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The EB-5 Immigrant Investor Program is considered one of the fastest and easiest ways for foreign nationals to permanently relocate to the United States. The program was created by Congress in 1990 as a means to stimulate the U.S. economy with foreign capital and create more jobs for U.S. workers. Since its creation, it has helped thousands of foreign nationals, and their eligible family members, immigrate to the United States and enjoy a better future.
The EB-5 program offers applicants the chance to become eligible for U.S. green cards in exchange for a qualifying investment in an EB-5 project. Each EB-5 applicant must meet all of the key requirements to receive a U.S. green card and obtain permanent resident status. One of the main requirements of the program is the “at risk” requirement, which insists that an investor’s EB-5 capital remain “at risk” for the entirety of the two-year investment period.
Complications Arising From the “At Risk” Requirement
It is important for investors to know that the “at risk” requirement does not mean that the EB-5 investment must be risky. In fact, it is encouraged that those seeking to make an EB5 investment search for EB-5 projects with low financial and immigration risk. The “at risk” requirement simply means that an applicant’s investment must be subject to the risk of loss and the chance of gain. Unfortunately, because each EB-5 investment is unique and different, there are many factors outside of the investor’s control that can make this requirement difficult to satisfy.
The majority of EB-5 investments are conducted through EB-5 regional centers. Regional center investments offer many benefits to investors, which make them a more popular choice than investing directly in a new commercial enterprise (NCE). The EB-5 process begins when an investor transfers their EB-5 investment capital to the NCE of their choice, which is then combined with the funds of all other investors and injected into the job-creating entity (JCE) for a five-year period. At the end of the five years, the investor can withdraw their capital and, assuming they fulfilled all of the EB-5 requirements, receive permanent resident status in the United States.
This process ran smoothly for years, until the EB-5 demand grew in 2014, resulting in EB-5 backlogs in China and later Vietnam and India. These visa backlogs led to longer processing times for EB-5 applicants from these countries. With some investors facing wait times lasting several years, the standard five-year investment period was no longer adequate. Because of the “at risk” requirement, investors could not withdraw their investment, so the only option for these investors was to redeploy their EB5 investment capital.
EB-5 Redeployment Explained
EB-5 redeployment is the process of reinvesting EB-5 investment capital in an NCE. If the EB-5 investment is successful at the end of the initial five-year investment period, the JCE normally returns the capital to the NCE, which would then returns it to the investor. However, when the investor is stuck dealing with processing delays, the NCE can redeploy the capital in a new investment so that the capital remains at risk. If backlogs cause the investor to fail to meet the EB-5 requirements, the investor can choose to have their investment capital paid back to them, but this would mean giving up their chance to complete the EB-5 process and receive a U.S. green card.
SEC Rules for EB-5 Redeployments
EB-5 redeployments are not regulated by only United States and Citizenship Services (USCIS)—the U.S. Securities and Exchange Commission also has strict regulations that EB-5 investors must follow. If an EB-5 investor has to decide between either withdrawing their EB5 investment capital or redeploying it in the NCE, then the redeployment is considered a new sale of securities and must be registered as such. However, if the original offering documents from the NCE include the circumstances for redeployment, the amount of capital, and how it will be used, the SEC does not view the redeployment as a new sale of securities because the details were agreed upon in the original investment decision.
Additionally, the SEC offers guidelines on situations involving recissions. If the NCE offers the investor the chance to repeal the initial investment agreement, this would also be viewed as a new sale of securities that requires registration or appropriate exemption. The reason this is considered a new sale is that the investor would have the choice of accepting the offer and selling their securities or rejecting the offer. This new decision by the investor is viewed as a new sale by the SEC.
Another factor that comes into play is statute of limitations determinations. Typically, if a court is deciding whether a given sale of securities is designated as a new investment decision, it uses “investment decision doctrine.” The most common defense used argues that the initial sale of securities took place before permitted by the statute. The plaintiffs then usually ask the court to consider the date of the redeployment instead of the date of the initial sale.
For the majority of EB-5 redeployments, the Securities Act is used to determine whether the investment decision qualifies as a new sale of securities. If it is deemed a new sale, it must be registered if it does not fall under one of the exemptions of the Securities Act. It should be noted that previously used exemptions may no longer be acceptable, depending on what factors have changed since the initial investment.
