Updates from September 9, 2014, USCIS stakeholder conference (with IPO Director, Nicolas Colucci)

Transcription

1 Updates from September 9, 2014, USCIS stakeholder conference (with IPO Director, Nicolas Colucci) IPO Processing updates; Escrow holdback provisions; EB-5 Insurance; Structuring Case Studies; China quota impact and strategies.

2 WOLFSDORF ROSENTHAL LLP 20 lawyers offering full service global immigration mobility services Offices in Santa Monica, CA and New York, NY. Bernard Wolfsdorf is the Who s Who Legal Immigration Lawyer of the Year for 2014, 2013, 2012, 2011 and 2010 (Who s Who is the Official Research Partner of ABA Int l Law Section). Bernard Wolfsdorf is past President of the 14,000 lawyer American Immigration Lawyers Association (AILA). Member of ABIL, a Global Alliance of Business Immigration Lawyers with 35 top immigration law firms, and over 1,200 professionals providing highest standards of care and legal ability. Operates in 40 gateway cities throughout the world, providing comprehensive personalized coverage available. Allows us to offer full immigration services in over 100 countries. Bernard@Wolfsdorf.com Los Angeles VISA LAW New York City 2

3 Disclaimer This presentation is designed to provide practical and useful information on the subject matter covered. However, it is provided with the understanding that no legal, tax, accounting, or other professional services are being rendered or provided. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

4 Immigrant Investor Program Office (IPO) Updates from September 9, 2014, USCIS stakeholder conference with IPO Director, Nicolas Colucci and Staff; IPO has 83 staff members goal is to hire 110 by end of year I 829 applications transitioning to IIPO on 9/30/14 Processing Times as of July 31, 2014 I 526 = 13.3 months I 829 = 7.6 months I 924 = 7.1 months BUT, adjudications are grouped together based on project, not necessarily first in first out (FIFO) IPO tries to have the same officers on each NCE to the extent possible to improve efficiencies IPO office will be moving but for now, the filing and address remains the same

5 Immigrant Investor Program Office (IPO) USCIS has substantially increased adjudication action. In July 2013, USCIS took 300 actions on I 526 Petitions and in July 2014, it took 1,200 actions, an increase of 400% in one year. However, there has been a substantial increase in receipts of I 526 Petitions. In the first eight months of the calendar year 2014, USCIS received approximately 8,000 I 526 Petitions In July 2014, 1,200 alone. Even if this declines to 1,000 a month with about an 80% approval rate, will need over 25,000 visas to meet this demand.

6 Regional Center Reporting Regional Centers must file Form I 924A each calendar year between October 1 and December 29 to demonstrate a regional center s continued eligibility. Information updates USCIS with about the RC s activity USCIS issued 53 Notices of Intent to Terminate (NOITT) to RC s last year 29 were to RC s that did not file I 924A 24 were issued for other reasons If inactive for prior year, it is important to include a statement explaining how the RC plans to further economic development

7 Portfolio Investments USCIS confirmed its policy of allowing portfolio investments by a NCE into which the EB 5 investor places his capital. USCIS said it would evaluate two related questions: What level of business plan is needed for each entity, do they all need to be Matter of Ho compliant and fully established at time of filing? How much flexibility is there in the types, industries, capital requirements, and geography is there? USCIS has required a full business plan for each JCE in the I 526 that each investor, whose funds and claim for job creation credit, will be dispersed among multiple JCEs. This is not very helpful as most venture capital funds focus on providing serial, not parallel, investments.

8 Escrow Holdback Provisions Escrow holdback provisions may be permissible. USCIS appeared to indicate funds may be fungible once invested into the NCE. Did not address the at risk issue or the issue that arises at the I 829 Petition stage with certain holdbacks. However, the investor must show funds were deployed to the job creating entity. Where the NCE is providing a loan to the JCE, the I 829 Petition must trace each investor s funds from the time they are deposited into the NCE and then deployed into the JCE. If an investor s funds are deposited into the NCE and then later used to repay a denied investor, that investor would be unable to demonstrate the funds were made available to the JCE.

9 Escrow Holdback Provisions There was discussion of a recent case involving an I 924 with an exemplar with a hold back escrow structure that was ultimately approved. Petitioner s contribution was split and held in two escrow accounts. On filing the I 526, the funds were released to NCE and loaned to JCE. Hold back account was structured to be refunded on denial of I 526 or released to NCE upon, earlier of I 526 approval or, denial of another I 526 petitioner s I 526. When contributed to NCE, capital credit received such that on approval of I 526 would have contributed minimum amount of capital required.

