Washington updates, RC termination appeal, SEC (WA), Petition processing

March 21, 2017 Leave a comment

Washington Updates

The comment period for proposed EB-5 regulations closes on April 11, and the regional center program’s current authorization expires on April 28. Either of those immanent deadlines could be associated with significant EB-5 program changes, but I’m not hearing any confident predictions for what will happen exactly. Last week Senators Grassley and Leahy wrote a letter reacting against news that a couple lobbyists for large real estate developers may have recently agreed to “secret backroom deals to thwart reforms.” The senators promised to oppose any such deal, which would presumably protect investment amounts and TEA definitions from significant change, but have yet to  reintroduce substantial EB-5 reform legislation of their own.  And Congress has so much to do in the next month that one wonders whether our representatives can even agree on a plan to fund the government beyond April 28, much less figure out EB-5 changes. For other commentary on state of play in Washington, see for example posts from IIUSA and Wolfsdorf Law. (This is probably too unserious to even mention, but Representative Steve King of “other people’s babies” fame has introduced another bill, H.R.1502, proposing to repeal the EB-5 program entirely. I don’t see this particular bill going anywhere, not least because terrorist threats may be the one problem EB-5 does not have.)

Appealing Regional Center Termination

Matter of S-D-R-C-, ID# 13768 (AAO Mar. 15, 2017) considers the question of whether or how USCIS would be justified in terminating South Dakota International Business Institute  — a regional center that on the one hand has had many successful projects and contributed significantly to economic growth over the years, and on the other hand was – for a number of years, though not currently – in the hands of management charged with various improper activities. The AAO concludes, after interesting discussion deserving industry attention and response: “Evidence of a regional center’s improper or unlawful activities is relevant to the question of whether that center is continuing to promote economic growth, but derogatory evidence must be weighed against countervailing equities on a case-by-case basis. This case contains evidence of the diversion of funds away from job-creating activities, as well as evidence of substantial economic activity that created thousands of jobs. USCIS must consider all relevant factors in determining whether the Applicant’s regional center designation should be terminated or maintained.” AAO withdrew USCIS’s termination decision and remands the matter for further proceedings.

Challenging Capricious Decision-making

Mr. Whalen also posted a decision on the Quartzburg Gold case that I discussed last summer. The court denies part of the plaintiffs’ motion, but grants the plaintiffs’ charge that USCIS was arbitrary and capricious in its decision-making. “First, the reasoning underlying USCIS’s denial of an initial set of Plaintiffs’ petitions was arbitrary and capricious and counter to the evidence before USCIS. Second, USCIS’s decision to treat the petitions of certain Plaintiffs differently than others, despite the fact that all of the Plaintiffs presented effectively equivalent petitions, without providing any explanation for doing so, was also arbitrary and capricious.”

Litigation

The SEC has announced fraud charges against Washington-based businessman Andy Shin Fong Chen and his company Aero Space Port International Group, Inc. The complaint has the usual allegations regarding misappropriation of EB-5 investor funds, and is distinctive in targeting just one of the regional center’s several offerings. The RC response argues that the EB-5 investments are not securities (SEC begs to differ), and points out that the investors involved still support the project and its management (unsurprisingly, considering that they have I-526 petitions pending). I haven’t had time to fill out details in my log of SEC EB-5 cases, but hope someone else will publish an exercise like this to highlight common themes.  In an article published today in The Hill, Catherine DeBono Holmes discusses reforms that could help reduce or eliminate the factors that keep repeating in the scattered cases of alleged fraud in EB-5.

I-526 Petition Processing

The EB-5 Insights blog reports that that IPO seems to be implementing an undeclared policy of holding I-526 petitions in abeyance when an Exemplar I-924 Petition associated with the same new commercial enterprise has been filed. For reference, here is my running log of communications from USCIS regarding EB-5 petition processing practices and times. My EB-5 discussion forum is still open for investors to discuss their experience and progress of the cases they are tracking.

Filed under EB-5 in the News

3/3 USCIS EB-5 Stakeholder Engagement (I-829 division, RC geographic area, site visits, filing tips)

March 3, 2017 Leave a comment

Today’s EB-5 Stakeholder Engagement with USCIS provided a number of important updates. (3/20 UPDATE: USCIS has now uploaded copies of prepared statements by Colucci and Harrison.) I have uploaded my recording, and summarized a few highlights.

  • EB-5 Petition Statistics: In October to December 2016, IPO saw a continued surge in petition filings, with 4,395 I-526 petitions received, 752 I-829 receipts, and 184 I-924 receipts. During that quarter, IPO processed 3,583 I-526 petitions (a record high), 112 I-829 petitions (a near-record low), and 88 I-924 petitions. IPO is now reorienting resources toward I-829, after having previously prioritized I-526 and I-924. Mr. Colucci commented that IPO processed more I-829s last month than in all of last quarter.
  • IPO Staffing: IPO is subject to the executive freeze on Federal agency hiring; however, USCIS has requested exemptions for certain “mission-critical” positions, and IPO has received an exemption for its adjudicator position. IPO now has 157 employees (below their target of 171 employees for the end of last year). IPO is authorized to hire up to 247 employees this fiscal year, subject to the hiring freeze and any exemptions. Increased staffing is IPO’s primary strategy for improving processing times.
  • I-829 Processing: In October 2016, IPO created a new division to focus on Form I-829 adjudications and customer service inquiries. The division will have three teams, with eight adjudicators and economists on each team. The most senior member of each team will interview I-829 petitioners, with most interviews conducted remotely with assistance from local field offices. (As previously stated, the I-829 petitioner can bring her counsel, qualified interpreter, and a representative from the regional center if applicable.) IPO expects I-829 adjudication output to improve significantly once this division is fully staffed and trained. There are currently 18 of 24 people on board, including three senior economists and three senior adjudicators who are working to cross-train for improved efficiency.
  • RC Reporting: IPO says that they will “soon” publish regional center termination notices in the USCIS Electronic Reading Room to promote transparency about reasons for termination. They are also planning to publish petition approval and denial statistics for each regional center.
  • Compliance, Audits, Site Visits: IPO has grown its compliance unit to become a division that oversees pooled investments (both regional center and pooled direct investments) with three branches to review I-924A, issue termination notices, and oversee audits (the first of which is scheduled for next month). IPO has trained 13 site inspectors from around the country, and expects to conduct about 250 EB-5 project site visits this year. IPO reassured stakeholders that IPO would interpret any site visit results in context, and would not make decisions based on the info before notifying petitioners through RFE or NOID. There are two types of site visits: for-cause visits triggered by questions about the project, and random visits that are scheduled at some point between I-526 approval and I-829 filing.
  • Policy: IPO plans to publish content related to sustained investment “in the near future” in the USCIS Policy Manual (rather than finalizing the draft August 2015 policy memo). IPO reviewed comments on the Policy Manual but does not plan any changes in response to the comments.
  • Regional Center geographic area expansion must now be approved BEFORE I-526 petitions can be filed: Here is a transcription of what Lori Mackenzie said (starting at minute 25 of the recording):

    UPDATE: These remarks from the meeting have now been superseded by Lori MacKenzie’s published remarks.
    We also received some questions related to the new Policy Manual publication as well as to the new I-924 Form release, which was effective on December 23, 2016, and the question really does relate to an expansion of geographic scope of a regional center. So just to give everyone a little bit of background around that. There is some guidance in the May 2013 Policy Memo that talks about how to expand geographic scope. After that guidance, we published the Policy Manual in November of 2016 which superseded that guidance, and then on December 23 we issued some guidance with respect to the Form I-924 and the instructions for filing the Form I-924. And so the question really relates to ‘if a Regional Center has filed an I-924 amendment requesting an expansion of geographic scope, may concurrent I-526 petitions be filed in the meantime relying on such proposed expanded geography?’ And the response to that is a little tricky, so you might want to take a few notes. We will continue to adjudicate all petitions filed prior to December 23, 2016, which is the effective date of the new Form I-924, under the prior guidance. So the May 2013 policy guidance holds for that. Petitions filed on or after December 23, 2016 must follow the current guidance, which means that Form I-526 petitions based on an area not previously approved will be deniable due to ineligibility at the time of filing. Note that in May 2016, prior to publication of the final revised Form I-924, we did provide the public with an opportunity to comment on this process by publishing the draft form in the Federal Register.

    I had been wondering about this issue, ever since I noticed that the November 2016 USCIS Policy Manual dropped two little words — “geographic area” – out of the May 2013 Policy Manual’s sentence about changes not requiring an amendment. However, both the Policy Manual and the new I-924 Instructions only said that amendments need to be filed, and we didn’t hear until today that IPO also demands that they be approved before investors can file I-526. Stakeholders strongly encouraged IPO to reconsider this surreptitious policy change, which has major implications for in-process projects that relied on previous policy, and which is unworkable considering that USCIS may take over a year to process amendment requests. Robert Divine has published a helpful article that explains the issues and suggests how industry and investors can respond to USCIS’s move:
    USCIS Reneges on Sponsoring Projects Outside Approved RC Area, Claiming it Gave Notice Through “Stealth” Disclosures

  • Filing Tips: IPO noted practices that would facilitate adjudications. They requested that petitions come with a cover letter and table of contents and tab-separated sections; that documents be single-sided, with page-numbers, and not permanently bound; and that copies be clear and legible and come with full translation if applicable. The petition should indicate whether it’s direct or regional center, and whether it’s part of a dual I-924/I-526 filing. I-924 applications need not include organizational and transactional documents unless associated with an Exemplar I-526. If submitting an interfiling with revised documents, highlight changes with yellow highlighter or some other method that is readily noticeable. Petitioners who have decided to abandon the process are requested to notify IPO of the decision to withdraw their petitions.

Filed under EB-5 Events, Updates from USCIS

Washington updates

February 24, 2017 Leave a comment

The article Will EB-5 Survive? (February 23, 2017) in National Real Estate Investor reviews the current status of EB-5 politics.

[See also my more recent post on the 3/8 House Judiciary Committee hearing.]

