Commentary on a failed EB-5 Direct I-526 Petition
 

Commentary on a failed EB-5 Direct I-526 Petition

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Be very careful, there are some rascally rabbits out there looking to lead you astray!

Be very careful, there are some rascally rabbits out there looking to lead you astray!

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Commentary on a failed EB-5 Direct I-526 Petition Commentary on a failed EB-5 Direct I-526 Petition Document Transcript

  • Contact author at: joseph.whalen774@gmail.com or 716-604-4233 Page 1 Commentary on a Failed EB-5 Direct I-526 Petition By Joseph P. Whalen (May 10, 2014) It seems to me that someone out there is attempting to act like a Regional Center without actually being a Regional Center. In reality, what I think they meant to do was to form and assist a Non-Regional Center Group of EB-5 Investors. That is possible to do but whoever was behind this deal was not up to the challenge. Many fundamental errors were made. That fact shows me that whoever was behind this deal did not understand the EB-5 laws, regulations, precedents, and policies that apply to such an undertaking. The full AAO Decision which is an I-526 Appeal Dismissal follows for your full edification but I want to point out the critical issues and discuss them. Below are indented excerpts directly from the AAO Decision. The blank spots are where something was redacted. I am just adding some highlighting to those selected portions that follow. My commentary is the text that is not indented. Understand? OK, let’s begin. II. PROCEDURAL AND FACTUAL BACKGROUND On May 21, 2010, the petitioner filed Form I-526, Immigrant Petition by Alien Entrepreneur, along with supporting documentation. On June 14, 2011, the petitioner responded to the director's April 6, 2011 request for additional evidence (RFE). On August 16, 2011, the director denied the petition, determining that the petitioner made material changes and did not establish that his investment would create at least 10 full-time positions. On September 6, 2011, the petitioner filed an appeal claiming that the change in the business structure did not constitute a material change, and that the petitioner's investment would create at least 10 jobs. Wow, that initial processing was fast! NOT! It took over one year to issue an RFE and then over four months to evaluate the response. However, there is one positive thing to report here. The AAO decision is dated April 23, 2014, and I found it on May 9, 2014. It might have been there even longer. I’ll do you one better on AAO non-precedents being posted quickly. I found an EB-1 Extraordinary Ability AAO Decision dated April 30, 2014 also on May 9th . At long last we are seeing a vast improvement on getting the information flowing from AAO to stakeholders! III. ISSUES ON APPEAL A. Initial Inconsistencies and Material Change At the initial filing of the petition, the petitioner submitted documentary evidence, including the
  • Contact author at: joseph.whalen774@gmail.com or 716-604-4233 Page 2 "Confidential Investor Memorandum," reflecting that DHll planned to loan proceeds to and that will serve as general partner. The petitioner, however, did not submit limited partnership agreement or any evidence that admitted the petitioner as a limited partner. Instead, the petitioner submitted an unsigned copy of operating agreement, which includes the following recital: intends to sell Units to foreign non US citizen investors and to admit as Authorized Members of the Company those investors whose subscriptions are accepted by the Managing Partner. The petitioner also submitted a blank Amended and Restated Membership Agreement Execution Page for and a subscription agreement containing conflicting information. Specifically, while the subscription agreement purports to be between the petitioner and , it references operating agreement. In addition, the managing partners of rather than the general partner of signed the agreement admitting the petitioner. Thus, the initial submission included inconsistent evidence as to whether would loan the petitioner's investment to or whether would admit the petitioner as an equity holding member. The initial submission also did not include evidence that the new commercial enterprise the petitioner listed on the petition, admitted the petitioner as a limited partner. It seems to make sense that if a Non-Regional Center EB-5 Group chooses to form a Limited Partnership with the real entrepreneur who would naturally and most probably be the General Partner that that situation would demand the production and submission of said Partnership Agreement. That is a no-brainer to me. It is also a no-brainer to me that a loan model cannot work in such a group because, as an EB-5 Direct Investment, no indirect jobs can count at all. That particular restriction demands that the EB-5 investors obtain an owner equity interest in the new commercial enterprise (NCE) which, would need to be