4/25 Meeting Questions, Program Changes, New RCs
April 19, 2016 7 Comments
Discussing EB-5 Changes with USCIS
Next Monday 4/25 USCIS will hold an EB-5 listening session to give stakeholders a chance “to provide feedback on potential EB-5 regulatory and other policy changes.” This week USCIS emailed “a list of topics that we would like your input on,” as follows: “Minimum investment amounts; The TEA designation process; The regional center designation process, including, but not limited to, the exemplar process and the designation of the geographic scope of a regional center; and Indirect job creation methodologies.” This list gives us an interesting tip of the hand on the areas USCIS plans to address in forthcoming revised regulations and new policy.
So what are the potential changes? I’ve summarized issues and proposals that are on the table in these four categories, with special reference to Secretary Jeh Johnson’s legislative wish list as expressed in his April 2015 letter to Senators Grassley and Leahy, and provisions that have been included in EB-5 reform bills. All these items were put on the table for Congressional action, and I’m not entirely clear about how much USCIS has power to change through regulation and policy, absent legislation. And I don’t hold my breath for USCIS much more than for Congress to get things done. But I hope to hear more on Monday about what USCIS has in the pipeline, and this list may help spur your thinking on feedback you’d like to give during the meeting.
— Minimum investment amounts —
What DHS suggested to Congress:
— Increase both the TEA and base investment amounts, considering that they haven’t been adjusted in 25 years. And link minimum thresholds to inflation indices going forward. (Jeh Johnson letter)
Proposals from EB-5 legislation:
— Leahy & Grassley: base amount $1.2M, $800K in TEA, and CPI adjustments every five years
— Lofgren & Gutierrez: base amount $2M, $1M in TEA
— Flake, Polis, Paul, Schock: no change proposed
Other notes:
— In an IIUSA member poll, 72% thought raising the TEA level to $800K workable for their business; 15% thought the $2M/$1M level workable.
— Judiciary committee hearings have all mentioned the need to raise investment amounts. The Senate TEA hearing discussed Congressional intent for the base amount to be the norm and TEA investment an exception to incentivize a limited number of projects.
— The US investor visa amount is indeed rather low compared with other major investor visa programs. (Migration Policy Institute report.)— The TEA designation process —
What DHS suggested to Congress:
— Prevent jerrymandering by limiting TEAs to a specified number of contiguous census tracts. Also include closed military bases. (Jeh Johnson letter)
Suggestions from legislative proposals:
— Leahy & Grassley: new set-asides, new NMTC-inspired categories, limit gerrymandering, USCIS designates rather than states, TEA designation valid for 2-year period
— Flake, Polis, Paul, Schock: no change
Other notes:
— In an IIUSA poll, 59% percent thought the 12-census tract California model viable for the industry, 36% thought the NMTC-modeled category could work.
— Judiciary committee hearings have expressed strong and divisive opinions about what types of projects should be incentivized and which type of geographic areas privileged, what types of incentives would be effective, and who should designate TEAs.
— Some interesting analysis has been done on the potential impact of TEA change proposals, including by Friedland & Calderon.— The regional center designation process, including, but not limited to, the exemplar process and the designation of the geographic scope of a regional center —
What DHS suggested to Congress:
— Require RC principals to be US citizens or permanent residents with records free of certain criminal and civil violations. Require exemplar filing (business plan and organizational documents) in advance of individual investor filings. (Jeh Johnson letter)
Suggestions from legislative proposals:
— Most 2015 bills include a provision requiring exemplar I-526 filing for project pre-approval, and include a provision prohibiting foreign RC ownership.
Other notes:
— I haven’t noticed other people talking about regional center geographic scope as a sensitive issue, and interested to see this point raised now. I’ve been remarking since late 2013 on the many multi-state regional centers getting designated, and wondering what IPO thinks “regional center” means. The law establishing the program specifies that “a Regional Center shall have jurisdiction over a limited geographic area, which shall be consistent with the purpose of concentrating pooled investment in defined economic zones” (Section 610(a) of the Departments of Justice and Related Agencies Appropriations Act 1993).— Indirect job creation methodologies —
What DHS suggested to Congress:
— I can’t recall USCIS proposing changes in indirect job creation methodologies.