Filed under EB-5 in the News

Articles (Project Oversight, Redeployment, TEA Changes), RC list changes

February 22, 2017 Leave a comment

EB-5 Articles

What to do if you suspect your EB-5 project is in trouble (February 17, 2017) by Catherine DeBono Holmes, Esq., Daniel B Lundy, Esq. and Jeffrey E. Brandlin, CPA, CIRA, CFF
This article gives practical advice for managers and investors in EB-5 investment funds. It offers a checklist of warning signs that an EB-5 project may be in trouble, defines a role for a construction monitor/accountant and lists tasks that person should accomplish, describes monitoring systems that should be in place, suggests steps for investors to take if they are not satisfied with monitoring and reporting, and begins to address the question of what EB-5 investors should do in case of a fraud enforcement action. I particularly recommend this article to EB-5 investors, as a reminder of what they can demand and what they should do after investment. EB-5 managers are not necessarily motivated to meet a high and expensive standard for oversight (a manager affiliated with the project owner may not see the need, an unaffiliated manager may prefer to keep at arms length from the project, and the odd bad actor lives on opacity). EB-5 investors, however, certainly benefit from exercising their rights to active and on-going due diligence. People drafting EB-5 legislation and regulations may also be interested in this article, as they consider appropriate requirements for EB-5 managers.

Standards and Guidelines for Redeployment of EB-5 Investment Funds – A White Paper (February 21, 2017) by Klasko Immigration Law Partners, LLP, Arnstein & Lehr LLP, Jeffer Mangels Butler & Mitchell LLP
This article steps into the grey area that USCIS has left by failing to finalize or replace its DRAFT guidance on the Job Creation Requirement and Sustainment of the Investment for EB-5 Adjudication of Form I-526 and Form I-829 (8/10/1015). At issue is the question of what EB-5 enterprises can do with EB-5 money considering that (1) an EB-5 investor’s funds are required to remain at risk in the enterprise throughout the investor’s conditional residence period, (2) visa backlogs mean that the investor might not be reaching the I-829 stage until up to 10 or more years following the initial investment, and (3) most EB-5 deals involve loans due to be repaid to the enterprise in less than 10 years. The draft guidance memo suggested that “to the extent that all or some portion of the new commercial enterprise’s claim against the job-creating entity is repaid to the new commercial enterprise during the sustainment period, the new commercial enterprise must continue to deploy such repaid capital in an ‘at risk’ activity for the remainder of the sustainment period” and “the capital will not be considered ‘at risk’ if it is merely being held in the new commercial enterprise’s bank account or an escrow account during the sustainment period.” Although this suggestion is questionable, and not final policy, it’s the only indication we have of USCIS’s thinking, and the authors of the above-linked article suggest practical ways to satisfy that standard for sustained investment. The authors explain why investment in publicly-traded or privately-held securities or real estate investment should comply with the “at risk” requirement, and they suggest guidelines for making such investments in a manner that complies with Federal securities laws and state law fiduciary obligations.

EB-5 Proposed Regulations: A Missed Opportunity, Next Steps for Reform (Rev. 2/14/17) by NYU Scholar-in-Residence Gary Friedland, Esq. and Professor Jeanne Calderon, Esq.
In this article, the authors once again address the sticky issue of EB-5 Targeted Employment Areas from an academic rather than industry perspective. They discuss TEA changes in proposed regulations and proposed legislation with reference to their database of EB-5 projects, which is dominated by the kind of large big-city projects that make poster children for TEA reformers. The EB-5 industry will not join the authors in lamenting that the draconian proposed regulations appear doomed by timing, but it should account for and consider effective response to the evidence that the authors present in support of TEA reform.

Regional Center List Changes
Additions to the USCIS Regional Center List, 02/04/2017 to 02/22/2017

  • Invest Guam Regional Center (Guam)
  • Universal Regional Center (California)
  • Discovery Northeast, LLC (New Jersey, New York, Pennsylvania)
  • Star EB5 Group (Connecticut, Delaware, New Jersey, New York, Pennsylvania)

Filed under EB-5 Resources, New RC

Understanding USCIS Processing Time Reports–Updated

February 13, 2017 7 Comments

How long does USCIS take to process EB-5 petitions and applications? We have two sources of data relevant to the processing time question: the IPO Processing Time report, which indicates the filing date of petitions currently being processed, and the Forms Data Page, which gives data for the number of received, approved, denied, and pending petitions by quarter. The first source is helpful for past petitioners, while the second source can be better for current/prospective petitioners estimating future processing times.

IPO Processing Time Report
Every month, the USCIS Processing Time Information page updates a chart titled “Average Processing Times for Immigrant Investor Program Office” that looks like this.
chartWhat does this chart mean?
The single unambiguous function of this report is to indicate when petitioners may begin to complain. A stakeholder email from USCIS in January 2017 explained,

We post case processing times on our website as a guide for when to inquire (service request) about a pending case. For the last several years, we have posted case processing times using two different formats: For cases that were within our production goals, we listed processing times in weeks or months; For cases that were outside of our production goals, we listed processing times with a specific date.
Always refer to your I-797C, Notice of Action, and look for “receipt date” to determine when we accepted your case. If the receipt date on the USCIS Processing Times web page is after the date we have listed on your notice, you should expect to hear from us within 30 days. If after those 30 days, you have not heard from us, you may make an inquiry on your case. We recommend using our e-request tool for all case inquiries.

With this in mind, the table can be read to mean “As of November 30, 2016, we were processing at least some I-526 cases filed as of August 7, 2015. If your I-526 petition was filed before 8/7/2015 and you haven’t heard from us, you may start making inquiries.”

The processing report also allows a general conclusion that the I-526 processing time for investors with an August 2015 priority date was 16 months (November 30, 2016 – August 7, 2015 = 16 months).  (Though we know of people who filed I-526 in August 2015 and got earlier decisions or are still waiting, thanks to one or another exception to the first-come-first-served principle.)

The processing report indicates expected times for past petitioners up to a certain date. (I’ve logged processing times/dates for petitions from 2013 to 2015 in this spreadsheet.) The report does not say anything about the future. Since August 2015, IPO capacity has grown and EB-5 demand has grown even faster. The fact that an August 2015 petition had a 16-month processing time does not promise that a 2016 or 2017 petition will have the same time.

Petition Data
As a prospective EB-5 investor, or someone who filed I-526 in 2016 or 2017, I would look at form filing data to estimate future processing times. For example, see this chart of I-526 data from the USCIS Immigration Forms Data page:

This report provides information commonly used in waiting line models: inventory (pending petitions in the system), arrival rate (petitions received) and flow rate (approved + denied petitions, aka completion rate or throughput).  For an example of how to use this data to make predictions with a simple waiting line model, see the Prediction tab of my I-526 times spreadsheet.

2019 UPDATE: I made an EB-5 Timing page to combine links to articles and resources related to petition processing and visa timing.

Filed under EB-5 Resources, Updates from USCIS

Washington updates

January 27, 2017 2 Comments

2/6/2017 UPDATE: The news in this post is now all outdated. Please see my Washington Updates page.
–Original Post–
This week Washington has been busy making good on campaign promises and also throwing babies out with the bathwater. Of most significance for EB-5, the President has frozen federal hiring (halting USCIS plans to deal with petition backlogs and improve processing by bringing on more staff) and created two hurdles for new regulations (a regulatory freeze and a make-one-delete two requirement), deferring hopes and fears for the long-awaited modernization of EB-5 regulations. A horrifying new order suddenly suspends whole countries of people from US visas and even entry based on nationality. Senator Dianne Feinstein decided the time was right put her long-running opposition to EB-5 in the form of a bill (S.232) that proposes eliminating EB-5 entirely, both direct investment and the regional center program. I’ll write more about this bill if anything comes of it, but I expect that that the significant legislation will be a forth-coming update to the Goodlatte EB-5 reform bill (last released 12/2/2016). I am going forward with my work as usual under the assumption that reason will prevail eventually and that immigrant investment and the country generally are not, after all, doomed.  But if anyone would like to offer me a chance to move from the immigration business to the walls-and-bunkers business, I’m listening.

Filed under EB-5 in the News

Regulations freeze, SEC action (San Francisco), RC List Changes

January 23, 2017 Leave a comment

Progress of Proposed Regulations
As EB-5 stakeholders process proposed new EB-5 regulations, they are thinking (1) how can I dissuade USCIS from the changes that would be most harmful for me personally; (2) how can I take best advantage of this golden opportunity to explain to USCIS how EB-5 works in the real world; and (3) how early could the proposed regulations become final, effective regulations? We know at least that regulations can’t proceed to the next step until after the public comment period closes on April 11, 2017, and now the new administration has put another hurdle in the road.

President Trump’s first Presidential Memorandum is addressed to the Heads of Executive Departments and Agencies with the subject Regulatory Freeze Pending Review (January 20, 2017). It does not put a moratorium on new federal regulations, but does require that any new or pending regulations be presented for review and approval of a Trump-appointed agency head before proceeding any further. This means that proposed new EB-5 regulations will need to go before General John Kelley, the newly-confirmed Secretary of Homeland Security. Would General Kelley allow new EB-5 regulations to move forward? The tireless Senator Grassley met with General Kelley on January 13, and reported that “In addition, we talked about new proposed regulations published by the Department today that would go a long way to restoring the EB-5 immigrant visa program to the way Congress intended it to be used: to help bring much-needed jobs and capital to rural and economically distressed areas. I [Grassley] expressed my strong desire that these rules be kept in place and allowed to go forward to ensure that this program fulfills its original intent.” I don’t know what input General Kelley may get from other directions, or whether the flood of lobbying dollars out of New York will have an impact. IIUSA indicates that its official comment submission to DHS will seek to demonstrate the negative effects that proposed changes would have on the industry.

New SEC Action
People drafting new EB-5 regulations and legislation are motivated, in part, to implement reforms that can help preempt the kind of situations that end in SEC action. When cases appear, we have a post-mortem opportunity to consider: what went wrong here, and how might problems have been prevented or at least detected earlier? Last week the SEC published a complaint against San Francisco Regional Center, Thomas Henderson, and related parties. This case has the usual allegations (commingling, misuse, and misappropriation of funds), but offers a relatively challenging “what-if” analysis. The regional center’s website and offering documents (as quoted in the suit) appear to make all the right representations about account transparency; it just happens that the RC apparently didn’t follow through on these representations, and a third-party co-owner with apparently every right and motivation to monitor proper use of funds had to resort to a lawsuit to claim his right to oversight and eventually apply the breaks. Retrospective armchair due diligence isn’t as easy for this case as for some others. I wonder – what different policy or different industry practices could have contributed to improved policing in this situation?

Regional Center List Changes
Additions to the USCIS Regional Center List, 11/29/2016 to 12/06/2016.

