SEC Brings First Unregistered Broker Charges Based on EB-5 Program
We are in the process of publishing a number of Client Alerts and blogs on the Senate EB-5 Bill. Although we do not believe that the Bill will pass in its present form, we do believe that there will be some legislative reforms to the EB-5 program before a long term extension of the regional center program is passed by Congress.
No matter what is contained in the final Bill, the effective date of any changes in the EB-5 program is a critical issue. It is certainly possible that, although the provisions of the Bill may change, the effective date scheme may remain. For that reason, and because regional centers, project developers and investors may want to take action before the effective date of any change, I have prepared this Alert to summarize the effective date provisions in the Senate EB-5 Bill.
Before doing so, however, I want to express my opinion as someone who has read and reread the effective date language many times. That opinion is that the language is at some points unclear, at some points unworkable, at some points illogical and at some points inconsistent. With that said, here is my best attempt to summarize the effective date scheme in the Senate Bill. I will divide my summary into Projects, Investors and Regional Centers.
The general rule is that the changes regarding projects are effective on the date of enactment of the law. What does this mean with respect to a project for which an exemplar is filed before the date of enactment and is still pending on the date of enactment? The Bill is at best unclear; at worst, unworkable. If the changes (for example, the job creation changes), were to apply to pending exemplar petitions, many, if not most, of them would not be approvable. At the very least, the projects would require material changes in order to comply with the new law, which could render the exemplar petitions unapprovable. Changes to comply with the new law would also make the project documents inconsistent with project documents that may have already been filed by investors in the project and for which investors may have already been approved. The legislative changes may render the project no longer approvable for EB-5, which could prevent the project from going forward, to the detriment of investors whose money has already been disbursed. It is critical that the language of the Bill be changed to have the law in place at the time of exemplar filing apply to pending exemplar petitions. Otherwise, there could be serious potential immigration and securities issues.
It is fairly clear that a project for which an exemplar is filed before the effective date of the law would be grandfathered at least with respect to the amount of the investment and the definition of Targeted Employment Area in effect on the date of filing. Note that this does not mean that the project would be considered to be in a TEA if it is in a TEA on the date of filing. Rather, the same definition of TEA as exists today would be applied at the time a future investor invests in the project. If the project qualified under the present definition of a TEA – presumably including census tract aggregation and state certification – the $500,000 investment level would apply to future investors in the project. The new, far more restrictive definition of a TEA would apply to investors investing in projects that were not grandfathered by the filing of an exemplar petition.
The Senate Bill would require that a project be pre-approved – through an equivalent of the present exemplar system – before any investor could invest in the project. This provision would be effective on the date of enactment and apply to any petition filed after the date of enactment.
How does this fit with the concept of a grandfathered exemplar petition? Again, the language and the intention are not clear. However, the language in the Bill seems to indicate that the requirement for the exemplar petition to be approved would apply to all investors after the effective date of the law, even investors in a grandfathered project. Therefore, investors in a grandfathered project would have to wait for the approval of the grandfathered exemplar – perhaps many months or even years after the effective date – before being able to file an I-526 petition in the grandfathered project. However, once the grandfathered project is approved, the investor – even if many months or years later – would still be able to invest at the present investment levels.
An investor’s I-526 petition does not grandfather a project – only an exemplar petition filed by the regional center grandfathers a project. Although the law in effect when an investor files an I-526 petition should be applied to that petition, it is not at all clear that the statutory language produces this result. Rather it appears that changes in the law would apply to pending petitions. This could lead to completely anomalous results whereby investors invest in a project – often with no ability to get their investment money back – that was approvable when filed but could become unapprovable as a result of a change in the law. If, in fact, that is the result of the present language, it would appear that it is not the result that Congress could have or should have intended. A change in the language of the statute to make it clear that this result is not intended is critical.
The Bill also changes what is considered to be a proper source of capital for an investment. As indicated in our prior Client Alerts, many sources of capital that are acceptable under the present law would not be acceptable if this Bill were to become law. The language of the Bill seems to indicate that these changes would apply to all I-526 petitions pending on the date of enactment. Again, this would be an unacceptable result since many of the financial transactions – gifts, loans, etc. – cannot be reversed just as the capital investment cannot be reversed. This would render many investors unable either to get their money back or to get their petitions approved. It is critical that the language of the Bill be amended to clarify that changes in the law relating to an investor’s source of funds apply to petitions filed after the date of enactment. Unless and until that happens, the prudent course is to comply with the language of the Senate Bill for all newly-filed I-526 petitions.
The Bill provides some benefits to investors, such as the ability to concurrently file an I-526 petition with an I-485 adjustment of status application and the ability to take advantage of Section 245(k) which allows for the approval of an adjustment of status application even if the investor has been out of status for up to 180 days. These provisions apply to pending I-526 petitions.
Finally, the Bill would require Government site visits prior to approval of an I-829. This provision would go into effect two years after the date of enactment of the law.
There are many changes affecting regional centers and their principals. There are changes in the compliance requirements, when an amendment must be filed, regional center site visits, regional center principal requirements, securities issues, rules affecting marketing of regional center projects and various other provisions. All of these changes apply to all new regional center applications that are pending on the date of enactment. However, they will not apply for one year after the date of enactment for any regional center that is approved before the date of enactment. This means that already existing regional centers will have one year to meet the far more rigorous standards contained in the Senate Bill.
Given this amalgamation of different effective dates that are inconsistent and in many cases illogical, the only advice that can clearly be given is for regional centers to file exemplar petitions before the effective date of the change in law and for investors to file I-526 petitions avoiding the use of loans and gifts that would be prohibited if the new law were to pass.
All of these effective date issues will be the subject of significant amounts of advocacy that will hopefully result in a workable scheme before any bill is signed into law.
This post originally appeared on EB-5 Resource Center. Reprinted with permission.
H. Ronald Klasko is recognized by businesses, universities, hospitals, scholars, investors and other lawyers as one of the country’s leading immigration lawyers. A founding member of Klasko, Rulon, Stock & Seltzer, LLP and its Managing Partner, he has practiced immigration law exclusively over three decades. Under his leadership, the firm was chosen with five other firms by Chambers Global in 2006, 2007, 2008 and 2009 as the top U.S. business, hospital and university immigration law firm. Ron, himself, was named as the world’s most respected corporate immigration lawyer (The International Who’s Who of Business Lawyers 2007 and 2008) and one of the country’s top immigration lawyers by clients and other immigration lawyers who said he is “revered for coming up with unique arguments that can save a client” (Chambers Global). A former National President of the American Immigration Lawyers Association (AILA), Ron served as General Counsel of that organization for three Presidents and has been a member of its Board of Governors since 1980. He has served as National Chair of AILA’s U.S. Department of Labor Liaison Committee and Business Immigration Committee, and he served as National Chair of that organization’s INS General Counsel Liaison Committee, Department of Labor Liaison Committee, and the National Task Forces on Labor Certifications, H-1 visas, L-1 visas and Employer Sanctions. He has previously served as Chair of the EB-5 Committee.