If a U.S. EB-5 New Commercial Enterprise (NCE) or Job Creating Entity (JCE) faces operational failure, investors can take certain measures to maximize the likelihood of recovering some or all of their investment. In the United States, the legal theories underlying investment recovery claims generally include: that the investor was not informed of all investment risks, was provided with false information, that the investment offering did not comply with U.S. laws, or that the individuals communicating with prospective investors prior to the investment lacked the appropriate securities licenses. Legal theories must be supported by evidence of loss. Investment losses resulting from a legally compliant offering do not constitute grounds for recovery.
Evidence Necessary to Recover Investment Funds
Generally, the evidence that investors must provide includes:
A Private Placement Memorandum (PPM) or offering memorandum issued by a U.S. company for an investment opportunity allegedly compliant with EB-5 requirements; investment summaries provided to the investor by sales agents or brokers; proof of professional qualifications of the salesperson or broker; oral statements made to the investor by sales agents or brokers; and written sales communications and evidence of payment made by the investor to purchase the investment.
The aforementioned sources of information, along with details or concerns regarding discrepancies between the actual performance of the investment opportunity and what the investor was told, generally constitute the primary informational basis for assessing whether an investor has a valid claim. The sooner a claim is filed, the higher the probability of achieving a maximum recovery.
Active Communication and Monitoring
How can investors determine if there may be an issue with their investment? Typically, by the time an investor learns of problems through news or other public media, it may already be too late to recover the full investment amount. Therefore, investors must make every effort to obtain and review financial reports and recent progress reports provided by the NCE or JCE. Early detection of potential issues is critical for investors to take steps to attempt to recover their funds.
Although state and federal statutes of limitations vary, most litigation-based claims for recovery of investment losses may be barred one or two years after the date of the investment, unless the investor can provide a reasonable justification for filing the claim after the aforementioned timeframe. Therefore, investors must maintain regular communication with the NCE to obtain as much written information as possible.
Usually, if the NCE's Operating Agreement or Limited Partnership Agreement provided to investors alongside the Private Placement Memorandum does not mandate periodic information disclosure, financial updates will not be provided. If an investor does not receive information or encounters negative news, they should consult with a private securities litigation attorney as soon as possible.
Investors May Retain Private Counsel to Assist in Recovery
If an investor believes there is a problem with their investment or is unable to get the NCE to respond to reasonable inquiries, it is best for the investor to hire a professional securities litigation attorney to help evaluate their situation.
Since government agencies may not respond to an investor's inquiries and are unlikely to directly assist an investor in recovering their investment, private securities counsel can provide the necessary assistance. If a government agency conducts an investigation, it is likely doing so on behalf of all investors in the project; if funds are recovered, the investor will have to share the net proceeds pro-rata with other investors. In most cases where funds are distributed, the amount recovered by the investor is only a fraction of their original investment. Investors may hire private counsel to pursue their own funds exclusively, and if the claim is filed early enough, the amount recovered may be greater than what could be recovered by waiting for other investors to file suit.
However, if there is a large number of investors—perhaps more than twenty—the claimant may allege that they are representing all investors in bringing a lawsuit against the NCE.
If the lawsuit is successful and a "class action" representing all investors is deemed appropriate, the claimant's attorney may receive a percentage of the total recovered funds as their service fee. In some cases, this fee-sharing arrangement may be cost-effective for investors, but each investor will receive an equal pro-rata distribution after legal and related costs are paid—an amount that is typically far lower than what would be recovered in a successful independent lawsuit.