10 Escrow Holdback Provisions While this case was approved, there are concerns as the USCIS IPO questioned a common. NCEs that undertake to find "replacement investors" need to take care to have the replacement investors place their capital into the NCE so it is the NCE itself that refunds the other investor Caution against taking in new funds only to escrow, and then refunding from there.

11 Bridge Financing Replacement of bridge loans should have been contemplated prior to financing. If financing to be replaced was planned as temporary, EB 5 financing can still get credit for job creation through the use of the bridge financing This is a fact based determination

12 Bridge Financing Question: What if any limits on bridge financing should investors know about? The May 30 memo does not mention any temporal or other limits on using EB 5 funds to repay bridge financing. For instance, the USCIS response to the recent Office of Inspector General (OIG) report stated that USCIS has denied and will continue to deny cases where a project is already completed and circumstances do not warrant attribution of jobs to a proposed late stage investment. This concept was not mentioned in the memo. What is it that must have occurred before a project is completed? Subscription of the EB 5 investment? Form I 526 filing? It seems inappropriate to require Form I 526 approval before project completion, because investors cannot know how long Form I 526 adjudication can take, and sometimes it takes years longer than most projects, and such a policy would undermine the entire purpose of a bridge loan. Likewise, is there any particular EB 5 related event that must have occurred before bridge financing is advanced for EB 5 funds to be allowed to replace such financing?

13 Bridge Financing Response: Generally, the replacement of bridge financing with EB 5 investor capital should have been contemplated prior to acquiring the original non EB 5 financing. However, even if the EB 5 financing was not contemplated prior to acquiring the temporary financing, as long as the financing to be replaced was contemplated as short term temporary financing which would be subsequently replaced, the infusion of EB 5 financing could still result in the creation of, and credit for, new jobs. Consistent with the policy as set forth in the May 30, 2013, policy memorandum, the focus is on the nature of the underlying financing in order to determine that the financing to be replaced by the EB 5 funds is truly bridge or temporary financing or if the EB 5 funds are being used to merely refinance longer term debt. If the underlying financing was bridge financing, which is a fact based determination based on the terms of the underlying financing and the circumstances surrounding the use, application, and plan at the time the financing was obtained to replace it with other longer term financing such as EB 5 funds, then jobs created through the use of the bridge financing could still be credited to the EB 5 investors. However, if the petitioner fails to establish that it is more likely that the EB 5 funds are being used to replace bridge or temporary financing, then jobs created through the use of the prior financing would not be credited to the EB 5 investors. For example, if the EB 5 funds are being used to refinance debt initially contemplated as longer term debt. Replacement of bridge loans should have been contemplated prior to financing. If financing to be replaced was planned as temporary, EB 5 financing can still get credit for job creation through the use of the bridge financing. This is a fact based determination.

14 Redemption Options Can a developer have an option to redeem an investment at a certain price, as long as the investor does not have the option? Petitioner must prove: There is a risk of loss and chance of gain There is no promise or guarantee to return or redeem any portion of the minimum required investment amount

15 Redemption Options Question: Is there any problem if the developer has the option to redeem an investment at a fixed amount (or provide a property in addition to or in lieu of a dollar return), as long as it is not an option of the investor? Response: The answer will depend on the specific facts involved and the terms of any agreement. As noted in the May 30, 2013 policy memo, if the immigrant investor is guaranteed the return of a portion of their investment, or is guaranteed a rate of return on a portion of their investment, then the amount of the guaranteed return is not at risk. Thus, IPO will review the evidence to determine: If there is a risk of loss and a chance for gain, and Whether there is a promise to return or redeem some portion of the minimum required investment amount. Depending on the terms of the agreement there may be questions relating to whether the investor has the potential for gain if the agreement does not represent a promise or guarantee that diminishes the contribution of capital below the minimum required amount.

16 Non Profit Projects New commercial enterprise ( NCE ) must be a for profit entity However, NCE may loan funds to a not for profit job creating entity ( JCE ) Petitioner must prove: The NCE is engaging for profit activity Invested funds are placed at risk, for purpose of generating a return Investment into NCE is likely to result in requisite job creation

17 Non Profit Projects Question. An investor approached one of our clients expressing interest in investing in a public works project, but the information supplied on the EB 5 website seems to indicate that a commercial enterprise connected with an EB 5 investor must be for profit activity. Does this preclude a public works project? Response: According to 8 C.F.R (e), the new commercial enterprise is required to be a for profit entity. In cases where an investor may claim indirect job creation through an investment into a new commercial enterprise associated with a regional center, the actual job creating entity (JCE) may be separate from the new commercial enterprise. The new commercial enterprise may pool investor funds to be loaned to a separate not for profit JCE, such as an entity undertaking a public works project. However, the petitioner will still be required to demonstrate, among other requirements, that: The new commercial enterprise itself is engaging in for profit activity, The invested funds are placed at risk for the purpose of generating a return, and That the investment into the new commercial enterprise is likely to result in the requisite job creation.

