If at First You Don’t Get in Trouble, Now There’s a Second Chance to Fumble
MICHAEL G. HOMEIER HOMEIER & LAW, P.C.
T
oday’s new reality of retrogression of immigrant visa numbers for Chinese Nationals in the EB-5 category has sparked debate about certain aspects of the EB-5 program previously thought to be settled, which, some now argue, require modification and modernization in order to come to terms with the new EB-5 world order. The issue of repayment has always been at the forefront of investor considerations, along with job creation. Retrogression raises new concerns for Chinese investors, namely, what happens to an EB-5 investment when it is ready to be re-paid, but an investor’s immigration process has not yet been completed? Customarily, investors have sought repayment of EB-5 capital usually after five years of making their original investment. Given the securities imperative to disclose all material facts and risks of every EB-5 investment, well-crafted offering documents commit the EB-5 “new commercial enterprise” (“NCE”) to a repayment of funds on this time frame. This was intended to account for the amount of time the capital and corresponding loan or equity investment are deployed into a jobcreating entity (“JCE”)’s project, and leaving generally sufficient time for an investor’s EB-5 immigration process to be completed,(i.e. the final approval of their Form I-829 petition and removal of conditions on their permanent residence). EB-5 regulations require that an investor’s capital remain “sustained” and “at risk” throughout the pendency of their immigration process. The 2013 EB-5 Policy
PARISA KARAAHMET
FRAGOMEN, DEL RAY, BERNSEN & LOEWY, LLP
Memorandum reiterates that at risk capital must have a “risk of loss and a chance for gain”. The memo emphasizes that the capital be “sustained”, stating that at the Form I-829 stage, USCIS will require evidence that investor funds were sustained in the NCE. Prior to retrogression, it was expected that ordinarily the five year period typically established in EB-5 projects would more than suffice to enable the investor to get through the I-829 process while his or her investment remained invested “at risk” in the EB-5-qualifying project. At the same time, five years was believed to be a reasonable time for the JCE that received the EB-5 funds to reach a level of stabilization or maturity sufficient to enable it to satisfy an obligation to repay to the NCE the aggregate EB-5 funds that had been invested in a more-or-less lump-sum payment. Perhaps an extension of an additional year would be negotiated, in the unusual case that the new JCE business might need one more year of operation to comfortably accomplish the repayment. Yet it was broadly believed that in almost all cases, by the time the business reached the repayment deadline, all investors would have long since completed the 829 process and the satisfaction of all conditions on permanent residency. The “at risk” and “capital sustained” requirements have taken on new urgency since the retrogression of immigrant visa numbers for Chinese Nationals, first in August 2014 for the 2013-14 federal fiscal year, and again
in May 2015 for the current year. Now, visa backlogs are expected to result in significant delays in the approval of Chinese investors’ I-829 petitions, as compared both to past experience, and to non-Chinese investors. As a result, all actors within the new world of the EB-5 Program must deal with the issue of early repayment: it might take “retrogressed” Chinese investors six, seven, or even eight years to reach removal of all conditions on permanent residence. So a standard commitment to repayment of all investors at the end of five years could result in their funds, upon repayment, being considered by U.S. Citizenship and Immigration Services (“USCIS”) as no longer sustained in the qualifying investment and hence no longer at risk—which in turn could lead to a denial of the I-829. On the face of it, the dilemma seems bad enough: as a condition on investing, EB-5 investors require a repayment commitment at some future date, which under the securities laws must be disclosed in the written offering documents, but under the immigration laws, absent guidance from USCIS (which to its credit has acknowledged the issue and promised a response… at some time), Chinese investors (and therefore their EB-5 projects) must fear a repayment too early. But the dilemma is even more complicated: if I-829 petitions are still pending at the time the JCE’s repayment commitment date is reached, some mechanism needs to be adopted (and disclosed) to enable those investors
CONTINUED ON NEXT PAGE >> VOL. 3, ISSUE #2, JULY 2015
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Education/research
DOUBLE JEOPARDY: THE RISKS OF EARLY EB-5 REPAYMENT