  • Advantage America Seattle Regional Center (Washington): www.aaeb5.com
  • CP Northern Regional Center (Michigan, Wisconsin)
  • California Agricultural Greenhouse Regional Center, LLC (California)
  • California Bond Finance Regional Center, LLC (California)
  • Greystone EB5 Northeast RC, LLC (Connecticut, Delaware, District of Columbia, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia): www.greystoneeb5.com
  • QueensFort Capital Texas Regional Center, LLC (Texas): queensforteb5.com
  • Texas Crown Regional Center, LLC (Texas)

Renamed:

  • Civitas Pacific Northwest Regional Center, LLC (former name Civitas Northwest Regional Center) (Oregon, Washington)

New terminations:

  • American Development and Investment Regional Center (California) Terminated 1/5/2017
  • Bay Area Regional Center LLC (California) Terminated 12/22/2016
  • Path America Sonoco, LLC (Washington) Terminated 11/23/2016

Filed under EB-5 in the News, EB-5 Law & Policy, New RC

Recap of Major Winter Developments (policy, regulations, legislation, statistics, fees, Commerce study, new AAO, SEC actions, litigation)

January 13, 2017 2 Comments

The past few months have been packed with important EB-5 news, and it’s hard to keep up with all that’s happening.  As a reminder, here is a summary list of the major developments to keep in focus. (The first five I’ve discussed in previous posts; the last five I haven’t had time to write about yet.)

  1. New Policy: Effective November 30, 2016, USCIS replaced all existing EB-5 policy with a new Policy Manual: USCIS Policy Manual, 6 USCIS-PM G (November 30, 2016). This major event puts the whole program on a new footing (though 6 USCIS-PM G is essentially similar to the policy it replaced, with a few adjustments, additions, omissions, and clarifications as I started to discuss here).
  2. Proposed New Regulations: As I announced this week, USCIS has published notices of proposed EB-5 rule-making in the Federal Register.  Advance Notice #0008 invites stakeholders to give input on possible changes to regional center designations and terminations and the I-924 and project approval process. Notice #0006 gives proposed new rules covering priority dates, investment amounts, and TEA designation, among other things. If the new rules are finalized as proposed, the EB-5 minimum investment amount will increase to $1.8 million (or $1.35 million within a TEA) as calculated from inflation, fewer projects will qualify for TEA status, investors with approved I-526 will have the option to invest in a different project without losing their original priority date, and regional centers may need to get project approval before offering investments. We can expect action toward finalizing regulations at some point after the public comment period closes on April 11, 2017 – maybe shortly or maybe long after, if the comments inspire redrafting and/or if the new administration chooses not to greenlight the regulations.
  3. Proposed New Legislation: Congress was (reportedly) actively working on EB-5 reform legislation before the continuing resolution that passed on December 10 provided the regional center program with a clean extension through April 28, 2017. We have a staff draft of an EB-5 bill dated December 2, 2016, and understand that staffers and lobbyists are still working with this document behind the scenes. If the staff draft were passed as-is, the EB-5 minimum investment amount would decrease to $700,000 (or $650,000 for a TEA investment), with incremental increases up to $1M/$800K, additional TEA categories and incentives (including rolling visa set-asides) would be introduced, and regional centers would  be given hefty new annual fees ($10,000 or $20,000) and relatively gentle new fund administration and reporting requirements. (My bill comparison chart gives a link to the bill text and summarizes the provisions.) We may see action toward passing reform legislation in the coming months before the next regional center sunset date on April 28 – or may not, with so many other matters demanding attention during Trump’s first 100 days in office, and the anti-change lobby.
  4. New Data and Statistics: We got updated numbers from USCIS and the Department of State on EB-5 petition and visa processing and backlogs as of the end of 2016. The numbers show a queue of current and prospective visa applicants about 75,000 people long, which implies an 8-year visa wait for new China-born investors. And unless USCIS improves processing volumes, it will take 2+ years just to process the currently-pending I-526 petitions and 3+ years to just process the currently-pending I-829 petitions. Proposed EB-5 reform legislation and regulations both plan to improve processing times/volumes, but do not offer to increase available visa numbers.
  5. Fee Increases: EB-5 petitions and applications have higher filing fees since December 23, 2016. The new I-924 fee (dramatically increased to $17,785) is likely to curb the burgeoning number of regional centers (perhaps especially new applications from serial operators, which have accounted for an increasing percentage of new RCs) and discourage voluntary filing of amendments.
  6. Department of Commerce EB-5 Impact Analysis: We finally have the long-promised Department of Commerce study commissioned by USCIS: Estimating the Investment and Job Creation Impact of the EB-5 Program (January 2017). The product is a slender report and based on old data from 2012-2013, so the numerical conclusions are of limited interest at this point, but the analysis is still significant and could have political impact. I can see EB-5-critic Senator Grassley seizing on this report and the barriers to good analysis that the authors describe. EB-5 economists should review the formerly common EIR problems identified on p. 9, and ensure that they’re not still repeating them.
  7. New AAO Decisions: In November and December, USCIS published 27 new decisions on I-526 cases and one new decision on a regional center termination appeal.  The termination decision (NOV022016_01K2610) and 15 nearly-identical I-526 decisions (for example DEC142016_07B7203) are related to Path America KingCo, LLC, which lost designation after an SEC action mainly targeting its principal. The regional center appealed its termination based on pursuing active, viable projects under reputable new management. Investors appealed with the argument that their petition denials were premature, coming while the regional center appeal and the SEC case were still unresolved. AAO found that the investor appeals were hopeless due to the issue of material change, and that the regional center appeal was not sufficiently compelling. (But the RC decision interestingly grants the possibility that mitigating, corrective, and restorative actions could potentially compensate for past problems with the regional center or related entities.) Among decisions not related to Path America, I hope to write more about three decisions with good discussion of material change issues (NOV012016_02B7203, NOV072016_01B7203, NOV292016_02B7203) and two that address the level of business activity necessary before filing I-526 (NOV092016_01B7203, NOV292016_01B7203). I’ll particularly highlight NOV292016_01B7203, which explicitly states what I’ve always said – that an investor must not file a TEA-based I-526 before securing a location for the business.
  8. New SEC Actions: On December 27, 2016, the SEC published a complaint brought against California-based attorney Emilio Francisco and associated companies who are charged with diverting and stealing EB-5 investor funds. On December 28, 2016, the SEC announced settlement on a case against AJN Investments LLC/Jason Adam Ogden, who was charged with diverting EB-5 investor funds and wrongly making midstream business model changes.  I’m interested to note that these SEC complaints do not implicate or even identify the regional centers that sponsored the EB-5 investments involved. The SEC holds the project companies and principals exclusively responsible for problems in the offerings, projects, and use of funds. I wonder whether USCIS will pursue the regional center sponsors, holding them responsible for oversight, or whether it will follow the SEC’s lead in considering the sponsors out of the picture. It appears that the regional centers in these cases did not control any NCE bank accounts and were not involved in offering documents or investor promotion. In other news, the SEC has just settled with Path America (a case that did implicate the regional center).
  9. Other litigation: On November 14, 2016, a long list of EB-5 investor plaintiffs brought a civil suit against a long list of defendants associated with the Palm House Hotel EB-5 project. The suit enumerates the lies that the investors believe they were told, calls out every party and service provider allegedly involved in making false representations, and traces alleged misuse of investor funds. The case appears complicated and ambiguous (not the kind of low-hanging fruit that the SEC seems to favor) but full of drama and makes for gripping reading. Another case that’s older now (filed August 2016), but also a colorful Florida story: USA v. Karamchand Doobay, who was charged with perpetrating fraud through his regional center and projects. I’m sure the investors in these cases would unite in one message for the future: do not neglect due diligence before investing! And the defendants would likely encourage care in partnerships and representations.
  10. Good news: Meanwhile, just to keep  perspective, 99% of the 865 regional centers are apparently doing well and good, or avoiding lawsuits and bad press at any rate. At least $10.4 billion dollars of EB-5 investment entered the U.S. economy in 2016, judging by the number of I-526 petitions filed during the year. I was privileged to write business plans last year for 32 new EB-5 deals that look promising for both local communities and foreign investors, and I continue to be encouraged by what I see on the ground on the bright side of EB-5.

(Also note, adding to the festival of updates and feedback opportunities, an in-person EB-5 stakeholder meeting just announced for March 3 in DC.)

Filed under EB-5 in the News, Updates from USCIS

I-924A Resources

November 1, 2016 Leave a comment

USCIS has kindly shared IPO Deputy Chief Julia Harrison’s Talking Points IIUSA and AILA Conferences October 2016. There isn’t any breaking news here, but I’ll repeat Ms. Harrison’s first point. “Regional Centers: Don’t forget to file your Form I-924A between October 1 and December 29.” All Regional Centers that were designated as of September 30 this year must file this annual report.

I-924A Resources for Regional Centers

Go to the USCIS website for the Form I-924A and Instructions: https://www.uscis.gov/i-924a. Note that there’s a significantly revised version this year, so don’t reuse last year’s form. USCIS gives additional guidance for completing the form in I-924A Filing Tips (2015) and I-924A Q&A (2011).

The deadline for I-924A filing this year is December 29, but plan to file by December 22 if you want to avoid the new $3,035 filing fee.

Remember that I-924A stakes are high. This form is at the center of an annual review in which USCIS reassesses whether each RC can keep its designation. In preparing to file, consider what we know about the review process. Form I-924A goes to the IPO Compliance Unit at USCIS, which takes the following steps.

  • IPO reviews the info provided in the I-924A for timeliness, accuracy, and completeness
  • IPO considers the Form I-924A responses (and any supplemental narrative and exhibits filed with the form) to determine whether the RC is fulfilling its basic mandate to promote economic growth. If the RC does not have investment or jobs to report in the Form I-924A, IPO will look to see whether the RC makes a compelling case for future activity and mitigating circumstances. (“For example, it is reasonable to provide greater flexibility to a regional center with a more recent USCIS designation whereas a regional center with a longer period of designation that has not shown any economic growth to the geographic area, may receive less flexibility. In addition; the regional center’s progress in developing actual projects should be taken into account, including the steps taken to identify and pursue developmental projects, how the projects have progressed in the pipeline, and the likelihood of those projects promoting economic growth in the immediate future. Moreover, USCIS may consider any reasonable, temporary delays, such as natural disasters or litigation, which may have prevented the regional center from promoting economic growth in a timely manner, and any alternative plans or actions taken as a result of unexpected delays. This flexibility, however, is not an open-ended allowance in which the regional center can indefinitely explore potential projects or remain stagnant on either a hypothetical or actual plan.” See RC Designation: Use it or lose it )
  • IPO checks the numbers and claims reported in the I-924A against other info that it has on file for the RC, and red flags any inconsistencies
  • IPO performs an Internet search and searches internal databases looking for derogatory information related to the RC and its projects and principals
  • IPO investigates the RC’s online presence (the RC’s website, online content from agents and promoters) and looks for any impropriety. IPO particularly looks for use of the DHS seal or USCIS signature; any claims about guaranteed returns, guaranteed approvals, or expedited treatment of petitions; and any language (including entity names) that implies a special relationship with USCIS, DHS, or the US government. Keep in mind Cautions on Names of Regional Centers and Enterprises, and Unauthorized Use of DHS Seal.
  • IPO will issue a Notice of Intent to Terminate if the RC fails to submit required information, or if IPO determines based on its I-924A review that the RC no longer serves the purpose of promoting economic growth, and no longer remains eligible for designation. 70 RC have been terminated so far (54 in 2015/2016 alone), so this is not an idle threat.

