In the February 6, 2025 edition of The Legal Intelligencer, Kyle Garabedian writes, “EB-5 Immigration Investor Program: a Win-Win Program, or Is It?“

Even if you have not heard of the EB-5 program, you have probably benefited from it, at least indirectly from the many businesses and even infrastructure programs it helped support. Created in 1990 by a bipartisan congress, the EB-5 program is a type of visa program designed to stimulate the economy by attracting foreign investments and creating new jobs. Whether invested directly into a business or larger aggregated funds, EB-5 investors must make a sizeable investment—as much as $1.8 million (though this number is reduced if invested in certain targeted areas)—in a U.S. business and demonstrate that their investment will support ten jobs in the United States. In exchange, the foreign investor gets a path to a green card and, eventually, citizenship. In theory, it’s a win-win for the investor and the U.S. economy.

In practice, however, these projects can be perilous for investors, ranging from bad deals to outright scams. Even under the best circumstances, there are significant language and cultural barriers that can complicate both the initial negotiations and the ensuing working relationship. Anyone who has ever worked with an interpreter knows that the phrase “lost in translation” is more than a cliché. The risk of misunderstanding is even higher when dealing with complex business models or lengthy contracts full of jargon. Cultural differences only compound these issues. Each country has its own business sensibilities, many of which are more focused on interpersonal relationships or norms that do not always line up with the United States’ more formalistic business practices.

While many U.S .sponsors of the EB-5 program participate in the program in good faith, hoping to raise money through foreign investments for their business ventures, some sponsors do not come with good intentions. Unfortunately, some of the sponsors abuse the program by exploiting foreign investors. These sponsors intentionally prey on linguistic and cultural differences to take advantage of trusting Investors. The meaning of a contract can shift completely based on the meaning of a single word, which can easily get lost when one party speaks English as a second language (if they speak it at all). We’ve even seen cases where critical terms of the agreement are completely different when read in English versus the investor’s native language.

When the business starts operating, the investor often has no insight or control over how their investment is spent. In addition to the language issues, the investor may live a continent away from the project, making it challenging to stay informed about the investment. Without local ties, it can be difficult for investors to find anyone to help represent their interests in the company, often leaving investors at the mercy of sponsors or intermediaries with a financial stake in placating the investors instead of getting answers.

These conditions, unsurprisingly, create an environment that is ripe for abuse. In extreme cases, investor money can go missing or wind up in the sponsor’s pocket. That kind of abuse can take a long time for a trusting investor to discover, especially if the sponsor tries to conceal it. Even then it can be difficult to remedy the issue without the assistance of local forensic accountants or business lawyers—professionals that the average EB-5 investor from abroad is unlikely to have in their contacts. In many instances, resorting to litigation is the only hope EB-5 investors have to protect their interests.

While most EB-5 projects are not that kind of blatant scam, even legitimate EB-5 investment programs can pose serious challenges for investors. The sponsors of these investments know that their investors have a purpose for making the investment beyond just getting a return. They know that the chance to get a green card is a powerful draw for investors and leverage that advantage early and often. As a result, the investment documents for EB-5 investments are often horribly one-sided, giving virtually all the rights and profits from the investments to the sponsor, while providing the investors with minimal prospects to make money and minimal protection against losses.

For instance, it is not uncommon for EB-5 sponsors to combine EB-5 investors into a fund and then loan the money to another business controlled by the same managers of the EB-5 fund. While EB-5 investors could potentially get a return on their investment from interest on the loan, these loans are frequently unsecured or under-secured, leaving investors last in line to get paid behind a laundry list of other creditors. Many foreign investors are not told about this kind of risk adequately before they make their investments. They also do not know what to do even after discovering their predicaments.

Reprinted with permission from the February 6, 2025 edition of “The Legal Intelligencer” © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

In the April 12, 2024 edition of The Legal Intelligencer, Edward Kang and Kyle Garabedian co-authored “Big Troubles – Little Governments.“

All politics is local. Or so I have been told. If you ever tried to build something without the full-throated support of the local government, either the elected supervisors or the planning commissions that review various zoning and land use applications, you know how true that can be. Local officials wield incredible power over what gets built—and who builds it. Even a simple project in line with the current zoning or land-use requirements can become an uphill battle if one or more of the supervisors decide to make life difficult, and they often do so for a variety of reasons. This sometimes reflects favoritism from the elected officials seeking to promote one project over another. Other times, entrenched local leaders used to get their way and seek to enforce their personal preferences as though they have the force of law. This can be particularly confusing for applicants, who may understandably interpret any comment from the local government officials as a requirement, even if they have no basis in the law. In extreme cases, outright corruption, prejudice, or personal grudges might be to blame. We have seen it all.

