This article was contributed by Robert V. Cornish, Jr., Wilson Elser Moskowitz Edelman & Dicker, Washington, DC, and Rachel Cropper-Mawer, DAC Beachcroft, London

[dropcap]EB-5[/dropcap] investors whose funds have been lost in failed or troubled projects face many difficult decisions and realities.  First and foremost, these EB-5 investors must acknowledge the stark realities that their hard-earned money, and perhaps their desired immigration benefits, will not be coming to them anytime soon.  Once that reality has set in, injured EB-5 investors then face the daunting task of whether to seek justice from a court in the United States or perhaps elsewhere if funds have been dissipated overseas improperly.  With that decision to seek relief through the courts comes the very stressful task of a group of EB-5 investors working in tandem to select counsel to prosecute the case and to negotiate a means by which to pay counsel for their services.

​Often, the selection of counsel is driven by personal relationships with people in the United States who may know an attorney in their neighborhood, but do not know whether that attorney has the resources to prosecute what will likely be a very complex case.  Just by way of example, an investor’s I-526 petition on average has over 8,000 pages.  Multiplying that by 50 or even 100 will create a document bank of over 400,000 pages or more.  Then, take into account the complexity of the EB-5 offering documents, e-mails and other correspondence, and the attorney is faced with managing not only the interests of numerous investors, but likely over 1 million pages of documents, each of which may bear facts that will determine how a case may be decided.  Compounding matters further are that the legal issues in EB-5 frauds are very complex, and require skill and expertise in drafting documents to address complex securities and racketeering laws in the United States, tracing funds and ultimately proving that improper conduct or fraud injured the investors.  And none of this even includes the attorney’s work in potentially dealing with the disposition of real estate or an effort to preserve immigration benefits.

​In short, EB-5 fraud cases are not generally well-suited for the general practitioner of law in the United States.  Experienced counsel with not only the knowledge and expertise is needed to gain a favorable result, but also the resources to manage large amounts of information.  Defrauded EB-5 investors, however, are often hesitant to work with law firms in the United States with the depth and expertise to handle their cases.  While there are many reasons for this, the primary one deals with money.  Defrauded EB-5 investors often do not wish to pay attorneys in the United States on an hourly basis, which is generally the accepted business practice among law firms with depth and experience.  Instead, many defrauded EB-5 investors hire less experienced counsel lacking the necessary resources on a “contingency” basis, meaning that the attorney is paid a percentage of the recovery as their legal fee without cash outlay by the defrauded investors.  Some investors may even see unlicensed “shareholder advocates” on video websites urging others to retain them to remarkably remove officers and directors from companies.  On top of all of this are the currency transfer restrictions imposed by various countries, which makes the periodic payment of legal fees unduly burdensome.  Regrettably, the end result may not only be not paying legal fees to counsel or others, but also not getting a good result.

​Many law firms in the United States that have the depth and experience to handle EB-5 cases have recognized the unique issues facing defrauded EB-5 investors.   There is a solution to this problem that can offer defrauded EB-5 investors access to experienced law firms without those investors expending further money.  This solution is called “litigation funding.”   Litigation funding has been used in Europe for many years, but only recently has become prominent in the United States.  A “litigation funder,” which may be a specialized company or investment fund, will pay the law firm its hourly fee on behalf of investors who choose to litigate.  In return for paying the hourly fees of the law firm, the litigation funder receives an equivalent of a contingency fee from the investors’ recoveries.   Most litigation funders in the United States seek contingency fees of at least 40% of recoveries and sometimes more. Those in Europe, primarily London, may have differing levels of flexibility and appetite for matters in the United States, and often seek matters with return potential from courts outside of the United States.   In instances of EB-5 frauds involving real estate, the litigation funder seeks return not only through the recovery of funds, but also through the disposition of the failed project.   In such cases, defrauded EB-5 investors may be able to reap the rewards of the disposition of the property and perhaps preserve their immigration benefits.

​Defrauded EB-5 investors should note that litigation funders are very selective in the cases in which they may be involved.  Litigation funders will generally require that skilled counsel be retained in some manner at the outset, so that a litigation plan may be devised showing the work to be undertaken and the likelihood of success.  In those instances where fraud is clearly evident, a litigation funder may also require forensic reviews of banking statements and other documentation to the extent it is available.  This is usually done at the expense of investors seeking funding, but the cost of this is comparatively low when compared to the potential outlay of legal fees on an hourly basis.  Such forensic examinations may also have value to the defrauded EB-5 investors should funding not be available, as whomever is handling the case will need to have such information to effectively make factual representations in complaints and other documents with the particularity required by courts in the United States.

​More importantly, many courts in the United States have determined that discussions with litigation funders may be confidential and not discoverable during the course of a case.  This means that defrauded EB-5 investors and their counsel may speak frankly with litigation funders to fully disclose the challenges and potential obstacles to recovery.

​In short, litigation funding provides a valuable means through which defrauded EB-5 investors may maximize their opportunities to recover funds and potentially preserve immigration benefits.  Such investors should seek the counsel they feel can do the best job for them, and with whom they have comfort and trust.  That counsel should also be familiar with litigation funding options and the work that needs to be undertaken to obtain funding.   While there can never be any guarantees about the outcome of a legal case, being able to hire the best counsel possible, rather than an internet charlatan or general practitioner down the street, is certainly a step defrauded EB-5 investors can take to have skilled professionals serve as their advocates in courts in the United States and elsewhere.

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