(My sources: EB-5 stakeholder meetings on 8/13/2015, 9/17/2015, 2/3/2016; AAO termination appeals in 2015 and 2016; and FOIA material)

A regional center that hasn’t been active and doesn’t see future prospects may consider taking this chance to proactively withdraw from the program, instead of waiting to be terminated.  The recent Fee Rule says that “A regional center may elect to withdraw from the program and request a termination of the regional center designation. The regional center must notify USCIS of such election in the form of a letter or as otherwise requested by USCIS. USCIS will notify the regional center of its decision regarding the withdrawal request in writing.”

Filed under EB-5 Resources

8/29 USCIS meeting (policy timeline, minor petitioners, RFC, more), AAO decisions (exit, investors in terminated RC), legislation comments, NASAA advisory

August 30, 2016 3 Comments

EB-5 World kept busy during my annual wilderness week, so this post is a long one. Before I get into detail, here are a few headlines: No new EB-5 policy or guidance likely this year, IPO steps up scrutiny of parties involved in regional centers and emphasizes due diligence responsibilities, Minors face challenges in qualifying as EB-5 petitioners, Wyoming gets its first regional center.

8/29/2016 EB-5 Stakeholder Meeting

USCIS hosted an EB-5 stakeholder teleconference on 8/29/2016 – ostensibly to review content that we couldn’t hear in the 7/28 engagement, but stakeholders wisely took the opportunity to ask new questions. Nicholas Colucci and Julia Harrison made new statements supplementing the prepared remarks for the 7/28 engagement. IIUSA has shared a recording with members. I was not able to record the event, but have summarized highlights for you.

  • USCIS Timeline for New Policy and Regulations: USCIS expects to finalize the EB-5 chapters for the USCIS Policy Manual by the end of this fiscal year or at least calendar year, and to hold off on releasing new policy and guidance until after those foundational chapters on existing policy have been published. Mr. Colucci described the policy manual as “a compendium of all existing policy of the EB-5 program, putting it all into a single document. As we draft new guidance with respect to the EB-5 program, what we will do is generally put it out for notice and comment and then finalize it in that manual. So it will be a document that gets added to as it goes along.” It will be nice to have existing policy gathered in one place, but what we really want is new policy. In her statement for the 7/28 meeting, Lori Mackenzie promised that “Among the topics we hope to further expand upon are issues associated with the requirements for job creation and investment sustainment that apply to EB-5 investors and the impact of misappropriation of funds on those requirements.” But for now, Mr. Colucci and Ms. Harrison declined to make statements about sustaining investment or dealing with investors following regional center termination, saying that these points would wait to be covered in future policy manual amendments, after the foundational content is completed (ie after this year). The draft Guidance on the Job Creation Requirement and Sustainment of the Investment for EB-5 Adjudication of Form I-526 and Form I-829 (first posted for comment in August 2015, and urgently needed) is now off the table until it can be issued in revised form for comment as a policy manual amendment. Regarding revised regulations, Mr. Colucci said “We are working on an EB-5 regulation. We don’t have a timeline for the publication of that regulation, but we continue to actively work on it.” He did not say anything about a November 2016 target (mentioned last month by DHS Secretary Jeh Johnson).
  • I-924 Requests for Clarification (RFC): Mr. Colucci pointed out that IPO has been issuing a number of RFCs to regional center applicants who did not respond completely to Form I-924 Part III(D), which asks for a list of principles, agents, individuals and entities that are involved in the management, oversight, and administration of the regional center. “What we’ve been finding is oftentimes this is left blank when the form is submitted. But as we review the supporting documentation, we see in fact a number of other names that should’ve been included in this section. What we’re doing as part of this Request for Clarification is determining whether other individuals are involved with the regional center, and if so, we’re seeking their identifying information.” I think we can assume that USCIS wants that complete list and identifying information for broader vetting and accountability – perhaps proactively implementing reform proposals from reauthorization bills that Congress hasn’t managed to pass yet.
  • Customer Service Issues: Mr. Colucci stated that IPO would not respond to duplicate requests sent to the Customer Service Mailbox within 15 days of the original request, but reminded people of the escalation process. (See the EB-5 Customer Support page.) USCIS.gov has added a Chinese translation of the support page, and a FAQ page addressing common questions from investors. In response to Q&A, USCIS invited people to use the customer service mailbox to notify USCIS of factual errors in an RFE or NOID notice, and said that USCIS may issue a replacement notice.
  • Minors as EB-5 Investors: Julia Harrison responded to questions about minors under the age of 14 being able to invest in the EB-5 program. She said “Just to clarify, for USCIS the statute and regulations don’t have an age limitation. However, it is important to understand that a minor normally lacks the legal capacity to enter into the various types of contracts that are necessary to demonstrate the qualifying investment. So, while the eligibility for any minor to enter into the contract would depend on the specific facts of the particular case, it could be difficult for them to be the principle petitioner because of the concerns related to their capacity to contract and the presumptive voidability of contracts signed by minors. When a minor does enter into a contract, the petitioner bears the burden of demonstrating via preponderance of the evidence that the minor or legal guardian who enters into this agreement on their behalf will be – that it will be binding on the minor petitioner in the relevant jurisdiction. And again that’s up to the petitioner to demonstrate that evidence when they submit their application to USCIS. For a child less than 14 years old, a parent or legal guardian may sign on their behalf, but you also need to be prepared to demonstrate, with evidentiary requirements, proof of the parent-child relationship.” In response to questions, Ms. Harrison suggested that it might be acceptable for parents to transfer investment on behalf of a minor child, so long as it’s clear that the capital belongs to the minor petitioner, not the parent. She further stated that IPO was not in a position to specify the nature of proof required to overcome a presumption of voidability, or even to give general guidance, but would adjudicate on a case-by-case basis. I wonder if Ms. Harrison was basically saying: IPO currently does not see how it’s practically possible for a minor to be an EB-5 petitioner, but is open to being convinced otherwise. Catherine DeBono Holmes has written articles Using the Uniform Transfers to Minors Act for Minor Investors in EB-5 Investment Funds (September 23, 2016) and Suggested Procedures and Possible Options for Accepting Minors as Investors in EB-5 Investment Funds (June 23, 2016). See also blog posts by Klasko Law and Wolfsdorf Rosenthal on minors as primary EB-5 applicants. These articles take a positive approach, but note that I’ve heard other prominent EB-5 lawyers express strong questions and reservations about the practicalities of minors as EB-5 petitioners.
  • The Rent-a-Center model: I’ll quote this from Mr. Colucci’s published remarks for the 7/28 engagement, since it seems to be a warning shot: “To uphold the integrity of the program, USCIS is focused on ensuring that regional centers exercise due diligence in the oversight of the capital investment and job-creating projects they sponsor. As the program has become more popular, the paradigm of regional center relationships has expanded. But let me remind everyone in the EB-5 community that due diligence, monitoring and oversight are the obligations of the designated regional center entity, and central to the integrity of the program. When we become aware of any threats to the integrity of the program, we seek to take corrective action.” IPO appears to be giving notice that they don’t like a hands-off regional center relationship. Regional centers that use a “rent-a-center” model, licensing third parties to use their designation for projects, should take note and take care to implement sufficient due diligence, monitoring and oversight.
  • Other Points: The teleconference was unusually rich in good questions that solicited new answers – though the answers are marginally bankable since they’re just off-the-cuff in context of a call. But for what it’s worth, I heard: Yes, the first I-526 in a pooled direct investment case establishes deference for subsequent I-526s (and USCIS is considering process adjustments that will make this more workable in the direct context); Yes, IPO accepts a loan secured by equity investment in the petitioner’s own business as an acceptable source of funds (but note a different story in the Ibrahim case being litigated, Ed.); No, USCIS does not defer to previous source of funds determinations, but only to the items listed in the Policy Memo deference policy; No, USCIS does not necessarily require proof of non-EB-5 funding already in the bank but looks for general preponderance of evidence (e.g. things like letters of commitment and term sheets); Yes, it should be sufficient to sustain an investment during the 2-year conditional residence period (implying that the investment need not also be sustained during the period when I-829 is pending); No, I-526 petition processing is not exactly FIFO but happens in a range that’s pegged to when IPO received the first I-526 for that project; No, IPO is not considering new policy to implement the Child Protection Act (and specifically, declines to hold I-526s in abeyance to add time in order to help protect child eligibility); No, IPO does not think that CPA practices for I-130 family-based petitions can be applicable for EB-5.

New AAO Decisions

AAO continues to dismiss appeals of USCIS denials of I-526 cases. Here are the most recent issues.