While in some settings, the “squeaky wheel gets the grease,” the opposite is often true when it comes to local government. Applicants who push back, call out bad behavior, or attempt to enforce their rights often find their projects receiving greater scrutiny and uncharitable interpretations or local ordinances and building codes. Of course, most officials will not come out and advertise their improper motives, and the intricacies of local ordinances, building codes, and review processes make it easy to find a pretext for their opposition.

These same systems provide local governments with the tools to grind a project to a halt, if not kill it entirely. While the most obvious option is to simply find a pretext to deny the application, this can trigger an appeal and local governments have a wide variety of other tools at their disposal. For example, by dragging out the review process and requiring multiple layers of review, townships and boroughs can dramatically increase the costs of doing business, such as through repeated application fees or fees for engineering consultants hired by the town (not to mention the cost of the applicant’s own designers). As legislative bodies, they may also attempt to modify the applicable ordinances or zoning designations to hamper a project or make it economically unviable. They also have enforcement powers and can find excuses to issue citations (or even enlist the actual police) to target an unlucky citizen or developer.

The local government is, of course, using the taxpayers’ money to engage in this kind of behavior. But, taxpayers’ injuries are another topic.

For an applicant in that position of the receiving end of the local government’s improper exercise of their power, it can be difficult to know how to proceed. While certain individual decisions may be appealable to the Court of Common Pleas, that remedy is often inadequate. While that might reverse an individual adverse decision, if the local government is not dealing in good faith, they may find another way to jam up the project. If so, after a long and costly appeal the applicant may still be at square one. Additionally, there will likely be no money damages or other compensation for going through that exercise. Again, the local government would be at an advantage since they have the taxpayers’ money at their disposal.

While that predicament can be discouraging, there may be other options. At some point along the line, the bad behavior may be so severe that it takes on a constitutional dimension, exposing the town and the officials to claims in federal court. Unlike a typical appeal, those constitutional claims carry the possibility for monetary damages, including the award of attorney fees.

Such claims typically involve a violation of substantive due process. In effect, such claims assert that the local government’s deprivation of the applicant’s rights “shocks the conscience.”

Understandably, courts are reluctant to wade into local zoning/land use issues, and do not want every disappointed applicant to run into federal court for a second bite at the apple. While applicants dealing with a difficult local government undoubtedly feel wronged, proving such shocking conduct is a heavy burden. Meeting this standard frequently involves showing genuine corruption, infringement on other constitutionally protected conduct (such as retaliation for an exercise of First Amendment rights to free speech), or allegations of racial basis.

Another viable claim is that the town violated the equal protection clause by singling the applicant out for unfair treatment compared to similarly situated applicants. While equal protection claims are often brought in other contexts exclusively by protected minority groups, a claim can even be brought by a “class of one,” where the applicant is treated differently from others. Even if the applicant is not a member of an identifiable minority group, federal courts recognize that intentional discrimination against an applicant is still actionable when the conduct is arbitrary or has no rational basis. As with substantive due process though, this road is not without its challenges. It can be painstaking work to establish that the applicant is treated differently from others in the community, and sometimes defining who is similarly situated can be a challenge. Additionally, the town or borough will undoubtedly point to a variety of reasons (even if pretextual) to show that the treatment of the applicant is not arbitrary.

In sum, while asserting claims in federal court against local government is a powerful tool, it is one that should be used sparingly and carefully. Like most other litigation, such claims come with significant risks and financial costs. The high standard, coupled with the federal court’s understandable reluctance to interfere with local government, can pose a significant challenge for applicants who should proceed with eyes open about the challenges that they face before filing claims.

For many developers, builders, and concerned citizens, however, filing claims may be worth the risk. Applicants who have invested years of time into a project only to have it derailed by bad-faith government decisions may have few other options to vindicate their rights. Additionally, shining a light on such bad behavior may be a necessary first step in correcting it and provide much needed accountability for local government.

In all cases, however, whether filing claims in federal court is a good decision comes down to the particular facts of each case and details of the government misconduct. Applicants who feel that the local government’s actions may rise to the level of a constitutional violation should consult with experienced counsel who can help them weigh their options.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Kyle T. Garabedian, a member at the firm, represents clients in a wide range of complex and general civil litigation. Contact him at kgarabedian@kanghaggerty.com.

Reprinted with permission from the April 12, 2024 edition of “The Legal Intelligencer” © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.