Kurt Reuss: Proper disclosure is an important issue with this I-526 product, considering it is a new product with no claims paid to date. Doug, how do you approach a product like this, when developing disclosures in the PPM?

Doug Hauer: I think you have to be very careful to, in plain language, describe the mechanics of how this policy is actually working.

An investor who is reviewing the PPM should be able to review the section on the insurance and walk away with an understanding of how mechanically a policy would work and what kinds of claims would result in there being coverage and what kinds of claims would result in a denial of coverage.

I think the trap for an issuer or an EB5 regional center issuing a deal is that the term 'insurance' conveys a safety net, or a risk-free proposition. You have to be careful here if you're an attorney drafting a PPM for a client; you need to spell out in clear terms what the limitations are and what the parameters of the product are.

I think it would be important to alert investors, in a PPM, of the risks with this product.

One area that we see in these policies that leads to some confusion is how 'fraud' is defined. Fraud, in a securities law context, when you're talking about an issuer, can mean many different things.

It's going to be important to calibrate those disclosures, make them clear, put those disclosures in plain language, and ensure that all parties in a deal get protection through understanding what the limitations of the product are.

NCE is an acronym for 'New Commercial Enterprise' and the term is used in EB-5 to identify the entity, partnership or LLC that EB-5 petitioners will invest in, and the New Commercial Enterprise is a requirement of the US EB-5 program. This entity is often a different entity from the 'Job Creating Entity' (JCE) which the NCE makes an investment into on behalf of the investors, sometimes in the form of a loan from the NCE to the JCE and sometimes in the form of equity, whereby the NCE becomes an equity partner in the JCE.

EB-5 regional center offerings involve a New Commercial Enterprise (“NCE”), the entity the immigrant invests into and an independent Job Creating Enterprise (“JCE”), which the NCE invests or loans the EB-5 investment funds into.   

Job Creating Enterprise (JCE)

Each investor’s full investment amount must be deployed into the JCE. The investor’s EB-5 funds cannot be used to pay the NCE’s administrative expenses such as its legal or accounting expenses. Moneys received by the NCE from the JCE as part of the loan or preferred equity investment, such as interest payments or other returns, can be used to pay NCE expenses.

EB-5 Business plan purpose

Kurt Reuss (Host): The EB5 business plan has two purposes. First, you want to make sure your business plan is written to be I-526 compliant and therefore ultimately approved by USCIS and second, your business plan needs to position your EB5 offering for marketing to attract investors.

My belief is that everything you do in your business affects your brand and certainly this includes in a significant way, your business plan, which is given to investors as part of the offering. The business plan is going to make an impression on investors and influence their decision of whether to participate. Obviously your business plan needs to recognize that reality while still being accurate.

Let's begin by discussing the I-526 approval aspects. Marty, would you mind starting us off by talking a bit about ‘Matter of Ho’ issues and the precedents they allude to for EB5 applications?

An exemption from registration as a broker dealer under Section 15(a) of the Securities Exchange Act of 1934 is available for persons associated with an issuer and involved in the sale of the issuer’s securities. Understanding the Issuer Exemption plays critical role in EB 5 Visa documentation.

Repayment of EB-5 Funds

Let's assume that the borrower has an opportunity to repay the EB5 loan to the NCE; that the job creation requirements have been met; but not all the I-829s have yet been adjudicated.

What are the Manager's options? 

Carolyn Lee: The starting point is to determine what ‘investment’ means from USCIS statute, regulations, and precedent decision standpoint. The essential transaction that's regulated by immigration statute, regulations and precedent decisions is the transaction that is between the EB5 investor and the new commercial enterprise (NCE). That is the sole transaction and relationship that the term 'investment' refers to.

The problem is that USCIS compliance in adjudication has tended to apply the standard

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.

Darren Ofsink: In EB-5 it's likely that when investing in a limited partnership or a limited liability company, there isn't much in the way of statutory law that describes what the investor's rights are. 

What is U.S. Permanent Residency (also known as a Green Card)?

U.S. permanent residency is an immigration status that gives immigrants the right to permanently live and work in the United States. Foreign immigrants who have obtained lawful permanent residency are given a permanent resident card, colloquially known as a Green Card.

Simply put, the EB-5 immigrant investor visa program is the fastest way to get your green card and gain permanent residency in the United States. The program is predicated on foreigners making an investment in a U.S. business, specifically one that would create 10 or more jobs for Americans.