  • Investor Exit Strategies: JUL272016_01B7203, JUL272016_02B7203, and JUL272016_03B7203 discuss three petitioners in the same deal whose petitions were sunk by these two sentences in the Operating Agreement: “Members who are holders of the Class B Interests may demand a return of the capital contributions upon receipt of the approval of the I-829 Petition by Entrepreneur to Remove Conditions by the U.S. Citizenship and Immigration Services” and “In the event of the denial of the I-829 Petition by Entrepreneur to Remove Conditions, at the end of the five-year compliance period, following the USCIS’s Request for Evidence in connection with their I-829 petition, the Company intends to refund that member’s $1,000,000 subscription amount paid within 120 days if feasible.” More specifically, the petitions were sunk by two words — “demand” and “$1,000,000” — which USCIS and AAO agree flagged an impermissible redemption agreement. Using the word “demand” (i.e. “claim as due” “require”) profiled the petitioner as effectively a lender (and the investment no more at-risk than a loan), and naming a dollar figure triggered the Matter of Izummi prohibition against assuring the petitioner of a set repurchase price from a willing buyer. (The three cases are identical except that _01 has an additional source of funds issue.)
  • Investors in Terminated Regional Center: AUG032016_01B7203 through AUG042016_04B7203 represent six additional petitioners in the same position as the JUL182016_01B7203 case. All these investors were in the stage between I-526 approval and receiving conditional permanent residence (CPR) when their regional center was terminated. All had their I-526 approvals revoked, with identical justifications based on the policy prohibiting material change during the period between I-526 approval and green card. AAO agreed with USCIS in these cases. I hear through the grapevine that USCIS has gone further and revoked CPR for investors who were further in the process when their regional center was terminated – a very serious development, if the rumor proves to be true and to represent general practice. Material change policy wouldn’t justify such revocations, but we may not be able to discover USCIS’s practices and justifications until we see decisions on investor appeals. In yesterday’s conference call, IPO said they “don’t have guidance yet” for how investors are treated in the event of RC closure – but obviously they do, since they’re busy sending out notices of intent to deny and revoke to some investors, and apparently just unwilling to publicly disclose the current logic guiding their actions. Do people at IPO not care about their own job security, at least? How much adversity and uncertainty do they think the EB-5 program and investors can take, and still be there to provide the “investor program” in “investor program office”? Please, give us some transparency!

Publications of Note

  • Regional Center Program Reauthorization: A group of securities attorneys got together and redlined proposed legislation with comments and corrections from a securities perspective, and have submitted the document to Congress. You can read the EB5 Securities Roundtable suggestions here. With so many arguable points in last years’ proposals, it’s hard to imagine Congress finalizing anything substantial in the next couple weeks, but we’ll take a deep breath and see what happens. We’re now just days away from September 30, the next deadline for Congress to reauthorize the regional center program.
  • International Entrepreneur Rule: USCIS is proposing a new International Entrepreneur Rule which would allow certain international entrepreneurs to be considered for parole (temporary permission to be in the United States) to start or scale a U.S. businesses. This rule is quite unlike EB-5 and not related to EB-5, but – if implemented – could provide a narrow alternate path to U.S. residence for foreign entrepreneurs. Michele Franchett of Stone Grzegorek Gonzalez has a helpful summary, and Ron Klasko comments on the rule’s (non)relevance for EB-5 investors.
  • Sanctions for Brokering EB-5 Investment: Three Immigration Lawyers Sanctioned by the SEC for Brokering EB-5 Investments (August 24, 2016) discusses how and why the SEC is making examples of immigration lawyers who appeared to receive transaction-based compensation in connection with recommending a regional center or assisting in purchase of an EB-5 limited partnership interest. The most recent cases involved minor violations and relatively little money, but the SEC perceives immigration lawyers as gatekeepers for EB-5 and is going after them accordingly.
  • NASAA EB-5 Investor Advisory: The North American Securities Administrators Association has published an investor advisory for potential investors in EB-5 projects. The notice provides a due diligence checklist that’s handy for investors, and also for people who think about how to structure and write up proposals that will satisfy investor questions and concerns.

Regional Center List Updates

Additions to the USCIS Regional Center List, 07/27/2016 to 08/29/2016:

  • America California Construction, LLC DBA American California Regional Center (California): www.madisonrealtycompanies.com
  • America Commonwealth Regional Center (Delaware, District of Columbia, Maryland, New Jersey, New York, Pennsylvania, Virginia, West Virginia): acrc.us
  • American Heritage Regional Center, LLC (District of Columbia, Maryland, Virginia)
  • American Immigration Fund Regional Center (Florida)
  • EB5 of Ohio, LLC (Indiana, Kentucky, Ohio): www.eb5ofohio.com
  • CanAm Texas Regional Center (Texas): www.canamenterprises.com
  • F2E Regional Center, LLC (Colorado, Nebraska, Wyoming)
  • USASIA Pacific, Inc (Washington): usasiapacific.com
  • WAHA EB-5 Regional Center of New Orleans, LLC (Louisiana, Mississippi)

Renamed:

  • Global Pacific Regional Center (former name American Sun Regional Center) (California)

New Terminations:

  • EB-5 South Florida Regional Center, LLC (Florida) Terminated 8/3/2016
  • Alabama EB-5 Regional Center, LLC (Alabama) ) Terminated 8/3/2016

Filed under EB-5 Law & Policy, EB-5 Resources, New RC, Updates from USCIS

Investors in Terminated RC, Portfolio Investments

August 9, 2016 2 Comments

So long as USCIS persists in not publishing new regulations or policy, we have to keep looking at case-specific sources for hints at what it’s thinking. Here are a couple recent EB-5 insights from non-policy sources.

Investors in a Terminated Regional Center

If a project loses its regional center sponsor, can an investor still continue with the project and count the jobs it creates? The investor in the JUL182016_01B7203 case was not allowed to do so. This petitioner invested in early 2012 and received I-526 approval in 2014. Then USCIS terminated his project’s regional center sponsor in 2015, and issued a notice of intent to revoke his approved petition shortly thereafter. At this point three years had passed since the investment and petition filing, but the petitioner did not yet have conditional permanent residence and was thus still in that vulnerable no-material-change period. USCIS and AAO considered whether he should be able to continue with the process independently and count direct jobs as if he were a direct investor, but decided not. The reason: the jobs were in a job-creating enterprise separate from the new commercial enterprise (a structure only allowed for regional center projects) and changing that structure would be a material change. So the investor would have to start over with a new I-526 petition.

We can’t tell whether the decision might have been different had the project not been cited in the regional center termination decision, or had EB-5 investors secured a new regional center sponsor for the project. But the decision suggests a pretty hard line on the point that: “During the period of conditional residence, a petitioner is expected to implement the business plan underlying the original petition, and USCIS guidance acknowledges that a petitioner may need to adjust his or her plans during this time. But when such changes are material, USCIS policy requires the investor to file a new petition.” Expect to see this line challenged, as investors line up with their attorneys to complain about being punished for actions by RC principals – actions that do not necessarily implicate the investors and sometimes not the projects either. Long processing times, retrogression, and possible regional center program sunset add urgency to the material change issue for regional center investors. Klasko Law has a post on Path America Regional Center and Giving Innocent Investors a Way Forward (12/3/2015), and the State of Vermont is advocating for options for its investors (but no response from USCIS so far). In the meantime, I’ve added this case to an on-going log of material change examples in my material change post.

Portfolio Flexibility, Debt-Like Investments

USCIS has produced interesting documents as defendant in a suit brought by investors in Quartzburg Gold, LP, a Idaho State Regional Center project. You can find all the case material by Googling the LP name or the case number (1:15-cv-00273-CKK). I’m particularly interested in USCIS statements on two boundaries that investors and project companies naturally try to push: investor assurances and project flexibility. Investors want to get their money back eventually and demand security, while USCIS is on the alert for debt-like arrangements and guaranteed returns. Project companies like flexibility to work with unpredictable reality, while USCIS wants the I-526 business plan to specifically predict what will happen and then match what does happen.

The Quartzburg case addresses the grey areas of portfolio investment flexibility and re-deployment. [UPDATE: this offering is now subject to an SEC complaint targeting some apparently no-so-grey areas.] The Quartzburg Gold, LP Limited Partnership Agreement defined investment “Projects” to include four named mine projects (with one marked as tentative) and potential additional or replacement mine projects. The LPA provided that “The General Partner has authority to approve funding of other projects identified by Idaho State Gold Company, either in addition to or replacement of the preceding projects, to the extent appropriate based upon the capital requirements of the listed Projects, the General Partner’s ongoing due diligence, and contingencies that may arise in development of the foregoing Projects.” USCIS went on to deny a bunch of I-526 petitions for limited partners in this agreement, with one ground being the fact that “which mining projects ultimately would receive capital was uncertain at the time of filing.” In a 4/15/2016 statement for the court, USCIS argues that,

Plaintiffs cannot satisfy their burden of showing they will create the requisite number of jobs because they have acknowledged (and the past demonstrates) that their business plan is wholly speculative because the projects themselves are subject to change…. As such, it was not arbitrary and capricious for USCIS to conclude that a business plan analyzing a tentative list of possible projects is insufficient to show likelihood that 160 investors are likely to show their investments are each likely to create ten new jobs.

In a 5/2016 statement, USCIS protests further that,

Contrary to Plaintiffs’ claim, Defendants are not requiring the initial business plan to remain entirely static throughout adjudication. But, at a minimum, the petitioner must submit a business plan that is based on JCEs that are more than just possible projects. Whether the plan for one particular JCE may adapt over time is one matter; the complete overhaul of the entire business plan is another.

I quote all this because people are filing similar EB-5 deals right now. For example, I think of franchisees who offer investment in a pipeline of currently-identified plus potential future franchise locations. If USCIS applies its Quartzburg Gold arguments to such cases, they will be denied for depending on possible projects. But it’s hard to know with USCIS. Sometimes relatively speculative portfolio scenarios are not challenged as such. Even in Quartzburg Gold, USCIS denied a bunch of petitions for other reasons before raising the JCE uncertainty issue. Matter of Izummi treats an NCE with “actual and proposed loan activities” in multiple identified and potential companies, and finds fault with how the business model was implemented but does not challenge the model per se. And that’s a precedent decision. It will be interesting to see the outcome of the Quartzburg litigation. Meanwhile I’ve added this example to my on-going master post on portfolio investments.

I won’t go into the “at risk” part of the Quartzburg case, but you can read the documents to learn how USCIS smells an equity arrangement to determine whether it’s really a debt-like arrangement. I’d just like to point out this intriguing series of events.

  • 2/16/2010: USCIS designates Idaho State Regional Center
  • 12/22/2010: Reuters makes a splash with “Special Report: Overselling the American dream overseas.” The article begins “In a conference room in an office building in downtown Shanghai, Jason Lee is literally selling the American dream” and goes on to report the specifics of Mr. Lee’s sales pitch: invest in an Idaho State RC gold mine project with “a 100 percent money-back guarantee”; just lend $500,000 to the mine today and eventually be repaid with 500 ounces of gold. The Reuters journalists attended an event for Chinese investors, read a Mandarin brochure for the Idaho project, and then contacted USCIS to ask whether these promises didn’t violate fundamental EB-5 rules. “The immigrant investor’s investment cannot be guaranteed,” confirmed the USCIS spokesperson. Reuters also contacted the Idaho State RC principal, who protested that he did not have an agent in Shanghai and no redemption promises were being made to investors. EB-5 got little press back in 2010, and this Reuters article (which also covered other RC projects) attracted attention.
  • 6/9/2011: USCIS initiates a Government Motion to Reopen its approval of Idaho State RC, and issues an RFE notifying the regional center that it must remove all language from organizational documents that could be construed as redemption agreements. The regional center complies, and USCIS issues a new designation letter dated 9/13/2011 that cites its review and approval of revised organization documents dated 7/1/2011.
  • 2012-2013: Investors file I-526 petitions based on investment in the gold mine projects of Quartzburg Gold, LP, sponsored by Idaho State RC.
  • 2013: USCIS starts to issue Notices of Intent to Deny on the Quartzburg Gold, LP investors, with the first 69 all citing just one problem: a provision in the organizational documents that looks like a redemption agreement.

