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Who Is Advising the EB-5 Investment Vehicle and In What Capacity?

Posted by Kurt Reuss on February 28, 2016

Kurt: Let’s start with a very simple question. Who is advising the investment vehicle entity? Lori, when we say entity, what do we mean?

Lori: It's typically an entity or a person, but generally the entity is acting as a general partner or the managing member of a limited partnership or a limited liability company which is investing in something that could be considered an underlying security.

That general partner or managing member might be considered to be an investment advisor by the SEC or certain states, if that person is providing investment advice, picking the security or supervisory services of the security with regard to the funds, (the limited partnership or the limited liability company).

Kurt: Cathy, could you talk a little bit about ‘regular and continuous supervisory or management services’ as stipulated in the regulations?

Cathy: Believe it or not, this is a key issue because it impacts whether or not a general partner or managing member are going to be subject to SEC registration rules or, alternatively, be subject to their state's investment advisor registration rules.

The Integrity Act's Potential Impact on Regional Centers

Posted by Kurt Reuss on February 19, 2016

Bob Ahrenholz offered the following questions regarding the Integrity Act of 2015

"Section 1.3 of the Integrity Bill would require each regional center to supervise all offers and sales of securities. How does this impact broker dealer laws? Would this require regional centers to be registered as a broker dealer, if they do supervise sales of securities? What impact would this have on regional centers supervising foreign broker dealers? Same question regarding investment advisor supervision."

Greg: I think that goes back to my point that the ‘34 Act (Securities Exchange Act of 1934) laws are about broker dealers. I agree with Ronnie that we have to distinguish those provisions from the ‘33 Act (Securities Act of 1933) which is related to the sale of securities.

Those laws govern people who are defined as broker dealers, people who are affecting transactions in securities as a business. I think that if you look at the obligations being placed on the regional center they are being stuck with issuer liability.

EB-5 Regional Center Certification Requirements

Posted by Kurt Reuss on February 17, 2016

Kurt: Certifications in the Integrity Act of 2015 require regional centers to have policies and procedures in place to monitor New Commercial Entities (NCE) and the Job-Creating Enterprises (JCE) to ensure they comply with all immigration laws, all federal securities laws, all applicable state securities laws and to describe their due diligence procedures. Greg, could you talk a little about the implications of this bill.

Greg: What the bill does, without getting too far into the weeds, is address a “new view” of how to regulate the EB5 industry. That is, without relying on the New Commercial Enterprise (NCE) as the only entity responsible for compliance, due diligence and meeting the terms of the EB5 program.

For that matter, the securities laws are also not going to rely on the JCE or the developer because these entities are not, strictly speaking, "the issuers” of the securities being offered to foreign investors. The concept is, from a USCIS standpoint, that we've given a license to the regional center. So USCIS is saying to the regional centers “We need you to be the sheriff. We're going to put these responsibilities on you.

We're going to require you to achieve compliance, to do due diligence, to certify compliance and actually to tell us when people are not complying.”

Regional Center Annual Statements

Posted by Kurt Reuss on February 14, 2016

Kurt: Within the 'Integrity Act of 2015', regional centers are being asked to file annual statements which include providing bona fides and background checks on principals of the regional center, the new commercial enterprise, and the job-creating entity.

The regional center needs to provide written agreements with each of its affiliates prescribing rules and standards. Ronnie, can you talk a little bit about some of the requirements that regional centers are being asked to certify on an annual basis?

Multipliers: 2007 vs 2010 Inputs

Posted by Kurt Reuss on October 04, 2015

Rohit Kapuria:I’ve got a question for the economists regarding the issue of 2007 data versus 2010 data. Now that the BEA has indicated that they’re going to update the numbers later this year, and afterward the methodology they’re proposing, do you foresee a significant difference in terms of what the new data is going to be for job creation? From my perspective, 2007 has usually resulted in more jobs, but I have always been worried about a deal that uses 2007 data because, at this point it’s eight years old versus 2010 multipliers. For 2015, what are your expectations in terms of how that’s going to impact the job count?

Complexities of TEA Designations

Posted by Kurt Reuss on September 28, 2015

Rupy Cheema.: What should we look for when reviewing a TEA (targeted employment area) letter?

Michael Kester.:As an economist, when reviewing the project to see if it’s TEA eligible, especially since it is such a make or break issue, it’s very important that we see that the TEA letter is current. USCIS has specifically mentioned outdated TEA letters as being a persistent problem with applications, so that’s the very first thing we check and recommend that the project get an updated letter.

The TEA letter really comes into play at the time when the investor makes an investment and when the I-526 is filed. Where it becomes difficult is when you’re trying to figure out if your project is located within a TEA long before the investors come on board. We’ll look at the date, then we’ll look at the census tracts or census block groups that are listed in the letter and I’ll just plot them on a map myself just to make sure that they are actually contiguous.

What Are The Most Common RFEs Related to Economic Impact Studies?

Posted by Kurt Reuss on September 25, 2015

Rupy C.:What are the most common RFEs you’re seeing these days on economic studies?

Michael K.:The most common include the business plan and the econometric study not matching up, and it’s just kind of automatic that USCIS isn’t going to trust either document if the numbers aren’t matching. Another red flag is lack of support for the inputs that are being used in the economic model, and the lack of verification and support for construction expenditures and/or operational revenues. These seem to be some of the big ticket ones we’ve been seeing.

Kevin W.:I would agree with that. The majority of the RFEs comes down to the verification of the inputs, and then oftentimes there is confusion between different versions of the business plan and the economic studies. We see a little bit more lately on the year of the data (2007 v. 2010), but still that’s minor in comparison to the number of RFEs based on a lack of verification of inputs.

Review of Economic Models: RIMS II Discussion

Posted by Kurt Reuss on September 20, 2015

Michael, I had mentioned in the introduction that your firm uses RIMS II. Can you talk about the different economic models available to you and why you choose to use RIMS II?

Michael Kester: Kurt, as you mentioned, there are a number of models that are accepted by USCIS, so if you’re looking at having an economic impact study done, it’ll likely be done in RIMS II, IMPLAN, REMI, REDYN and possibly even iRIMS, though I’m not sure if anyone has seen one of those studies or not. 

Due Diligence of Economic Impact Studies

Posted by Kurt Reuss on September 18, 2015

Rupy, as someone who performs due diligence on a regular basis, how do you approach due diligence of economic impact studies?

Rupy Cheema:We start off ensuring that the data in the economic impact study is consistent with the data in the rest of the project’s documents, i.e. the business plan, market feasibility study and the PPM. I don’t think I’ve ever looked at a project where we did not find inconsistencies between these four documents simply because the economic analysis happened at a certain point and then there’s different versions of documents floating around and the changes don’t get picked up. Those are some of the most common issues we find at the beginning of our review, just reconciling the discrepancies in the documents.

How to Handle Early Repayment of EB5 Funds

Posted by Kurt Reuss on April 22, 2015

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 in adjudication has tended to apply the standard

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