At Risk, Debt Arrangement, Guaranteed Redemption: Important Distinctions


We have been counsel in various successful litigations where USCIS had
challenged EB-5 petitions either based on an investment not being “at
risk,” or based on the allegation that the investment was a “debt
arrangement”, or based on a “guaranteed redemption”, or some combination of
the three. Often USCIS uses the terms interchangeably as if they all relate
to the same concept. They do not.

The purpose of this blog is to distinguish between the three concepts,
distinguish between various scenarios in which these issues are raised and
distinguish between USCIS policy and our view of the law, which we advocate
both to USCIS and in federal court.


As mentioned, “at risk”, “debt arrangement” and “guaranteed redemption” are
three separate issues. The first issue is whether the investment is a
qualifying equity investment or instead a “contribution of capital in
exchange for a debt arrangement” 8 CFR 204.6(e) defines whether the
contribution of capital qualifies as an investment. If the investment is in
return for a debt arrangement, there is no investment; and no other issue
needs to be explored. Although USCIS has no standards for what constitutes
a debt arrangement, such standards do exist both in tax law and in
accounting principles (see below).

If the investment is an equity investment and not a debt arrangement, the
next issue is whether the equity investment is “at risk”. This requirement
does not exist in the statute but does exist in the I-526 regulations at 8
CFR 204.6(j)(2). Although not defined in any regulation, “at risk” has been
defined in Matter of Izummi to require a chance of gain and a risk
of loss.

The prohibition against a “guaranteed redemption” does not exist in either
the statute or regulations, but rather is found in Matter of Izummi.
The prohibition against a guaranteed redemption prohibits an unconditional
promise to repay the investor at a fixed price and a fixed maturity date.

When responding to an RFE or an NOID, or when litigating a case in federal
court, the first step is to determine which of these legal requirements are
the source of USCIS’s concern.


The investor must make an equity investment in the new commercial
enterprise (NCE), which is “at risk”. Since the investor is investing in
the NCE, the issue of guaranteed redemption relates to the redemption by
the NCE (the investment entity) of the investor’s interest. It does not
relate to the relationship between the NCE and the job creating entity
(JCE). A JCE is permitted to guarantee repayment of its loan from the NCE,
and USCIS has stated that a third party can also guarantee the JCE’s
payment of the loan to the NCE (without violation).


When the investment entity has an option to buy back an investor’s
investment, it is called a “call” or “buy” option. Two recent federal court
decisions, Chang and Doe, held that a call or buy option is
not a provision that impacts the approvability of an EB-5 petition because
it is solely an option exercisable by the NCE, may or may not be exercised
and provides no rights to the investor. Our firm recently settled a case in
federal court involving this issue, resulting in the approval of the
plaintiff investors’ EB-5 petitions.

When the investor has an option to have his or investment money returned,
that is called a “put” or a “sell” option. Whether such an option is
violative of EB-5 law depends on whether it is a guaranteed or mandatory
redemption option or whether there are contingencies that may prevent its
exercise. Matter of Izummi prohibits a redemption that is effective
“regardless of the success or failure of the business.” Arguably, if there
is no guaranteed redemption, but rather a redemption that is in actuality
contingent on the success or failure of the business, it should not be
considered violative of the EB-5 requirements.


As explained above, the “at risk” requirement is an I-526 requirement and
is contained only in the I‑526 regulations. It is not an I-829 requirement,
and there is no reference to “at risk” in the I-829 regulations.

The most recent version of the USCIS Policy Manual agreed with our
position, as advocated in numerous blogs, that the “sustainment”
requirement only applies through the 2 years of conditional residence and
not during the time that it takes USCIS to adjudicate the I-829 petition.
However, the Policy Manual does not yet agree with the position we have
advocated that the sustainment requirement during the 2 years of
conditional residence does not also require that the investment remain at
risk – – only that it be sustained and not returned to the investor. The
language of the relevant regulations – – 8 C.F.R. 216.6(a)(4)(iii) and also
8 C.F.R. 216.6(c)(1)(iii) – – clearly requires sustainment for the 2 years
of conditional residence but makes no mention whatsoever of a requirement
that the investment remain at risk.


Although one searches in vain for a definition of “at risk” in the
regulations, the term is only defined in Matter of Izummi, which
defines at risk as requiring a chance of gain or a risk of loss.