(I know about the first and third bullet points from the RC’s designation letters, the second from my brilliant memory, and the rest from the litigation paperwork. I don’t know how these events are linked, but we can speculate. Maybe the moral is that journalism has power and one can’t be too careful about what’s said – and overheard — in China. Also, that it’s unsafe to rely on the words “the following documents have been reviewed and approved” in a regional center designation letter.)

3/2017 UPDATE: Here is a decision on the case.

Filed under EB-5 Resources

Reviewing EB-5 Business Plans

August 5, 2016 Leave a comment

Here’s my conclusion from reading years of USCIS evidence requests and AAO decisions on EB-5 cases: the most common EB-5 business plan problems are basic and easy to catch. This post offers a simple three-step process that anyone can use to identify the few most common Request For Evidence and denial triggers in business plans. I also discuss paths to more in-depth review that can help preempt questions from investors and USCIS.

Short-Cut Review for I-526 Business Plans

  1. Does this EB-5 package include a business plan?

Quick Answer: Look for a document that says “Business Plan” on the cover and whose table of contents includes (at least) section headings like “Business Description,” “Market Analysis,” and “Financials.” If the package doesn’t have such a document, it doesn’t have a business plan.

Common problems: The I-526 petition may have a collection of relevant documents that aren’t gathered and clearly labeled as a business plan, or may have a document that is called a business plan but is really only a business description. The lack of market analysis or financial projections is a clear tip-off that this document is not a business plan.

For more depth: Analyze the purported business plan against the Matter of Ho definition of a comprehensive business plan and other business plan checklists, while considering which content is and is not essential in this specific case. (My business plan writing and review services are described on my service website.)

  1. Does the business plan describe a proposal that fits EB-5 requirements?

Quick Answer: Check the following:

  • Whether the plan states the amount of EB-5 investment and shows a budget whose total is no less than the investment amount
  • Whether the plan has a staffing section that anticipates 10+ new full time jobs created per EB-5 investor and includes words like “job descriptions” and “hiring schedule” (direct EB-5 cases), or whether the plan provides inputs for an economic model estimate of 10+ jobs per EB-5 investor (regional center cases)
  • Whether the plan describes an enterprise and jobs that are new following EB-5 investment (or handles preexisting business and pre-investment jobs in a compliant manner)
  • Whether the plan shows 100% of EB-5 investment channeled into job-creating enterprise(s), and (for direct EB-5) whether equity investment and job creation occur in a single enterprise
  • Whether the plan has a timeline that anticipates imminent plan implementation and use of investment and job creation within about three years

Common problems: An amazing number of supposed EB-5 plans don’t even try to show that the full EB-5 investment amount will be used and the required number of new jobs will be created. Such omissions guarantee an evidence request, or denial if the nature of the business can’t in fact accommodate the EB-5 minimums for investment and job creation. Many plans have also been denied for failure to deal with nuances in business acquisition/expansion scenarios, to link investment and job creation, or to establish that the plan is likely to be implemented and accomplished within a certain time.

For more depth: Have an expert analyze the plan with an eye to all EB-5 requirements that affect the subject business, from the “new” issue to the “at risk” issue. Assess whether the plan adequately addresses potential USCIS concerns (based on regulations and policy) and investor concerns (such as risk, return, and timing). My review service considers these factors.

  1. Is the business plan credible?

Quick Answer:  

  • Credibility from evidence: Turn to the business plan market analysis section and check for references and citations. Confirm that they exist and can be followed to the cited third-party sources, via web links or with reference to exhibits also included in the I-526 package. No credit for unsourced market data, cited but irrelevant data, or citations to unverifiable or weak sources. Extra credit if helpful citations also appear in the business plan sections on schedule, permits, budget, and financials. Exhibits (such as a separate third-party market study) can bear the burden of providing third-party evidence, but the business plan should still reference those exhibits while making claims. If the business plan does not reference any verifiable external evidence, then it does not establish credibility. Think “which claim or projection, if inaccurate, would be a deal-breaker” and ensure that those points are as well-supported as possible. It can be tough to find third-party support for some types of proposals, but the business plan is asking to be challenged if it fails to show off at least a modicum of verifiable detail.
  • Credibility from internal consistency: Make list of 5-10 important details in the business plan (e.g. for a hotel: owner name, number of keys, building square footage, construction start and end dates, total budget) and then spot check the business plan and supporting documents to confirm that those details are the same wherever they appear. If the spot check catches discrepancies, get them fixed or explained and look for more.
  • Credibility from external consistency: Google the entity names, the project/business name, the names of company principals, and the business address, and read the first few search results for each. The business plan had better preemptively address any significant apparent discrepancies with online information.

Common problems: The words “verifiable detail” or “inconsistencies” appear in nearly every RFE and denial decision that challenges EB-5 business plan credibility.

For more depth: Closely review the business plan and associated documents for numerical discrepancies, even minor ones (e.g. Year 1 ADR estimated at $126 in the business plan and $129 in the economic analysis) and logical discrepancies (e.g. a 40-full-time-employee call center with $300,000 annual payroll expense and a 2,000-square-foot office). Encourage the business owner to try to think about possible future discrepancies (e.g. whether the schedule in the plan is a safe bet or should be qualified for a better chance of fitting what eventually happens). Ask someone with strong research skills and sources to read the plan and suggest ways to strengthen third-party support and validation. Finally, consider how presentation might be improved. Cognitive bias makes people unconsciously assign credibility to attractive documents, and react negatively to material that is ugly or hard to read. I attempt to consider these issues in writing and review.

 

Avoiding I-526 Business Plan Problems

To avoid problems in business plan review, start by getting the EB-5 plan prepared by someone who knows something about EB-5 and – more importantly – about business. The faulty EB-5 plans I’ve seen can largely be traced to faults in two kinds of authors.

People who understand business but not EB-5 prepare business plans that have good content, just not quite the right content. The plan prepared by a passionate entrepreneur will describe the concept beautifully and at length, but may neglect the nitty-gritty detail needed to help outsiders grasp how and why the business will work. The plan prepared by a professional writer without EB-5 experience will explain the business well but may neglect detail needed to assess compliance with EB-5-specific requirements (e.g. whether the date and conditions of formation qualify the enterprise as “new,” whether the timing and nature of employment meet EB-5 requirements, whether the investment qualifies as being at risk, whether the structure is compliant). A writer unfamiliar with EB-5 is likely to omit content that’s needed to answer questions from EB-5 readers and may unwittingly describe a business that is not suitable for EB-5. A good general-purpose business plan can be a good start, however. An EB-5 attorney or a writer like me can advise on how to rework the plan for the EB-5 context.

People who understand EB-5 but not business prepare business plans that have a good table of contents, but fall apart on closer inspection. The writer knows the expected Matter of Ho categories for EB-5 business plan content, but lacks the background and resources to fill those sections with meaningful material. The writer may try to compensate by cutting-and-pasting, populating sections he or she is not sure how to handle with a patchwork of clips from more and less relevant sources, or by cleaving to a template, writing every proposal as if it were a typical EB-5 real estate project. This is how local demographics end up in the market analysis for an export company, hotel expense items in financials for a factory, legal jargon in a restaurant description, and an economic model in a discussion of marketing strategy. This is how readers get very confused. In general, clients should try talking business with an EB-5 service provider before paying for a business plan. I will not quote to write a plan if I lack the background and resources for the subject industry, and others should also respect their professional limitations. Little can be done to salvage a plan written by someone who didn’t understand the subject business, or how to write about business generally.

Filed under EB-5 Resources

7/28 Meeting Notes (RC site visits & audits, I-829 interviews, redeployment), New AAO Decisions (RC geography, indebtedness)

July 28, 2016 2 Comments

7/28 Stakeholder Meeting

If you would like to review today’s USCIS EB-5 stakeholder engagement, best talk to someone who attended the meeting in person in Miami. I’ve uploaded my recording as usual, but much of it is barely audible. (Updates: USCIS emailed on 7/29 to apologize for the sound quality for phone participants, and published prepared remarks from Colucci and Mackenzie on 8/16 at the above link. Also, Cletus Weber has posted a summary more comprehensive than mine on the IIUSA blog.) Here are points of significance that I think I heard:

