Listening Session (EB-5 regs), EB-5 as securities (Hui Feng), RC Audits, RC List Changes

EB-5 Immigrant Investor Program Engagement July 13

At the EB-5 listening session on July 13, the USCIS participants stuck to their resolve to listen only, and did not provide input or feedback. The call solicited stakeholder comments on the questions raised by the Advance Notice of Proposed Rule-Making, which addressed regional center designation and participation and exemplar project approval. The ANPRM inspired few written comments to its preliminary questions, and this call also got tepid response. What did USCIS want to know from us, beyond what those of us who care said already in our written comments? USCIS would not specify, and we weren’t sure what to say. The Wolfsdorf Rosenthal blog has diligently summarized stakeholder comments, and my recording is available for anyone who’s really interested. I hope USCIS learned something from the call, but I did not. People with more to say on the designated topics of RC life-cycle (designation, participation, termination), RC exemplar process, RC compliance audits, or indirect job creation methodologies may email ipostakaeholderengagement@uscis.dhs.gov.

USCIS let slip one bit of info. Lori MacKenzie said that “the agency is working to finalize that rule” — referring to the regulation that people care about, the NPRM dealing with investment amounts and TEAs. No indication of timeline, however, or whether the listening session call reflects intention to combine NPRM and ANPRM topics in one new rule. (On July 3, Senators Dean Heller, John Cornyn, Rand Paul, and Thom Tillis had sent DHS a letter asking that the agency not move forward with the proposed EB-5 regulations. The listening session indicates that DHS is indeed moving forward, however slowly.)

Here is my favorite listening session caller comment, from a Mr. Fuentes in minute 45: “We have a bottleneck of processing in an environment where resources are not the limit.” Yes – that’s exactly what’s wrong and fixable in EB-5. So many problems for EB-5 projects and investors result from the fact of long processing times, and long processing times are traceable to constraints that need not exist in a program of multi-million-dollar projects and high-net-worth immigrants. I’ll write more on this soon.

The call also reminded me that we need to talk more about direct EB-5, and the kinds of business and investment that are and are not workable in that environment. Purchasing an operational existing business rarely works for direct EB-5. The history of AAO denial decisions is thick with business acquisition cases that foundered on the “new commercial enterprise” requirement and/or the requirement to create new jobs. EB-5 rules specify that mere ownership change does not make an enterprise or jobs in that enterprise new. I have a couple related posts (one on the difference between direct and regional center EB-5, and one on options for investing in an existing business), but see the need for a simpler article addressed to entrepreneurs contemplating direct EB-5.

EB-5 and Securities Law

Immigration lawyers happen to be well-placed to match EB-5 investors to EB-5 projects, and are pressured by the market and tempted with commissions to play a match-making role. This role is perilous, however, considering securities laws. In 2015 and 2016, the SEC made examples of several immigration lawyers who had received transaction-based compensation for facilitating investments, and of one of the regional centers that paid such compensation. The message: it’s illegal to be on the giving or receiving end of payments to someone acting as a broker without appropriate license.

One of the law firms targeted by the SEC fought back. Hui Feng (subject of a complaint published in December 2015 by the SEC against himself and his firm Law Offices of Feng & Associates, P.C.) argued that the SEC’s claims fail because EB-5 investments are not securities and the immigration lawyer does not act as a “broker” when receiving finder fees. He pointed out that EB-5 investments are primarily motivated by the visa, without expectation of profit, that his commissions were contingent on visa approval rather than in connection with securities sale, and that the attorney role has its own fiduciary duties and that broker requirements are inapplicable – i.e. the EB-5 process and investment and lawyer’s role are fundamentally immigration matters, not securities matters and not the SEC’s business. (My layman’s paraphrase; see the court filings for the actual legal arguments.) The US District Court, Central District of California, however, has come down on the SEC’s side in its Motions for Summary Judgment (June 29, 2017). The decision has the longest discussion I’ve seen yet in support of the point that yes, EB-5 investments are securities. It also enumerates the activities supporting the conclusion that yes, this immigration lawyer acted as a broker, and explains why the fee arrangement details were material and should have been disclosed to investors and regional centers. If you pay or receive EB-5 finders fees, pay attention to this decision. You may also want to review IIUSA’s Best Practices for Engaging with Sales Intermediaries.

Regional Center Compliance Audits
The Regional Center Business Journal has a helpful article by Mariza McKee, Kimberly Hare, and Clete Samson “USCIS Compliance Audits – Preparing Regional Centers for the First Wave”

RC List Changes
USCIS continues to cull the list of approved regional centers, with 50 terminations so far this year. 2017 termination letters haven’t been published yet, but I’ll guess that most of these terminations are for lack of recent activity.

Additions to the USCIS Regional Center List, 6/26/2017 to 7/17/2017:

• No new regional centers.

New Terminations:

• North Country EB-5 Regional Center, LLC (New York) Terminated 7/7/2017
• Guam Strategic Development LLC RC (Guam) Terminated 7/7/2017
• Good Life EB5 Georgia Regional Center, LLC (Georgia) Terminated 6/30/2017
• Tri-Cities Investment District, LLC (California) Terminated 6/30/2017
• Prosperity Regional Center (former name U.S. Prosperity Regional Center) (Florida) Terminated 6/23/2017