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Provisions for Sustainment of Investment in Offering Documents

ROBERT DIVINE, RONALD FIELDSTONE, CAROLYN LEE, JOHN TISHLER

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Robert Divine 
Immigration Attorney, Baker Donelson

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Ronald Fieldstone
Securities Attorney, Arnstein & Lehr

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Carolyn Lee
Immigration Attorney, Miller Mayer

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John Tishler
Securities Attorney, Sheppard Mullin

Robert Divine: Ronnie's point is to have the offering documents basically say, "We can pay off every investor as they hit their I-829”, but I've actually tried that with a client who insisted on doing it this way and it didn't go well. USCIS compliance states that violated another part of 'Matter of Izummi' of making an arrangement that is tantamount to a loan.

Now, I've heard other cases where similar language with similar effect was approved and I'm confident that Ronnie has seen language of the type that he mentioned in deals that have been approved.

Ronald Fieldstone: I've never seen that language get an RFE.

Robert Divine: I hear you. We have different experiences from different cases but I'm worried about what can happen. The bad stuff doesn't happen every time.

The NCE reinvestment is definitely an interesting idea. We don't know whether USCIS will give effect to that. Does it need to be in the same TEA? In the same regional center? Does it need to create jobs? Does it need to be 'at-risk' in the same way? I don't know, in fact nobody knows. 

The idea of saying that that reinvestment could occur if all the parties agreed, at the point of a liquidation of the JCE interest, is not a bad thing to put in there for purposes of meeting the requirement that the NCE be an ongoing business.

People with a long memory will recall that the first shot at a loan model project was denied on the basis that it was not an ongoing business because it was just about one loan and a provision in the limited partnership agreement about the prospect of reinvestment was actually what saved that thing at the AAO in a very unusual decision. 

Ronald Fieldstone:  Do you get around that by having general language that these provisions are subject to USCIS guidelines and they can be amended and modified. Does that kind of nullify the issue?

Robert Divine:  I've never seen USCIS mentioning language like that of saving otherwise deficient filing from the 'Izummi' rule. 

Carolyn Lee:  I agree. There is a non-EB5 precedent decision called 'Matter of Katigbak' that stands for the proposition that you can't cure something that made a filing ineligible at the time of filing by correcting it later. This came up in 'Izummi' and doomed, in part, that case as well. 

It's not that USCIS isn't consistent with respect to what it will allow to be cured even after filing, but issues with its analysis of the at-risk investment, redemption; In my experience those are typically issues where 'Katigbak' is invoked and they don't allow a fix of I-526 after filing. 

Ronald Fieldstone:  Here’s an example: you have a prepayment but it says, "You can only prepay if USCIS permits it." If USCIS does permit it you can prepay. By definition, you don't even have to change the document. The USCIS comes back and says, "We don't permit it," then okay, you can't prepay, because you've covered yourself in the document itself. You don't have to amend it.

Carolyn Lee:  Right, and I suppose you can say that this situation has not presented itself; There hasn't been an instance of prepayment; We’re talking about a possible future.  

Logically, it doesn't make a petition ineligible at the time of filing. I can think of arguments that you could be presented to say that this doesn't make a petition ineligible not withstanding USCIS findings that if it were to happen, it would not be violating the at-risk requirement, but I wouldn't rely on just that.  

John Tishler: Two things to think about with redeployment is the ‘right to redeploy’ and the ‘obligation to redeploy’, which can get confused. If you don't have the right to redeploy, for example if your limited partnership agreement says, "If the loan gets repaid it must be held in an FDIC insured bank account," there's a concern that that might not be 'at-risk' because you said it has to be in an FDIC insured bank account? 

But some might believe that the NCE must have an obligation to redeploy the EB5 funds for the capital to be at risk. In other words, if he NCE has the right not to redeploy, that could potentially be a problem that would jeopardize everybody's I-829s.  I don't think there are answers here but you do have to think about both right and obligation when drafting redeployment provisions.

Robert Divine:  John, I kind of like the idea of letting it be something that is theoretically possible but it would have to essentially be agreed to by both sides. In other words, if there is a liquidation then the NCE maybe has the obligation to try to find some reinvestment opportunity and offer it, and then any investor who chooses not to take their distribution would stay in and participate in that thing by choice, and that would kind of balance pretty well everybody's risk and let the individual investors make a choice between their immigration versus their economic risk at that time.

John Tishler:  Robert, great point. If the NCE says, "Okay, we want to redeploy so we're going to go out to people and say, 'either take your money back or we're going to redeploy it.'" Is that a legal redemption offer?

Carolyn:  No. 

Robert Divine: It has gotten through high levels before. There's no set arrangement to repay the EB5 investor. It's the deal between the NCE and the JCE that's going to ripen that will lead to this problem of either distribution and reinvestment.