Suggestions from legislative proposals:
— The Leahy & Grassley bill proposed adding a requirement that at least 10% of RC project jobs be verifiable direct jobs. (Their original bill would also limit EB-5 investor credit for job creation based on percentage of their investment in the enterprise and says that at least 50% of all indirect jobs in a TEA project must be created within the TEA.)
Other notes:
— In an IIUSA poll, 39 respondents agreed with a 10% direct jobs requirement.
— Speakers at both House and Senate judiciary committee hearings questioned whether it’s fair to let EB-5 investors count all the jobs in a project when they provided only a small portion of funding needed for that project. I don’t resonate with this concern (after all, it’s common for a small piece of the capital stack to be a piece without which that whole project could not proceed), but apparently it’s fixed in the Congressional imagination as a concern. But I don’t know whether it’s in USCIS’s possible policy/regulation reach.
— There have been suggestions in the past about getting other agencies (ie Department of Commerce) involved in vetting and/or setting rules for EB-5 economic analysis, but I haven’t heard this bruited recently. I wonder whether this is the indirect jobs issue currently on USCIS’s radar.
Articles on Proposed Changes
The latest edition of the Regional Center Business Journal has a valuable article by Peter Joseph discussing the schedule between now and September 30, 2016 and what may happen in Congress during that time (page 19), and also a roundtable of EB-5 experts discussing the possibilities for changes through policy and regulation (p 38).
Regional Center List Changes
Additions to the USCIS Regional Center List, 04/13/2016 to 04/19/2016
- EB5 International III LLC (Oregon, Washington)
- Global Alliance Carolina Regional Center, LLC (North Carolina)
EB-5 Updates 
Given the scope of fraud IIUSA lets escape in the EB5 program, they and their membership have and should have no real credibility to investors and regional center operators. It’s organizations like them that create more problems than they solve. In the case of Jay Peake, IIUSA’s encouragement and enabling this center to continue to defraud investors for years should also be investigated. Organizations like this are just about collecting fees to legitimize fried cases. It’s so bad that the normal hard working and real project owners get trampled in the confusion. Shame on IIUSA.
Thank you for your comments. If you haven’t already, you should read Michael Gibson’s article on the Jay Peake case and his view of IIUSA’s role: https://www.linkedin.com/pulse/jay-peak-autopsy-eb-5-visa-fraud-greed-ignorance-michael-gibson. IIUSA has failed to exclude all bad actors from its membership, and it includes good actors. It represents a broad base of EB-5, for better and worse. IIUSA hasn’t been an effective police force or granter of legitimacy badges, but I don’t believe that it can or should be either of those things. An investor should never ever think “___________, therefore I needn’t scrutinize or track my investment,” no matter what that blank contains. “The state government is involved,” “the regional center has a long track record,” “the leader is an IIUSA director,” “projects are cited as models,” “my famous immigration lawyer visited,” “IPO will do site visits and scare off misbehavior with strong sanctions” — no, no, no, no — no such things can or should bear the burden of justifying the conclusion “therefore I needn’t scrutinize or track my investment.” Scandals lead to calls for increased oversight, but I don’t think that any level of improved parenting from agencies like USCIS or associations like IIUSA can replace the need for serious due diligence and demand for professional fund management by the people whose money is on the line. EB-5 investors have tended, dangerously, to want to be immigrants and not investors, and the program is vulnerable so long as that’s the case. I worry that calls for and promises of better parenting/integrity measures, though nice, may make investors and operators take their eye off the ground level changes that are the best defense against another Jay Peake mess. Jay Peake, after all, technically had a lot of oversight, but it was an investment advisor who called out problems early in performing due diligence for investors. But in any case I am full of sympathy for the solid, stand-up project owners getting trampled in all this, as well as for investors who are understandably limited, and also angry with IIUSA on the fee issue.
As an association IIUSA is more concerned with their fees than they are with representing the industry as a whole. Michael Gibson is likewise as bad as they are as he charges to make recommendations to investors. Those groups are as much to blame for this corruption as unethical eb5 operators. It’s widely seen that if a 3rf party recommends an RC that RC is legitimate. These third parties only make those recommendations based on paying for consulting and/or membership.
I wonder what you suggest, especially to investors watching all this unfold? “Don’t trust anyone but yourself” is the safe line, but that’s hard to live by and lumps the normal/real/hard-working players you mentioned along with people who are compromised for various reasons. And do you have suggestions for the association and for regulators going forward?