  • New Policy: IPO has a new Policy and Performance Division responsible for drafting policy. They’ve been working on revised EB-5 forms (i.e. revised Form I-526 currently out for comment) and on chapters on EB-5 for the in-progress USCIS Policy Manual. Eagerly-awaited policy on the requirement to sustain investment through the period of conditional residence (including the issues of redeployment and what happens to investors in case of regional center termination) will be part of these forthcoming policy manual chapters or amendments to the manual. USCIS will send this policy out in draft form for comment before finalizing it. We can expect to see the draft “in the near future” but “not tomorrow.” Until then, we can look back to the August 2015 draft memo to “see what we’re thinking,” but may also expect changes based on public feedback to that draft and IPO’s consultation with securities professionals.
  • New Regulations: No update on when exactly we may see new regulations published for comment.
  • Compliance: IPO Chief Colucci reports that his office is in contact with Immigration and Customs Enforcement (ICE) and the SEC at least weekly, and again encouraged the public to submit tips on any suspected EB-5-related malfeasance. Contact IPO through the website (https://www.uscis.gov/eb-5) or call the Fraud Detection and National Security (FDNS) team directly at (202) 357-9326.
  • Regional Center Site Visits and Audits: IPO provided this information:
    • Site visits will generally be at the job-creating enterprise site, unannounced, performed by local FDNS staff, and mostly observational (not necessarily interacting with people on site). Their purpose will be to assess whether what’s happening at the JCE site is consistent with what was proposed/represented to IPO.
    • Regional center audits will generally be at the regional center’s office, announced (by letter and by telephone call to the RC principal), involve interaction with management and staff, and may last a week or more. Their purpose is to assess RC compliance with applicable laws and regulations, and they will be conducted in accordance with generally accepted goverment audit standards.
  • I-829 Interviews: IPO is in a beta/testing phase with I-829 interviews, and developing a strategy for them in response to last year’s GAO report recommendations. Interviewees are currently selected at random. Interviews are conducted by video. It is understood that the petitioner may not have exhaustive info about the investment ready to hand, and petitioners will have opportunity to supplement the record in writing after the interview.
  • Processing: IPO has 25,000+ petitions pending. Premium processing continues unlikely as the Congressionally-mandated fee limit is low enough that nearly all EB-5 applicants could be expected to take advantage of PP, were it offered to them. Meanwhile, prospective investors are apparently starting to wonder whether even a lifetime is sufficient time to complete the EB-5 process. IPO addressed a number of questions on the topic of “what happens if the petitioner dies before I-829 is adjudicated” (short answer: case-by-case determination) and “can someone under 18 apply as the primary petitioner” (short answer: yes and no — not prohibited under the regs but IPO foresees practical issues such as capacity to enter into contracts that are binding on the petitioner).
  • Other items:
    • The Commerce Department study commissioned by IPO to assess the EB-5 program’s economic impact is “in the final stages of review” and will be released “in the next couple weeks.” The study covers FY2012-2013, so old news now, but its impact assessments are reportedly higher than estimates for the same period by industry groups (who had less data to work with).
    • Congress has approved funds for IPO to implement a new data system (hooray!) that will allow for better tracking.
    • I won’t bother repeating what Mr. Lyons said about feasibility studies (the obvious – IPO doesn’t require one by default, but may ask for one if the project’s feasibility isn’t established by other means) and pro forma financials (the obvious – that a business plan had better include them). I do appreciate clever Mr. Lawler’s insight into what would encourage Mr. Lyons to repeat himself so we all could hear.
    • Mr. Colucci emphasized that due diligence by regional centers is essential to the integrity of the EB-5 program, and that IPO is focused on regional center responsibility for monitoring and oversight of projects.
    • IPO is translating some EB-5 web content.

New I-924 AAO Decision: Geographic Area

Matter of R-T-E-R-C-, LLC (JUL152016_01K1610) addresses a grey area for regional center designation – how to justify a request for a certain geographic area. The statute and regs say that a regional center is to be designated for a “limited geographic area,” but naturally applicants want to claim the largest area possible. The common way to accomplish this goal, especially since the May 2013 policy memo, is to formulate a hypothetical project (often flag hotels, because they are easy to write up and pack a fairly wide economic impact) and then hypothetically locate that project at strategically chosen locations throughout the desired geography – strategically chosen so that the aggregate impact areas of each project essentially blanket the desired geography. USCIS has approved many RC applications and amendment requests that use this method, but apparently the amendment request in JUL152016_01K1610 came before a new adjudicator who didn’t feel right about designating a huge geographic area (all of Texas and part of New Mexico) just based on seven hypothetical projects. AAO agreed that “it is particularly challenging to define the geographical scope for a regional center that has only proposed hypothetical projects,”  but AAO was compelled by the applicant’s arguments that commuting patterns show that the hypothetical projects would, if real, affect 249 of Texas’ 254 counties, and that worker spending habits and supply chain would also contribute to state-wide impact. AAO also found that “while the Form 1-924 instructions require that the geographic area be contiguous, there is no requirement for an applicant to show contiguous – for example, county-by-county – economic growth throughout the requested geographical area.” The appeal was sustained.

New I-526 AAO Decisions: Source of Funds

The latest AAO decisions on I-526 appeals (JUL072016_01B7203, JUL072016_02B7203, JUL112016_01B7203) continue to press the point that indebtedness only counts as capital placed at risk if secured by the petitioner’s own assets. JUL072016_02B7203 finds that USCIS remarks on indebtedness at the 4/22/2015 stakeholder meeting are a correct reading of relevant statutory and regulatory requirements. JUL112016_01B7203 further argues that remarks at that meeting were not a new rule or new policy, instituted without due procedure, but were just clarifying existing requirements. JUL112016_01B7203 adds a reminder that capital is not at risk if the NCE is overcapitalized (doesn’t show a use for the full amount of investment) and fails to present sufficient evidence of the actual undertaking of business activity (just entering into a lease is insufficient).

Regional Center List Changes
Additions to the USCIS Regional Center List, 07/05/2016 to 07/27/2016.

  • 5 Starr Regional Center LLC [ID1504052589] (Oklahoma)
  • Advantage America Southern California Regional Center, LLC (California): www.aaeb5.com
  • AmerInvest Regional Center East, LLC (Connecticut, New York)
  • AmerInvest Regional Center West, LLC (California)
  • CV West Coast Regional Center, LLC (California)
  • Golden State Northern California Agriculture Development, LLC (California)
  • One World Development Fund, Inc. (Texas): www.oneworldrc.com

New Terminations:

  • US EB5 New York City Regional Center (Connecticut, New Jersey, New York, Pennsylvania) Terminated 7/13/2016
  • Harris Real Estate Fund LLC (former name U.S. Federal Investment Immigration Fund, LLC) (Arizona) Terminated 7/13/2016
  • California Regional Center, LLC (California) Terminated 7/12/2016
  • Harris Investment Immigration Fund, LLC (California) Terminated 7/13/2016

Filed under EB-5 Events, EB-5 Law & Policy, New RC, Updates from USCIS

RC Sanctioned $1M for Agent Payments

June 14, 2016 2 Comments

Last December, the Securities and Exchange Commission made examples of several parties (mostly immigration lawyers) found to have violated Section 15(a)(1) of the Exchange Act by acting as unregistered broker-dealers: helping to effect securities purchases in an EB-5 Regional Center, and receiving a commission for each investment they facilitated. Each respondent was ordered to disgorge the fees and interest plus pay a $25,000 fine. (If you’d like to be reminded of the circumstances, you can read the Cease and Desist orders for Bernstein, Wang, Manesh, Khorrami, Kaye, Bander, and Azarmehr). These actions reiterate the message that it’s wrong to act as an unregistered broker dealer. It’s equally impermissible to to pay an unregistered broker-dealer, and the SEC has picked a high-profile target to drive this point home: American Life, which must now pay a civil penalty of one million dollars for transaction-based compensation paid to certain EB-5 agents from 2011 to 2014. American Life has brought in more EB-5 investment and completed more good EB-5 projects than almost any other regional center in history, but the SEC found that it also wrongly “paid or caused to be paid transaction-based compensation to certain domestic EB-5 agents in connection with EB-5 securities, which caused those EB-5 agents’ violations of Section 15(a)(1) of the Exchange Act.” Pay attention, Regional Centers, to this warning shot! To avoid million dollar penalties of your own, be extremely careful about who acts as a finder for your investors, and how. If an immigration lawyer offers to help introduce investors, and expects be compensated accordingly, just say no! You may want to review IIUSA’s Best Practices for Engaging With Intermediaries.

Filed under EB-5 in the News, EB-5 Law & Policy

4/25 meeting notes, RC list changes

April 25, 2016 Leave a comment

4/25/2016 Listening Session
Today’s EB-5 stakeholder meeting with USCIS was indeed a listening session — a venue for stakeholder opinions and not for tips and answers from USCIS. In case you’re a lawmaker or regulator and interested in reviewing insightful comments from the public, here is my recording. For the rest of us, who are mainly just curious about what USCIS has to say, here are a few tidbits that came out in the meeting:

  • USCIS will be initiating an IDEA community campaign to collect additional input on EB-5 regulation/policy changes. When that goes live, I’ll post a notice here.
  • I-829 interviews will begin this year, at first virtually, and interviewees may bring counsel, Regional Center representatives, and Regional Center counsel.
  • An audit program for regional centers is being implemented this year, and site visits are being expanded for direct and regional center projects.
  • IPO is up to 126 staff and on track to have 171 employees by year end.
  • IPO did not give any hints about the anticipated content of or timeline for revised regulations or new policy.
  • IPO will work closely with Congress up to the next deadline for regional center program reauthorization (September 30, 2016), and just in case will prepare “what if” guidance for two sunset scenarios: if the Regional Center program lapses but Congress apparently intends to reauthorize it, or if Congress indicates its desire to end the program.
  • IPO Chief Nicolas Colucci reported some preliminary processing data. Q2 2016 receipts: 849 (I-526), 886 (I-829), 40 (I-924). Completions from October 2015 to March 2016 (Q1-Q2 2016): 4,141 (I-526), 1,255 (I-829), 135 (I-924). The big story in these numbers is I-526 receipts, as illustrated in the following figure.
    Q22016I526

Regional Center List Changes
Additions to the USCIS Regional Center List, 04/19/2016 to 04/25/2016

  • Regional Center of the Pacific (California)

Additions to the USCIS list of terminated regional centers:

  • WRC EB-5 Regional Center, Inc. (Washington) Terminated 4/13/2016

Filed under EB-5 Events, EB-5 Law & Policy, EB-5 Statistics, New RC, Updates from USCIS

4/13 Senate Hearing Notes, RC Research, SEC Case (VT), RC List Changes

April 14, 2016 2 Comments

Senate TEA Hearing
You can now review video of the 4/13 hearing on EB-5 targeted employment areas on the Senate Judiciary Committee website (be patient, the video does start eventually), or download my audio recording. My main take-away from the hearing is that Senate leaders are on a long-term path to EB-5 reform and Regional Center reauthorization. They discussed very substantive potential changes in a very preliminary manner and sounded no-where near ready to sit down and agree on legislation. This is worrisome, considering that only a handful of Congress workdays remain before the 9/30/2016 Regional Center sunset date (what with conventions and vacation and holidays) – hardly enough time to hammer out the issues and questions that this hearing raised as important. The TEA issue is a thorny one because it comes down to a question of what kind of projects Congress wants to see incentivized, and our representatives don’t agree about that, much less on the question of what type and method of incentive would effectively focus on such projects.

