Before 2022, the EB-5 industry saw repeated instances of regional centers or developers misusing investor funds. The EB-5 Reform and Integrity Act of 2022 (RIA) responded by introducing the third-party fund administrator: funds of the new commercial enterprise (NCE) and any affiliated job-creating entity (JCE) must be overseen by an independent fund administrator, or the NCE must instead provide annual audited financial statements. This article explains what the requirement covers, where its limits lie, and what investors should receive.
What the RIA requires
The RIA requires regional centers to ensure that each NCE, and any JCE affiliated with it, engages an independent fund administrator whose core duty is to monitor and track every movement of investor capital. Under the statutory framework, the fund administrator should:
- Be independent of the NCE, the regional center, the developer, and their affiliates;
- Be a qualified professional, such as a certified public accountant, attorney, registered broker-dealer, or registered investment adviser (specific qualification requirements are as set by the statute and USCIS);
- Monitor inflows and outflows of NCE accounts and verify that each transfer matches the use of funds described in the private placement memorandum (PPM) and business plan;
- Maintain records of all transactions and provide periodic information to investors.
In practice the fund administrator is usually set up as a co-signatory on NCE accounts or holds approval authority over disbursements, so that funds cannot leave without its sign-off. This is the linchpin of the system: an administrator that only records transactions after the fact, without prior approval authority, offers far weaker protection.
What the fund administrator does
| Duty | Description |
|---|---|
| Confirm receipt | Confirms investor subscriptions have been deposited into the designated NCE account |
| Verify disbursement conditions | Before funds move from NCE to JCE, checks that conditions are met (for example, senior loan closed, I-956F filed, construction progress certified, as the PPM specifies) |
| Verify use of funds | Checks that each JCE draw request corresponds to construction or operating expenses in the business plan |
| Keep records | Retains transfer documentation, approval records, and supporting invoices |
| Report to investors | Provides periodic reports on balances, amounts disbursed, and uses |
| Support annual reporting | Supplies use-of-funds data for the regional center’s I-956G |
What the fund administrator does not do
Investors need to understand the administrator’s limits and avoid treating it as a project guarantor:
- It does not assess commercial viability. It verifies that funds are used as agreed, not whether the project will succeed.
- It does not guarantee repayment. Whether the JCE repays on time depends on project performance.
- It does not replace due diligence. It does not review the developer’s strength, market demand, or job projections.
- It does not follow funds beyond the JCE unless the JCE is affiliated and within scope. Once funds are properly disbursed to an unaffiliated JCE, subsequent use is governed by the loan agreement and the JCE’s own controls.
- It does not act for investors. If the JCE defaults, the NCE manager, not the fund administrator, is the party that takes action.
The alternative: annual audit
The RIA allows an NCE to provide annual audited financial statements instead of engaging a fund administrator. The audit is performed by an independent certified public accountant under generally accepted auditing standards and verifies after the fact that the use of funds matches the books.
The difference is timing: a fund administrator approves in advance and monitors continuously; an audit verifies afterward, once a year. For investors, a fund administrator generally offers stronger real-time protection, while an audit may be adequate for a project where all capital has already been deployed to the JCE and only repayment remains. Some projects use both.
Investors should confirm in the PPM which approach the project uses, who performs it, and whether that party is independent of the regional center and developer.
What investors should receive
The value of the fund administrator system ultimately rests on whether investors get information. Before subscribing, investors should confirm the following, and after investing, keep checking:
- Identity and qualifications. The administrator’s name, professional credentials, and a statement of independence from the regional center and developer.
- Key terms of the administration agreement. Whether the administrator has approval authority over disbursements, and what the conditions precedent are.
- Periodic reports. Frequency (for example, quarterly), content (balances, disbursements, use summaries), and delivery method.
- Material event notices. Whether investors are told when a disbursement is refused, a draw request is returned, or a use-of-funds discrepancy is found.
- Audit reports (where the audit route is used). Whether the annual audit report is provided to investors.
- I-829 support. Whether the administrator’s records can be used to show the full investment was deployed and remained at risk.
Due diligence checkpoints
- Does the PPM clearly describe the fund administrator (or audit) arrangement? Absence means non-compliance with the RIA.
- Is the administrator genuinely independent? Shared address, staff, or ownership with the regional center does not qualify.
- Does the administrator approve disbursements, or only record them?
- Can investors verify fund status directly with the administrator?
- Who pays the administrator’s fee, and is it itemized in the fee disclosure?
For other project-level diligence items, see Seven Things to Check Before Choosing an EB-5 Project and Ten Red Flags in an EB-5 Project.
Key takeaways
- The RIA requires funds of the NCE and any affiliated JCE to be overseen by an independent third-party fund administrator, or annual audited financial statements to be provided instead.
- The administrator’s core role is to approve disbursements in advance and record all fund movements; it does not assess viability or guarantee repayment.
- The audit alternative verifies after the fact and offers weaker real-time protection; the two can be combined.
- Investors should confirm the administrator’s independence, approval authority, reporting frequency, and material-event notification.
- A project with neither a fund administrator nor an audit does not comply with the RIA and should be treated as a serious red flag.