18 Deference Deference is provided to Regional Centers with actual projects This means that an I 924 based on an actual project but does not include an exemplar but does include a Matter of Ho compliant business plan, USCIS will defer to the determination in the future

19 Hypothetical Projects What is required for a RC application based on a hypothetical project? Reasonably credible business plan with market feasibility analysis, cost estimates, & timeline for construction may be enough Still need verifiable detail re: job creation Sample projects are only presented to show: types of projects RC may use to create jobs, and range of assumptions acceptable as inputs into economic modeling No deference given

20 Regional Center Geographic Range Standard is whether the RC can show, by preponderance of the evidence, that the proposed economic activity will promote economic growth in the area Fact specific inquiry Suggested evidence that the area will contribute to the supply chain and labor pool of proposed projects

21 Regional Center Geographic Range Question. What is the standard for determining the geographic range of a regional center? This is particularly critical when regional centers (RCs) can sponsor projects/investors outside their approved area, as there needs to be reasonable predictability for investors whether the expansion will be considered approvable in the context of Form I 526 petitions. Is the standard more flexible in the expansion context than in initial filing? Response: The standard for determining the geographic area of a regional center is the same regardless of when or how that regional center geographic request is submitted. USCIS will review the proposed geographic area of a regional center and will deem it acceptable if the applicant can establish by a preponderance of the evidence that the proposed economic activity will promote economic growth in the proposed area. The question is a fact specific one and the law does not require any particular form of evidentiary showing, such as a county bycounty analysis. In USCIS s experience, the reasonableness of a regional center s proposed geographic area may be demonstrated through evidence that the proposed area is contributing significantly to the supply chain, as well as the labor pool, of the proposed projects.

22 Regional Center Expansion A regional center may operate outside of its geographic area of operations, as long as the area is contiguous to the approved region

23 USADVISORS Escrow Because of the delays in adjudicating the investor petitions, many investments have eliminated escrow completely or have implemented a modified escrow Structures seen: None Partial (% held in reserve) conditional on: % of completed funding (ie. 50% completed funding releases the first 25% in escrow) approval of the I-924 or the first I-526 triggers the release of % of funds in escrow other event or trigger releases % of capital in escrow account Personal guarantees (from GPs, Principals) v. a reserve account Full (less than 10%) Caution: the investor must be careful with the redemption guarantees involved in the escrow agreements as they could be seen to be violating the EB-5 at risk provisions EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

24 USADVISORS Example of redemption guarantee which appears to violate USCIS at risk provisions (not SEC rules). Investor must be careful that both escrow and return of capital schemes do not violate USCIS s at risk provision. EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

25 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

26 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

27 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

28 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

29 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

30 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

31 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

32 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

33 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

34 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

35 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

36 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

37 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

38 USADVISORS EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

39 USADVISORS Bernie & Jor, You have been challenged by me to take the ALS Ice Bucket Challenge! EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

40 USADVISORS This presentation has been prepared by: USAdvisors.org a Registered Investment Advisory Firm FINRA CRD # Michael Gibson EB5Info.com michael@usadvisors.org Skype: usadvisors EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

41 Hot Topics in EB-5 September 24, 2014 Structuring Case Studies Presented by: Jor Law, Esq. Corporate Law -- Securities Law -- Business Transactions EB-5

42 Loan vs Equity Direct vs Indirect Structures Escrow (or lack thereof) Redemption Org charts Required documents

43 Case Study #1 Immigrant investor invests $750k to set up and run a franchise. Structuring considerations: TEA Securities? Not for his own investment. Corporate form any! Equity model likely Job count likely direct Franchisor approval No need for escrow No need for exit strategy No need for PPM (if no other investors)

44 Structure for Case Study #1 Franchisor EB-5 Investor Franchise Agt. Franchisee Company

45 Required Docs #1 Franchise Agreement Company formation agreements Possibly subscription agreement (might be avoidable) If other investors/partners, more agreements needed.

