Escrow Agent, Broker-Dealer, Fund Administrator: Three Parties Investors Often Confuse

What Does an Escrow Agent Do?

An escrow agent is a neutral party that holds funds under the terms of an escrow agreement.

When an EB-5 investor transfers the investment capital, the money may first enter an escrow account rather than going immediately to the NCE or project.

The escrow agreement explains when and under what conditions the money may be released.

Possible release conditions may include:

• The investor’s subscription being accepted;
• The filing of the investor’s I-526E petition;
• A certain number of investors subscribing;
• The project reaching a specific fundraising level;
• Approval of the project’s I-956F petition;
• Another condition stated in the offering documents.

Escrow arrangements have been widely used in EB-5 offerings, although industry guidance notes that escrow itself is not universally required by immigration or securities law.

The existence of escrow does not mean the funds will remain protected for the full investment period. Once the release conditions are met, the money may leave escrow and be deployed to the NCE or JCE.

Therefore, investors should review:

• What triggers release;
• Who confirms that the conditions have been met;
• Whether funds are released all at once or in stages;
• What happens after an I-526E denial;
• Whether the administrative fee is refundable;
• How long a refund may take.

What Does a Broker-Dealer Do?

An EB-5 investment is generally offered as a private placement of securities. A broker-dealer may participate in marketing, offering, recommending or placing the investment.

A properly registered broker-dealer may perform services such as:

• Reviewing the offering;
• Conducting a reasonable investigation of the issuer;
• Evaluating whether an investment recommendation is suitable or in a customer’s best interest under applicable rules;
• Supervising representatives;
• Providing required disclosures;
• Maintaining records;
• Processing subscription documents;
• Receiving transaction-based compensation where legally permitted.

FINRA states that firms involved in private placements have responsibilities to conduct reasonable inquiries into issuers and offerings, particularly when making recommendations.

However, a broker-dealer does not guarantee that the project is safe. Due diligence does not mean the broker-dealer is promising that construction will finish, jobs will be created or capital will be repaid.

The SEC has brought several enforcement actions involving EB-5 investments and unregistered broker activity. In one action, the SEC alleged that individuals received commissions for selling and facilitating EB-5 investments without proper registration.

This is why investors should ask anyone recommending a project:

• Are you registered?
• Who pays you?
• Do you receive a commission?
• Are you representing me or the issuer?
• What due diligence have you performed?
• Can I check your registration and disciplinary history?

What Does a Fund Administrator Do?

A fund administrator usually becomes relevant after investor money has entered the NCE.

Its role may include:

• Tracking investor contributions;
• Reviewing or approving disbursements;
• Monitoring how the NCE deploys capital;
• Maintaining financial records;
• Reconciling bank accounts;
• Preparing reports;
• Preserving documents;
• Supporting RIA compliance.

After the RIA, EB-5 funds are generally required to use an independent fund administrator or rely on the available annual independent audit alternative.

The fund administrator normally does not recommend the project to investors. It also usually does not hold the investor’s money under the same conditions as an escrow agent.

Party	Main Stage	Main Role	What It Does Not Guarantee
Escrow Agent	Before capital release	Holds funds until stated conditions are met	Long-term safety or project success
Broker-Dealer	During offering and subscription	Helps offer, review or recommend the security	Immigration approval or repayment
Fund Administrator	During fund deployment and operation	Monitors and records the use of capital	Construction completion or investment return

Why Investors Confuse Them

The confusion often comes from marketing language.

A project may say:

“Investor funds are held by an independent bank.”

This usually refers to escrow.

It may say:

“The offering has been reviewed through a registered broker-dealer.”

This refers to the securities offering and distribution process.

It may also say:

“The use of funds is independently monitored.”

This usually refers to fund administration.

Each statement may be positive, but each provides a different type of oversight.

A project can have all three and still carry significant investment risk.

Can One Party Perform More Than One Role?

Sometimes related institutions may provide multiple services, but investors should understand the legal entity and agreement behind each role.

For example, a bank may serve as escrow agent and also provide other banking services. A financial-services group may provide fund administration through a separate affiliate. A broker-dealer may process subscriptions but not control fund disbursements.

The key is not the brand name. The key is the exact responsibility described in the agreements.