Comment: On Pooled Directs

We received the following two letters to editor in response to our editorial in the 4/1/2022 issue of Immigration Daily on Pooled Direct Is Alive

(1) From Michael A. Harris, Esq

Thank you very much for the thought-provoking article. Are you aware that in 2017 during a USCIS stakeholder meeting IPO referred to two kinds of pooled investments:

  1. Regional centers with pooled EB-5 investments; and
  2. “Non-regional center [NCE’s] with pooled EB-5 investments (we call these "pooled standalones").

See here:

https://www.uscis.gov/sites/default/files/document/outreach-engagements/PED_IPO_ChiefColucciRemarks_03032017.pdf

In the basic EB-5 program which still exists, and has been amended by Congress, the Congress itself discussed “pooled investments” prior to the 1990 passage of the law (as referred to in the 2019 EB-5 book from AILA:

“Congress urged that the law should be interpreted as broadly as possible to accomplish these goals. In letters from Congress to legacy Immigration and Naturalization Service (INS), Senators Simpson, Simon, and Kennedy emphasized that national interest required that a “flexible interpretation” of the statute should be reflected in the implementing regulations. Congress envisioned flexible methods of investment—e.g., investments in joint capital ventures; resuscitation of troubled businesses; pooled investments; and investments in targeted areas.37 In statements made just prior to enactment of the law, Senator Simon succinctly stated: “[W]e do not want or need excessive or arbitrary industrial policy tests about what constitutes a worthwhile investment . . . we should encourage and not cripple the creativity of these enterprising immigrants.”38

  1. Letter from U.S. Senate, Committee on the Judiciary, Subcommittee on Immigration and Refugee Affairs, to G. McNary, Commissioner, INS (Apr. 12, 1991). See also Letter from U.S. Senate, Committee on the Judiciary, Subcommittee on Immigration and Refugee Affairs, to G. McNary, Commissioner, INS (Aug. 2, 1991) (submitted as a comment on proposed regulation INS No. 1434-91).
  1. 136 Cong. Rec. S17106, S17112 (1990) (Immigration Act of 1990-Conference Report).

Usage of the word “pool” or “pooled” or “pooling” in the securities industry does seem to be mostly in regard to special purpose vehicles (SPV’s) or separate corporate entities set for the purpose of combining funds together in one company (i.e., "the fund") that then makes an investment or loan to another company. FINRA also uses the word, “pool” in its discussion here on “private placements”:

“A private placement is an offering of unregistered securities to a limited pool of investors.”

But then other definitions seem to suggest more than simply using a “pooled investment fund”. The NASDAQ (click here) has one definition for “Pool” that suggests it means any “combination of funds for the benefit of a common project”.

At the very minimum under the new law, EB-5 investors can have non-EB5 investors in a direct partnership. Whether it is more will depend on whether USCIS makes a reasonable interpretation.

 

(2) We also received the following quick note from another immigration attorney to our editorial in the 4/1/2022 issue of Immigration Daily on Pooled Direct Is Alive

“You don’t seem to be reading the amendment to 204(a)(1)(H).

 

Here is our response to the point above on Pooled Direct:

Re the comment referring to section 204(a)(1)(H)(i): We have not ignored the language mentioned in the editorial: It appears as Line 8 or Page 2708 in the last line of the table in the Editorial. Here is our analysis of the phrase: "An alien seeking to pool..." The plain language of the statute using ordinary tools of construction of the English language implies:

1) An intent of pooling on the part of the alien 

2)The alien must eventually accomplish the pooling for this phrase to be relevant

The above two need to be true for this language to be triggered. Absent both the above, the language referred to is not triggered.

Securities structures: Though we are not familiar with them, we understand that there are securities structures where pooling is done by the project sponsor unbeknownst to each investor. In such a securities structure, an alien cannot know--even if they want to know--if there is any pooling or not with other EB5 investors. Furthermore, the pooling in this hypothetical is done by the project sponsor and not the alien.

Conclusion: We reach the conclusion that as per the plain language of the statute using ordinary tools of construction of the English language, pooling done by the project sponsor is not prohibited. This is especially true if the securities structure used is such that the alien could not have known of such pooling. So we conclude that Pooled Direct is alive albeit securities structures must be carefully set up to make Pooled Direct viable under the new statute.

Please note that our analysis of the plain language of the statute is not dependent on whether or not Congress intended for Pooled Directs to be alive or dead. The plain language interpretation that we set forth above is binding on the agency and leaves no room for agency discretion, as best as we can tell.

Please let us know your thoughts by writing to us at editor@ilw.com

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