April 1976. Jeff is a Certified Insolvency and Restructuring Advisor (CIRA), a Certified Merger & Acquisition Advisor (CM&AA) and is Certified in Financial Forensics (CFF) by the American Institute of Certified Public Accountants and currently serves as both the Secretary and Treasurer of the National Association of Federal Equity Receivers (NAFER)

    We refer to “EB-5 investment funds” as the “new commercial enterprise” in which EB-5 investors make their investment.  An EB-5 investment fund may be either a limited partnership or a limited liability company.  We refer to the “managers” of EB-5 investment funds as the parties designated as the general partner of the limited partnership or the manager of the limited liability company.

    1 We refer to “EB-5 investment funds” as the “new commercial enterprise” in which EB-5 investors make their investment.  An EB-5 investment fund may be either a limited partnership or a limited liability company.  We refer to the “managers” of EB-5 investment funds as the parties designated as the general partner of the limited partnership or the manager of the limited liability company.


    2 We refer to “EB-5 projects” as the project to be completed and/or operated by the “job creating entity” in which the EB-5 investment funds make their investment.


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