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The Case
The original case involved five applicants from China who each made an EB-5 investment of $500,000 in Mirror Lake Village, a Washington retirement community. USCIS interpreted the project’s “put option,” the investors’ future right to sell back their investment, as guaranteed redemptions. As such, USCIS originally determined the investments to not qualify as “at risk.”
However, the Court of Appeals determined the put options were not guaranteed redemptions, as the EB5 investments could not be paid back unless the project had sufficient revenue. The court thus found that the put options were “entirely subject to business fortunes.” U.S. Circuit Judge Merrick Garland went so far as to say that USCIS “directly contradicted its own definition of ‘at risk.’”
What This Means
USCIS referred to the Matter of Izummi, which prohibits redemption agreements, to make its case. But the decision of the Court of Appeals regarding Mirror Lake Village means the Matter of Izummi does not apply if “redemption of [the] investments is dependent on the success of the business.” There is still a risk of loss should the project fail. Thus, EB-5 investments with redemption agreements dependent on the project being successful are still considered “at risk.”
This ruling also means that much of the language regarding redemption agreements in the USCIS Policy Manual is now at odds with court precedent. For instance, where the manual states that “repayment does not need to be guaranteed to be impermissible,” or that it is simply “the investor’s right to demand a repurchase, regardless of the new commercial enterprise’s ability to fulfill the repurchase” that makes an investment considered not to be “at risk,” the Court of Appeals has now explicitly made room for such revenue-based contingencies.
The Mirror Lake Village case is a welcome precedent at the federal court level. For the first time, a federal court has lent support for EB5 investments that includes put options. Expect to see further appeals in the coming years overturning much more USCIS policy language on redemption agreements. This one case could change much about how USCIS determines “at risk” investments.