Re IIUSA, I’ve been a member since the early days and know I’m not the only one who believes in and works to further the idealistic aspects of its mission. I am still protesting several decisions, however, including the big boy club fees implemented last year.
Susan. I respect the work you do to keep the eb5 community informed of events in our industry. You’re probably the only honest and independent 3rd party out there. I have to disagree with your stance on IIUSA. It may have started with good intentions but much like the EB5 program itself, IIUSA has become very corrupt by the very same greed and agents that the program was supposed to prevent in the first place. Due to their recent decisions, and especially due to their very close connection to Jay Peak and their owners, IIUSA should likewise be investigated and charged with fraud. It pains me to say this but, as an RC owner, maybe the program needs to be completely scrapped and started from the beginning. If similar events happened in the securities business where I am likewise licensed, there would be members in jail right now. Not so in eb5. I wonder if the VT politiicians will be charged in their complicitness as well or if, like the water situation in Flint, MI, the politicians in VT who financially benefitted from this fiasco will employ the typical CYA and find other scapegoats.
Hmmm… I doubt that the SEC is treating the Jay Peake case any differently than they’d treat an enforcement action elsewhere in the securities business. And I don’t see that EB-5 has corruption peculiar to itself, different in kind or consequence from the types of fraud and mismanagement and misjudgment that can and do crop up occasionally wherever business is done and money is handled. I also wonder about the complicity issue. In my careers I’ve seen plenty of initiatives that I personally thought were bad ideas, operations that I judged poorly managed, paperwork in tangles, and certain executives I considered scoundrels. But it happened that good business somehow got done regardless, so my opinions didn’t matter. Being my bumbling conscientious self I sometimes expressed and acted on my critical views but usually regretted it afterwards, and the business went on. If there had been a crash in any of those cases and the problems outed in post mortem, I would’ve felt smug but disclaimed culpability for not making a preemptive fuss. I don’t think anyone is culpable for not busying themselves with investigations and whistleblowing unless that’s appropriate to their position and they have the resources for it. It’s a serious thing to go about flagging problems and alleging fraud, and it’s right to assume people innocent until proven guilty. Especially, because they often are innocent. In the VT case Mr. Stenger is rightly being held to account for what he was responsible to know and to act on if he knew, but there’s a limit to how far that net can reasonably go. As an IIUSA member who helped vote Bill Stenger into leadership and admired the job creation obviously happening in Vermont, I very much regret the situation now but don’t feel guilty for not knowing before and therefore not acting on what was happening behind the scenes in Jay Peake accounts. And I also don’t see a lesson for myself going forward. IIUSA is hurt now by all the Jay Peake advertisements it ran, but what is the lesson for the future? I’m on the editorial board for IIUSA’s journal and could advocate to exclude advertisers about whom I have a bad feeling. If the committee went with my gut-calls, IIUSA and readers might be protected from some players who will prove indeed problematic, anger others who didn’t deserve to be on the wrong side of my instincts and limited evidence, and grant full-page spreads to someone else whose years of successful experience will turn out to hide the next surprise scandal.
The key difference here is there are no criminal penalties pending on these charges. It’s this far, all civil. If this were to happen in the securities field, there would be criminal penalties to be paid.
I do take issue with the stance that fraud in the EB5 field is no more prevalent than in other fields. Let’s look at how many regional centers there are now. 1,000. That’s a fraction of the size of the stock broker market. Now let’s pare that down further. RCs that actually took in money and we will have the typical 80-20 rule. 80% of the money was brought in by 20% of the RCs. Of those let’s look at the scale on a percentage type of basis of the frauds. We have Chicago, NOLA, South Dakota, Kansas Biofuels, green tech automotive, Jay Peak and others. That’s 6 of the major players…the darlings of IIUSA and other 3rd party information dispensers like Michael Gibson and others. That’s a huge (almost $1,000,000,000) price of fraud. Let’s not even mention that o major RC operator has lost his securities license due to not complying with an SEC investigation in the past and turns up in EB5 where it’s not regulated. All of these semmingly smaller things add up to something very seriously wrong with the EB5 program and those organizations like IIUSA which I’ve never joined because I don’t support their original mission and I especially don’t support their complicity in cases like this.