In many cases, especially given long quota waits, the sustainment
requirement necessitates redeploying the investment money into a different
project once it has been used for its original job-creating purpose as set
forth in the I-526 business plan. Once the money is redeployed, it must
remain at risk (at least through conditional residence). One might presume
that the definition of “at risk” for redeployment purpose would mirror the
definition applied for purposes of the “investment” requirement, but,
according to the USCIS Policy Manual, one might be wrong. The Policy Manual
creates many new requirements for an investment to be considered “at risk”
in the event of redeployment, which are contained in neither the statute
nor the regulations nor any precedent decision and, as such, have no basis
in law. For a complete analysis of the “at risk” requirements set out in
the USCIS Policy Manual for the redeployed investment, please see

The major requirement in the USCIS Policy Manual is the requirement that
the money be “engaged in commerce”, which apparently means more than merely
redeploying the money into an investment in which there may gain or loss.
In an appropriate case, this may be the subject of litigation unless the
USCIS policy is changed before that occurs.


USCIS has provided no definition of the type of “debt arrangement” that is
prohibited by 8 C.F.R. 204.6(e). In litigation challenging any finding by
USCIS that an apparent equity investment constitutes a “debt arrangement”,
we reference three sources that do provide such definitions and
distinctions. First, Black’s Law Dictionary states that debt requires an
“obligation of a debtor to pay” and the “right of a creditor to receive and
enforce payment.” Also, there is a complete body of statutory and case law
under the Internal Revenue Code that distinguishes debt from equity. In
addition, under generally accepted accounting principles, there are clear
lines of demarcation between debt and equity. As a result, when this is an
issue, we include an expert opinion from a CPA regarding the treatment of
the investment as an equity investment under tax law and accounting
principles. Generally, a federal district court will give little to no
deference to a USCIS determination that an investment constitutes debt when
it is able to cite to no standards and when the record contains expert
opinions and citations to court decisions under the tax laws and generally
accepted accounting principles.


Matter of Izummi
provides three separate requirements for an impermissible guaranteed
redemption: “an unconditional promise” to repay an investor at a “fixed
price” and at a “fixed maturity date.” In parsing any USCIS decision, we
focus on proving that any language in the offering documents regarding
redemption does not include any of these elements. However, there is an
argument that we have raised in litigation that the language of Izummi only triggers a guaranteed redemption if all three elements
are present. For example, an unconditional promise to repay that does not
involve a fixed price or a fixed maturity date arguably should not be
violative of Izummi. A promise subject to conditions to repay at a
fixed price and/or at a fixed maturity date arguably should not be
considered to be violative of Izummi. USCIS does not always agree
with or understand this, which may necessitate litigation.


Matter of Izummi
analogizes an investment to a marriage. According to Matter of Izummi, just like a marriage cannot be entered into with
the intention of dissolving the marriage, so too an investment cannot be
entered into with the intention of liquidating the investment and seeking a
redemption. The disconnect of that statement in Izummi from reality
is very helpful in educating a federal district court judge regarding
USCIS’ expertise to adjudicate investment cases.

The material contained in this article does not constitute direct legal
advice and is for informational purposes only. An attorney-client
relationship is not presumed or intended by receipt or review of this
presentation. The information provided should never replace informed
counsel when specific immigration-related guidance is needed.

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About The Author

Ronald Klasko
H. Ronald Klasko (Ron) is widely recognized by businesses, universities, hospitals, scholars, investors and other lawyers as one of the country’s leading immigration lawyers. A founding member of Klasko Immigration Law Partners, LLP and its Managing Partner, he has practiced immigration law exclusively over three decades. Under his leadership, the firm has been chosen every year for the last ten years by the highly regarded Chambers Global 2015 as one of the top five immigration law firms in the United States; Ron himself is recognized annually as being in Tier One of immigration lawyers by Chambers Global and U.S. News and World Report. In addition, he has been included in the highly regarded Best Lawyers In America for two decades and has also been repeatedly selected for inclusion in Lawdragon’s/Human Resource Executive’s list of The Most Powerful Employment Attorneys Guide. Who’s Who Legal in Corporate Immigration named him as the most highly regarded immigration lawyer in the world.

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