Diversified Investment OK? (update)

NOTE: Please see my more recent post on this topic: https://blog.lucidtext.com/2011/10/28/diversified-investmentmutual-funds/

I wonder about the diversification question in the 6/30 USCIS Quarterly EB-5 Stakeholder’s Meeting Q&A:

5.Diversification
Question: Can an EB-5 Investor in a Regional Center divide his money into 2 or more businesses so long as each business satisfies EB-5 requirements? Can he do this in EB-5 Direct?
Response: Yes, according to 204.6(e): Commercial enterprise means any for-profit activity formed for the ongoing conduct of lawful business including, but not limited to, a sole proprietorship, partnership (whether limited or general), holding company, joint venture, corporation, business trust, or other entity which may be publicly or privately owned. This definition includes a commercial enterprise consisting of a holding company and its wholly-owned subsidiaries, provided that each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business. This definition shall not include a noncommercial activity such as owning and operating a personal residence.

If by “2 or more businesses” the questioner means “2 or more separate businesses” I believe the answer should in fact be “no,” or “it depends.” The 2003 Yates Memorandum on the 2002 DOJ Appropriations Act says: “With respect to cases where the alien entrepreneur filed a Form I-526 petition after August 31, 1998, the new law does not permit such an alien entrepreneur to meet the requirements for the removal of conditions by combining investments in multiple commercial enterprises. The investment of capital in only one commercial enterprise remains a requirement for these cases.” USCIS further elaborates in Question 11.b of the 6/30 Q&A that by “diversification” in the direct EB-5 context it only means dividing investment “within” the new commercial enterprise (ie among a holding company and its wholly-owned subsidiaries), which is consistent with the law and probably isn’t what the questioner had in mind.

According to my understanding, the answer on diversification involving unrelated job-creating entities is “no” for stand-alone EB-5 (based on Public Law 107-273 as quoted above) and “it depends” in the Regional Center context. In Regional Centers, “commercial enterprise” and “capital investment project” can be separate (ie see the 6/16/2010 Stakeholder meeting summary), opening the possibility that an investor could invest in one commercial enterprise (satisfying Public Law 107-273) which could then go on to invest in multiple capital investment projects. According to the 3/17/2011 EB-5 stakeholder’s meeting, multiple capital investment projects are okay so long as they are spelled out in advance: “A regional center may opt to structure EB-5 capital investment projects that involve multiple investment vehicles. However, USCIS has consistently maintained that a regional center must transparently show at the Form I-526 stage the specific job creating entities/projects in which the investor’s capital will be invested, supported by comprehensive business plans and an economic analysis that provides a reasonable methodology for estimating the job creation that will occur as a result of these complex investments. I-526 petitions may not be approved for investments (or loans) to businesses that will not be identified or selected until after the approval of the petition. Such a strategy is not EB-5 compliant as the EB-5 program is not an attestation-based program. Prospective job creation must be demonstrated at the Form I-526 petition through USCIS review and approval of the business plan and associated economic analysis for the actual capital investment projects that will receive the immigrant investor’s capital. This documentation provides the foundation for the adjudication of the I-829 petition to determine if the investor has met the requirements for removal of conditions pursuant to INA 216A and 8 CFR 216.6. The Ninth Circuit has held that USCIS may not “de-couple” I-526 petition approval from I-829 approval. See Chang v. U.S., 327 F.3d 911, 927 (9th Cir. 2003). This means that, using Form I-829, alien investors must demonstrate compliance with the EB-5 program rules by confirming the fulfillment of the investment scheme and business plan that USCIS approved at the I-526 petition stage. See id.”