As the EB-5 program continues to expand and regional centers have attracted increasing attention from foreign investors seeking to become permanent lawful U.S. residents, there has been a corresponding increase in regulatory scrutiny of EB-5 investments. The increased attention has resulted in civil lawsuits brought by the Securities and Exchange Commission (SEC), and criminal prosecutions by the Department of Justice (DOJ).
To minimize exposure and unwelcome scrutiny by regulators, as a starting point, it is critical to develop and implement a robust compliance program, particularly where the investments qualify as state or federal securities. Compliance, however, is not enough. Even if a strong compliance program is in place, there is no guarantee that an EB-5 regional center will be immune to a regulatory investigation and accompanying legal proceedings, or a suit brought by a disgruntled investor. The center’s exposures in these situations can be enormous, and therefore, it is imperative that regional centers purchase (and annually renew) directors and officers (“D&O”) insurance policies. Broadly speaking, a D&O policy protects an entity (here, the center), and its officers and directors from Claims alleging Wrongful Acts against them, by indemnifying the covered parties for (i) legal expenses in defending against the claim and (ii) amounts paid in settlement or adverse judgment.
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