46 Case Study #2 Immigrant investor invests $500k into a small direct EB-5 deal. Structuring considerations: TEA Securities usually Corporate form likely LLC/LP, but could be anything Equity model likely Job count likely direct Escrow? Maybe. Exit strategy? Maybe. PPM recommended, often skipped

47 Structure for Case Study #2 Entrepreneur EB-5 Investor Franchisee Company Invests $500k

48 Required Docs #2 Company formation agreements (tweaked to have special provisions for EB-5 Investor) Investor Questionnaire Subscription Agt Possibly Escrow Agt PPM recommended (not usually technically required)

49 Case Study #3 Immigrant investor investing $500k into a larger RC deal whereby a loan is made to the project company. Structuring considerations: TEA Securities pretty much always the case Corporate form likely LLC/LP Loan Model (and most RC deals are still loan model) Job count likely indirect Escrow? Maybe. Exit strategy? Usually. PPM technically not required, but almost always expected

50 Structure for Case Study #3 General Partner (usually RC or affiliate) Investor Capital Raising Entity Investor Investor Loan from CPE to PC Project Company

51 Required Docs #3 Company formation agreements (tweaked to have special provisions for EB-5 Investor) Investor Questionnaire Subscription Agt Possibly Escrow Agt PPM recommended (not usually technically required) Loan Agreement

52 JOBS Act Raising capital under Reg D generally had to be done privately --- NO ADVERTISING (e.g. no unrestricted websites) Reg S a possible alternative, but not perfect JOBS Act now allows Reg D, Rule 506(c) offerings to generally solicit (newspapers, SMS, radio, television, billboards, websites, s) subject to other laws, of course BUT. must sell only to accredited investors AND must VERIFY Be careful how to use powerful exemption (possibly superior), but can lose other exemptions.

53 Don t Mess It Up No fall-backs to safe-harbors Cannot rely on Section 4(a)(2) Cannot rely on Rule 506(b) Possibly lose state exemptions Possibly lose Reg S (if not properly separated) Safest Verify, even if not publicly soliciting. Verification is annoying, but manageable VerifyInvestor.com* makes compliance easy and affordable *Platform created by Jor Law

54 Bios ABOUT JOR: Chuck Norris tried to roundhouse kick Jor and missed. And Jor s a better lawyer than a fighter. Homeier & Law, PC is a law firm devoted exclusively to corporate and business transactional law, including securities, for clients ranging from established publicly-traded companies, to start-up businesses and entrepreneurs in a wide range of industries. The firm s practice includes finance, secured lending, mergers & acquisitions, licensing, securities, entertainment, venture capital, new media, e-commerce, and other general business transactions. Homeier & Law, PC is a leader in EB-5 corporate and securities transactions, representing regional centers and private developers on over 150 projects.

55 Contact Jor Law, Esq. (818) (direct) LOS ANGELES NEW YORK CITY Corporate Law -- Securities Law -- Business Transactions EB-5

56 China Issues The Department of State has indicated that a China cutoff date will be established in May 2015 No one knows but its estimated the cut off date will by May 1, 2013, with at least a 24 month wait. The big question is whether it will retrogress further in June 2015, or July 2015, and if so how far back. For Chinese petitioners whose derivatives were almost 21 at the time of filing its critical to get an approval before the cut off date, or they could age out. Will the Chinese wait line go to 2 ½ years, or even 3 years. President Obama has indicated he will take administrative action after the November election. There is some chance this will for counting principal investors only, not each family member.

57 10,000 EB 5 Quota Reached Unavailable means that for the first time since the EB 5 program was created almost 25 years ago the full quota will be used this year The maximum number of EB 5 immigrant visas which could be made available for Chinese applicants has been reached Still leaving sufficient numbers available for use by all other countries to ensure compliance within the annual Fiscal Year 2014 allocation.

58 No Problem for 2014 A new allocation of about 10,000 visas will be available on October 1, 2014, the beginning of the Fiscal Year 2015 There will be virtually no impact on most China EB 5 Category visa applicants who complete processing within the next 6 7 months.

59 China EB 5 Cut off Date May 1, 2013? It is impossible to determine what the date gap will be when it is announced, most likely in May There are estimates the wait line will be approximately 2 years. Since most I 526 petitions are presently taking months (Requests for Evidence are commonplace), the additional wait of about 6 months does not appear unduly worrisome, yet. The concern is that once a China EB 5 cut off date is established, the Department of State may have to retrogress that cut off date, depending on the number of petitions approved, and, the cut off date may not move forward every month. With over 10,000 petitions currently pending with USCIS and about 3,000 filed in the last quarter ending June 30, 2014, and 1,200 filed in July 2014, the China wait line is likely to increase.

60 China Cut off Consequences Consequences may include possible age out of derivatives Issues regarding the timing of the job creation, the requirement for which is currently set artificially at 30 months from approval of the I 526 petition (at the I 526 stage), and 36 months from the time of acquisition of conditional permanent residence (at the I 829 stage). Material changes in business plans as a result of delays in issuance of immigrant visas to EB 5 applicants chargeable to China.

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