Understanding “material change”
April 15, 2011 7 Comments
***2015 UPDATE***
This blog post is now old news. See instead my post What is material change?
—- OLD POST —-
The recently released USCIS EB-5 training materials include a couple pages (207-208 of pdf #1) addressing the question of what constitutes material change. The training material (which appears to predate the 2009 Neufeld memo and concept of “material change” at the I-829 stage) focuses on changes in the RFE context. The training emphasizes that the I-526 petition should present the business plan and investment terms clearly and completely, and that RFE responses are not supposed to contradict the I-526 info in any “material” way.
A petitioner must establish eligibility at the time of filing. The petition may not be approved at a future date after the petitioner becomes eligible under a new set of facts. See Matter of Katigbak, 14 I&N Dec. 45,49 (Comm. 1971). Therefore, a petitioner may not make a material change to a petition that has already been filed in an effort to make an apparently deficient petition conform to Service requirements.
– Note that the facts in place at the time of filing are important. In other words, the financial arrangements and other related factors which make a petition approvable need to be in effect when the petition is filed. It is common for the alien to be alerted to deficiencies in the petition through an RFE and to attempt to correct them. If such changes are material, the petition may need to be denied. The judgment of whether the change is material is up to the adjudicating officer. However, a material change is usually one which reflects a substantial alteration in circumstances on which the Service is relying in making its decision.
– EXAMPLES:
An alien files a Form I-526 on June 1,2008, based on a$400,000 investment. In response to an RFE, the alien provides proof of the remaining required amount being invested on July 15, 2008. Is this a material change? – Yes, this is a material change.
-An alien files a Form 1-526 with an arrangement for half of the capital to be paid back to him as a guaranteed return. In response to an RFE, he declares the arrangement null and void. Is this a material change? – Yes, this is a material change.
– An alien files a Form 1-526 and invests $1,000,000 in a business that is planning to operate a Chinese restaurant. In the RFE, it is revealed that the business has decided to operate a Peruvian restaurant instead. Is this a material change? – No, this is not a material change.
Here are a few additional examples that I culled from the AAO decisions on cases last year involving Capital Area Regional Center Job Fund (“CARc”) and Philadelphia Industrial Development Corporation (“PIDC”) and changes between the I-526 and I-829 filings. In each case, the change was judged to be “material.”
Change to project specifications and location
-PIDC changed from investing in the expansion of a home improvement seller to investing in the development of a new restaurant
Change in use of EB-5 funds
-CARc changed from letter of credit to be released after completion of construction to cash released to the project’s capital account
– CARc changed from using funds for development costs only to development costs plus purchase of property
– PIDC stated funds would be used for expansion costs such as equipment, inventory buildup, working capital and in fact used funds to refinance an existing mortgage
The theorists and policy-makers among you will want to review an in-depth article related to material change posted at ilw.com by Joseph Whalen, a former adjudicator. See: The Concepts of “Reasonable Reliance” vs. “Deference to Prior Decisions” in EB-5.
EB-5 Updates 
So according to the above content, what is the material change according to USCIS? My problem is I can’t discern the definition of what USCIS is saying.
Indeed we are all confused, since there isn’t a clear definition beyond the one I quoted above: “material change is usually one which reflects a substantial alteration in circumstances on which the Service is relying in making its decision.” According to examples from AAO cases, those key circumstances could include investment structure, use of EB-5 capital, and project specifications/location.
In other words, whatever changes the Service decides is a material change. This is the most ridiculous definition I have ever seen! In the three examples the Service provides, I don’t understand what scenario the first example is trying to paint. Do you understand the scenario the first example is trying to explain? Can’t the Service write clearly? I think the Service should hire you to write what they want to say. 🙂
This concept is difficult to express, and I hesitate to offer precise explanations that may not be correct. You might read the specific AAO cases linked in my post to see if they clarify the issue for you. And to some extent one can understand the “material change” issue logically. If I-526 approved TEA documentation for a certain address, obviously it’s a problem if the project changes location, since the new address may or may not be in a TEA. I-526 approves the terms of certain offering documents, and naturally it would be a problem if those documents and terms are changed midstream. There are certain aspects of the investment that USCIS is supposed to adjudicate/approve at the I-526 stage and then not revisit (ie offering documents, TEA status, job creation methodology), so naturally it’s a problem if those aspects are subject to change after I-526.
In your example of the change in location, no one disputes that it is a material change where the new location is outside the TEA area, but what if the new location is still in a TEA area? Then, “logically”, no material change would seem to result. Or assume the loan was based on 4% interest rate, but now it’s 2% interest rate — what’s so “material” about that? Or if the business was going to manufacture Toyota Prius but decided to manufacture Lexus cars, so what? Where I am confused is if I-829 requirements are still met despite the change, then why is such change deemed “material” for the purpose of I-829 petition?
All the examples illustrated in the above AFM involves some changes while I-526s are pending, and therefore, do not seem relevant to changes that take place after I-526 approval.
I don’t think that your examples of interest rate or car brand changes would be considered “material.” These are changes to minor matters that do not affect USCIS’s decision on a case. For example, in the training materials USCIS explains that changing from a Chinese restaurant to a Peruvian restaurant would not be considered a material change.
USCIS isn’t being entirely unreasonable here. I-526 review and approval would mean nothing if the investor could freely change the I-526 plan AFTER USCIS approves it. USCIS doesn’t want to see changes that would have caused the I-526 to be denied if USCIS had known about those circumstances. (For example moving the project out of a TEA area after being approved for the $500,000 investment, or adding an unacceptable guarantee to the investment agreements after USCIS approved documents without that provision, or changing use of funds so that investment is used for an application such as debt-payoff that USCIS would not have approved. And companies have in fact tried to get away with doing all those things.)
That certain changes while I-526 is pending is a “no-no” is well-established. I completely agree with USCIS in this context, as the petitioner can always withdraw and refile with the changed facts or documents. In situation where there has been certain changes after I-526 petition approval, it seems to me that USCIS has not explained why they consider these certain changes to be “material” vs. “immaterial”.
Obviously, moving from a TEA to a non-TEA area is material, no argument from me there, because the non-TEA area requires $1 Million USD investment rather than $500,000 investment.
Including a guarantee of the investment after I-526 approval is also a big no-no, and actually amounts to misrep or fraud in my opinion, unless the change was unintentionally made, in which case it would be “material change”, because obviously, such provision does not comply with the EB-5 law or I-829 requirement.
However, USCIS has not proffered a clear guideline of why certain changes are material and other changes are immaterial. Changing from a Chinese restaurant to an Italian restaurant, to me, is at least a definite change in the business plan, and such change could be deemed a material change if your location was right next to a very well-known Italian restaurant because USCIS examiner could think your Italian restaurant would not do very well sitting next to an already successful Italian restaurant. This just gives USCIS too much discretion to deny your I-829 case.