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The COVID-19 pandemic has swept across the world, triggering major changes and disruptions to many businesses across a variety of industries. Additionally, the pandemic has led to an increase in market volatility and constantly changing government responses. It’s still impossible to predict all of the effects that the pandemic will have, but continued changes should be expected. All those involved with the EB-5 Immigrant Investor Program should carefully evaluate the new information available since the COVID-19 pandemic and analyze how it could potentially affect their EB-5 investment.
Why COVID-Related Disclosures Are Important to Potential EB-5 Investors
Just like any other businesses during this time, EB-5 projects could potentially face permanent or temporary closures, interruptions in their supply chains, hiring freezes, operational uncertainty, and extended medical leave from employees. These are only a few of the possible impacts of the COVID-19 pandemic, and each EB-5 investment participant should take these factors into account when selecting an EB-5 project during the COVID-19 pandemic.
Potential partners should also be able to provide prospective investors with COVID-related disclosures so that the investors can properly evaluate the potential financial and immigration risk of the project. These disclosures can help investors determine the impact that pandemic could have on their investment and the new commercial enterprise (NCE). It is important for investors to know what should be included in these disclosures, when they should be received, and when consent for change is required.
Why EB-5 Operators Have Taken a Wait-and-See Approach
Prior to the COVID-19 pandemic, many EB-5 operators were beginning to slow, leading to fewer new EB-5 offerings by NCEs. This was in part due to a lack of definitive policy determinations from United States Citizenship and Immigration Services (USCIS), along with many other changes to the EB-5 program over recent years. The COVID-19 pandemic then created more instability in the EB-5 program, which resulted in the majority of EB-5 operators taking a wait-and-see approach to new EB5 investment offerings.
Nonetheless, the pandemic has also had many positive effects on the EB-5 program that make it a great time for foreign nationals to launch an EB-5 investment. EB-5 operators are responsible for providing the necessary disclosures along with the offering materials, but the investors and their immigration attorney should complete thorough research to determine whether a project is the right choice for the investor’s goals and needs.
SEC Regulations Regarding Full and Fair Disclosures
The United States Securities and Exchange Commission (SEC) takes great measures to protect investors in the United States, including EB-5 investors. The SEC has laws, rules, and regulations in place to achieve protection, including requirements that documents must be offered that contain “full and fair disclosure” of material information. These laws and regulations are clearly defined on the SEC’s website.
EB-5 investors should be aware of the Securities Exchange Act of 1934, which prohibits the disclosure of untrue statements of material facts and the omission of material facts that are necessary to prevent previous statements from becoming misleading. In the evaluation of a violation, it must be determined whether there exists a substantial likelihood for a reasonable investor to consider a misstatement or omission to be a decisive factor in their investment decision.
What Full and Fair Disclosures Should Include
When prospective investors evaluate new EB-5 offerings, there are three important topics they should look for in the full and fair disclosures: cautionary language, investment risk factors, and statements regarding the COVID-19 pandemic.
General Caution and Potential Risks
The full and fair disclosures should discuss general caution as well as outline potential risks and uncertainties involved with the specific EB-5 project and its industry. The documents should also include safe harbor statements that reference the Private Securities Litigation Reform Act of 1995 (PSLRA) and the Securities Exchange Act.
COVID-19-Specific Statements
Aside from the usual risks and uncertainties that all businesses are subject to, disclosures in 2020 and 2021 should include statements that specifically address the COVID-19 pandemic. There should be a discussion of the additional risks brought on by the pandemic as well as how the expected results of the EB5 investment could differ due to the effects of the pandemic. The investor should consider the potential effects of COVID-19 when analyzing the future predictions regarding an EB-5 project.
For example, when discussing the effects of the pandemic, the NCE may discuss how there have been construction delays slowing down the project’s development. NCEs that operate in the travel and tourism industry may discuss a decrease in projected demand due to the negative impact the pandemic has had on the industry. The disclosures may even address the potential changes that the project may go through or how it will evolve to overcome the difficulties caused by COVID-19.
Potential investors should use these disclosures to evaluate how job creation will be affected and what material changes may take place. The document should furthermore discuss which changes require the EB-5 investor’s consent and what rights the investor has. It is crucial that investors are aware of all possible material changes because such changes could potentially affect whether their EB-5 petition is approved or denied.
How Material Changes Could Affect an Investor’s EB-5 Petition
Those planning an EB5 investment should discuss their plans and prospective projects with an experienced EB-5 immigration attorney. Material changes to an EB-5 project do not guarantee that one’s petition will be denied, but they could put one’s visa eligibility at risk. The two types of changes that could create the biggest problems are fund sourcing and business plan elements. An experienced immigration attorney can help ensure that any possible changes to the NCE do not jeopardize the investor’s EB-5 petition and can help create an exit strategy that will help safeguard the investor’s EB-5 eligibility.
EB-5 operators should always disclose the most accurate and significant information possible, especially as it relates to the pandemic, as the SEC regulates operators and their disclosures much more strictly than USCIS. It is therefore important that investors collaborate with an experienced attorney to ensure they provide USCIS with correct information, lest their petition risk denial. An attorney can also make sure an investor is aware of all the options and rights they have after receiving the disclosures. Properly analyzing these disclosures and the NCE’s projections can help ensure investors do not take on more risk than they are comfortable with.