EB-5 Project Research
Listening to Gary Friedland testify at the Senate Hearing reminded me that I’ve been remiss in reporting on the latest EB-5 research that Mr. Friedland and Professor Calderon have posted at the NYU Center for Real Estate Finance Research. Their paper EB-5 Mezzanine Financing: A Real World Example (3/23/2016) presents and analyzes an actual term sheet for a large EB-5 regional center deal, and will be very interesting for people seeking examples of EB-5 documents and deal terms. EB-5 Capital Project Database: Revisited and Expanded (3/29/16) follows up on last year’s paper A Roadmap to the Use of EB-5 Capital: An Alternative Financing Tool for Commercial Real Estate Projects (5/24/2015) by adding details of 27 additional EB-5 projects. The number 27 is small – representing a minority of EB-5 projects – and yet these few projects alone involve over $5.6 billion in EB-5 capital, which means over 11,000 EB-5 investors and almost three years of the total EB-5 visas available. I have to hope that Senators and journalists don’t examine the NYU database, because these few projects claiming so many dollars and visas could provide ammunition for criticism that EB-5 TEA investments have become a subsidy for luxury developments in tier one cities, a benefit for mega-developers and Chinese developers, an opportunity to replace existing financing rather than a source of needed capital, and a minor contribution to job creation. As a business plan writer I work with EB-5 projects that could be attractive poster children for the regional center program, but such modest projects usually don’t make the research papers or the news and their fate may depend on how the big players are seen to use EB-5.

New SEC Case (VT)
Also in the category of the last thing we need when facing a fight for Regional Center reauthorization: a venerable figure in the RC program is now subject of fraud charges and an asset freeze. According to today’s press release: SEC Case Freezes Assets of Ski Resort Steeped in Fraudulent EB-5 Offerings. The State of Vermont has filed a concurrent suit. The SEC Complaint does not name Vermont Regional Center, but it does call out Ariel Quiros, William Stenger, and a whole list of Jay Peak companies. I read the SEC complaint ready to make allowances, since I know that in real life it’s extremely difficult to produce documents that are completely free from omissions and misleading statements or that perfectly anticipate what subsequently happens, and I think one should be very hesitant to cry fraud. Sadly the SEC complaint leaves little room for charitable interpretation, and this situation looks like a mess likely to pass beyond Jay Peak and their investors to leaders who have been regional center program champions. Senator Leahy concluded his comments on the enforcement action by saying: “Given the significant problems plaguing this program, I will continue to push for meaningful reform. Without reform, I believe the time has come for the program to end.” Hurry up, reformers!

Additions to the USCIS Regional Center List, 04/05/2016 to 04/13/2016

  • America FX Regional Center, LLC (California)
  • EB5 International II, LLC (California)
  • Hawaiian Ohana Regional Center (Hawaii)
  • Luichi, Inc. (Nevada)
  • Manhattan Metropolitan Regional Center (Connecticut, New Jersey, New York)
  • Watercrest Florida Regional Center, LLC (Florida)

Removed from the list

  • Deictic Investment Group LLC (California)

Filed under EB-5 Events, EB-5 in the News, EB-5 Law & Policy, New RC

4/13 Hearing, 2016 AAO Decisions (NCE requirement), RC List Changes

April 7, 2016 Leave a comment

Senate Judiciary Committee Hearing Rescheduled 4/13
The Senate Judiciary Committee’s provocatively titled hearing on The Distortion of EB-5 Targeted Employment Areas: Time to End the Abuse has been rescheduled for Wednesday April 13th.  The hearing will be streamed live at the above link.

AAO Decisions: Regional Center NCE, Jobs Allocation, At Risk Requirement
Several 2016 AAO decisions on I-526 cases have been posted on the USCIS website. I’m particularly interested in MAR252016_02B7203 (and the nearly identical _03 and _04), which deal with a regional center investment. Here’s what I’m particularly surprised or intrigued to hear AAO saying in the MAR252015 cases:

  • In the Regional Center context, the job-creating entity’s history and creation date are not relevant to the question of whether EB-5’s “new” commercial enterprise requirement has been met. When the regional center investment involves a new commercial enterprise and a separate job-creating enterprise, only the NCE has to qualify as “new.” In making this point, AAO argues against a position commonly taken by USCIS. In the MAR252016 case, the petitioner invested in a limited partnership formed in 2013 that deployed capital in a hospital established in the 1960s. In its denial, USCIS predictably cited Matter of Soffici and indicated that the NCE requirement wouldn’t be met unless the hospital were restructured or substantially expanded. (Soffici deals with a new enterprise’s purchase of an old hotel and says “It is the job creating business that must be examined in determining whether a new commercial enterprise has been created”.) AAO countered that: “We disagree with the Chief’s analysis. Soffici, unlike this case, did not involve a regional center project.” AAO argues that the relevant precedent is rather Matter of Izummi, which did deal with a regional center case, and “In Izummi, when determining what constituted a ‘new commercial enterprise’, we reviewed the date of creation of the entity in which a petitioner had invested or intended to invest, not the job creating entity where the funds were ultimately to be deployed.”
  • A petitioner can’t get credit for any jobs created by the project if the project didn’t create enough jobs for all EB-5 investors in the project (unless there is an agreement among all investors about how jobs will be allocated). In the MAR252016 case, AAO wouldn’t consider whether any of the 61 new jobs finally claimed could be credited to the petitioner, since there were 11 other EB-5 investors in the project and no job allocation agreement on file. This is not new policy, but an important reminder. Make and file a job allocation agreement, just in case!
  • An EB-5 investment does not meet the “at risk” requirement if the business plan does not “present a comprehensive analysis of the potential net profit available for distribution to each of the limited partners” and therefore fails to “sufficiently establish that there is a reasonable chance for gain, especially in the foreseeable future.” This is not technically a new point (the full “at risk” requirement is “at risk for the purpose of generating a return on the capital placed at risk”), but I haven’t seen AAO/USCIS focus on insufficient profit analysis as a basis for denial.

I’ll let you read the MAR252016 decisions for yourself to get the rest of the story. The case also involves the hot issues of troubled business qualification and the separation of ownership, management, and employment among multiple entities, and AAO doesn’t raise all the questions or reach all the conclusions I would’ve expected. What AAO doesn’t say in this case may be as significant as the points that are made. To assist in following the case, I’ve done my best to illustrate the fact pattern (reading around redactions, so mistakes are possible).
Fig-1UPDATE: You can read more about this case in a civil suit filed by the petitioners. (Update: the petitioners won the suit.)

AAO Decisions: Search Function
The Administrative Appeals Office has launched a search tool for most non-precedent decisions since 2005. Just enter a search term in the box under “AAO Non-Precedent Decision Repository” and poof – links to all AAO decisions where that term is mentioned, with sorting options. I love it. (And now regret that weekend spent downloading EB-5 decisions one by one to make my own searchable master file.)

Regional Center List Changes
Additions to the USCIS Regional Center List, 03/21/2016 to 04/05/2016

Terminations

  • Path America KingCo, LLC (Washington), Terminated 3/23/2016
  • MCIG Regional Center (Florida) Terminated 3/29/2016
  • Velocity Regional Center (California), Terminated 3/24/2016

Filed under EB-5 Events, EB-5 Law & Policy, New RC

How long does I-924 take?

February 25, 2016 Leave a comment

01/2017 Update: I have newer charts with data through January 2016 here.

–ORIGINAL POST–

USCIS reports a 8.5-month processing time for the Form I-924 Application for Regional Center as of December 31, 2015 (per the February 2016 IPO processing times report). This number does not distinguish between initial applications and amendment requests, and does not hint at the possible range of actual processing times. It has some base in averaged reality, but we don’t know how it’s calculated.

For more perspective, compare the average times USCIS reported from March 2014 to March 2015 (recorded from past IPO processing time reports) with the times for actual I-924 approvals from the same period (recorded from available regional center designation letters, which show approval date, filing date, and application type).

i924comp

The numbers from designation letters suggest that I-924 amendments in 2014/early 2015 were processed much more quickly and predictably than initial designation requests (although USCIS has said there’s no separate workflow or special treatment for amendments), and that actual processing times have often far exceeded what one would expect from reported averages. The trend from 2014 into 2015 looks somewhat positive. A scatterplot of approvals shows an increasing number of approvals coming in under 10 months (but also that USCIS was still working on applications that had been in the pipeline for 2-3 years). I will be interested to see how the numbers change when I have more letters to add to the data set. USCIS designated 208 new regional centers in FY2015, and there were 902 Form I-924 applications pending at USCIS as of January 2016 (as reported by Mr. Colucci in statements on 2/2 and 2/3). I guess that many of the pipeline I-924s are amendments/Exemplar I-526 filed in mid-2015 ahead of anticipated program changes, not new RC applications, but still 902 is a big number. Regional center applicants filing Form I-924 today should not be too alarmed by the processing time outliers in 2014/2015 (many of those 2-3 year cases were caught up and delayed in the confusion over tenant occupancy, which has been cleared now), but they also shouldn’t count on finishing the process in nine months, considering the backlog and IPO’s past performance.

i924timeplot

Filed under EB-5 Resources

Portfolio investments, existing business

February 24, 2016 Leave a comment

Noticing traffic to old articles about EB-5 investments that involve diversification and existing business, I’ve re-written the following posts with reference to more recent official and unofficial guidance from USCIS.

Filed under EB-5 Resources

EB-5 business plan matrix

February 17, 2016 2 Comments

I’m preparing for a webinar next week that will discuss “What goes into an EB-5 business plan?” This is a good question, and depends on the further questions “What does the business plan need to accomplish?” and “In what context will the business plan be used?” The following matrix helps visualize the goals and contexts that can affect EB-5 business plan content.

BPmatrix

People who talk about EB-5 plans tend to focus on just one quadrant – 1A, positive standards for success in USCIS review – and especially on Matter of Ho-compliance. But if you study examples of EB-5 plans gone wrong (AAO denial decisions, lawsuits, unfunded projects), you know that it’s not enough to simply follow the business plan definition in the EB-5 precedent decision Matter of Ho. A plan can be beautifully detailed, covering all the Matter of Ho points from business description down to income projections, but still fail USCIS review due to inconsistencies with external evidence or to mismatch with program requirements (for example describing an enterprise that isn’t “new” or jobs that aren’t “qualifying” as defined by the EB-5 regulations). A perfunctory, formulaic business plan written to satisfy bare minimum requirements can pass USCIS review, but that document will never reach USCIS if it needs to and fails to attract investors. USCIS won’t table a plan for being an ungainly document, or ignore it because the proposal isn’t sufficiently appealing, or cite it in a lawsuit for being misleading. Investors may well do all those things. In my documents detailing direct and regional center EB-5 business plan standards (linked from my service website), I consider factors in each quadrant of the above matrix of goals and contexts. Investor review is not always an issue (not all investors look to the EB-5 business plan to introduce the business), and review outside USCIS takes different forms depending on the advisors involved. But it’s generally wise to look beyond the Matter of Ho box when writing or reviewing an EB-5 business plan.

Filed under EB-5 Resources

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