the job creating enterprise (JCE) as well. They still have options to invest in an “existing business” but must meet the applicable definitions for a “new” commercial enterprise” or “invest” in a “troubled business” in order to count preserved jobs, or expand by 140% in terms of jobs or net worth or radically restructure an existing business etc… It seems very complicated simply because it is very complicated! In other words, it’s just not that simple. The director informed the petitioner in the request for evidence that the petitioner must demonstrate that , the new commercial enterprise, will create 10 jobs rather than . It is the job-creating business that USCIS must examine in determining whether a new commercial enterprise has been created. Matter of Soffici, 22 I&N Dec. 158, 166 (Assoc. Comm'r 1998). Moreover, the petitioner did not base his petition on a new commercial enterprise that is located within an approved regional center ……. Therefore, the petitioner could not use the creation of indirect jobs at DHH pursuant to the regulation 8 C.F.R. § 204.6(j)( 4)(B)(iii) to satisfy the job creation requirements.
  • Contact author at: joseph.whalen774@gmail.com or 716-604-4233 Page 3 In response to the director's RFE, the petitioner submitted documentary evidence reflecting that purchased for $10 on May 27, 2011. In the initial cover letter, he claimed that "[t]he entity previously in the middle was which has been dissolved to make this a direct investment and job creator." Thus, in response to the director's RFE, purchased and dissolved that entity. Although the RFE response cover letter claimed that the new business structure "will create a direct pathway from investment to job creation," it is well established that in visa petition proceedings, a petitioner must establish eligibility at the time of filing and that a petition cannot be approved if, after filing, the petitioner becomes eligible under a new set of facts or circumstances. 8 C.F.R. §§ 103.2(b)(1), (12); 72 Fed. Reg. 19100 (Apr. 17, 2007) (adopting 8 C.F.R.§ 103.2(b)(1); 59 Fed. Reg. 1455, 1458 (Jan. 11, 1994) (explaining in the commentary to 8 C.F.R. § 103.2(b)(12) that supplemental evidence must establish that the petitioner was eligible for the benefit when the petition was filed); Matter of Katigbak, 14 I&N Dec. 45, 49 (Comm'r 1971) (holding that a petitioner may not demonstrate the beneficiary's eligibility as a member of the professions based on coursework that postdates the filing of the petition). Moreover, a petitioner may not make material changes to a petition in an effort to make a deficient petition conform to users and regulatory requirements. Matter of Izummi, 22 I&N Dec. 169, 175-176 (Assoc. Comm'r 1998) (adopting the reasoning in Matter of Bardouille, 18 I&N Dec. 114 (BIA 1981) for the proposition that USCIS cannot "consider facts that come into being only subsequent to the filing of a petition."). See also Spencer Enterprises, Inc. v. United States, 229 F.Supp. 1025, 1038, n.4 (E.D. Calif. 2001) aff'd 345 P.3d 583 (9th Cir. 2003) (upholding a finding that a construction management agreement with substantive changes "could not be accepted for the first time on appellate review"); EB-5 Adjudications Policy, PM-602-0083, 24-25 (May 30, 2013) (citing Matter of Izummi, 22 I&N Dec. at 176 and 8 C.F.R. § 103.2(b)(1) for the proposition that a petitioner cannot establish eligibility under a new set of facts during the pendency of the Form r- 526 petition). ‘s purchase and termination of in response to the director's request for evidence in order to meet the direct job creation requirements reflects a material deviation from the business structure claimed at the initial filing of the petition. The business structure change constitutes an effort to make an apparently deficient petition conform to users and regulatory requirements. Therefore, users must analyze the petition only on the basis of the original claims. From the preceding edited excerpt, I see that I am not as crazy as some have suggested I might be. I have been touting the advantages of utilizing I-526 Exemplars filed as I-924 Amendment Applications over the “guinea pig I-526 Petition” Approach for the very reasons AAO discussed in that last passage. Folks a REAL I-526 is a visa petition involving a Priority Date derived from the Filing Date of an Approved I-526 Visa Petition! Simply because it is a visa petition it MUST be “approvable when filed”. This is elementary stuff, not new. After all, Katigbak was decided in 1971, and the same essential visa categories have been around since at least the Immigration Act of 1965.
  • Contact author at: joseph.whalen774@gmail.com or 716-604-4233 Page 4 B. Employment Creation1 The regulation at 8 C.F.R. § 204.6(j)(4)(i)(A) lists the evidence that a petitioner must submit to document employment creation, including photocopies of relevant tax records, Forms I-9, or other similar documents for ten (10) qualifying employees. Alternatively, if the new commercial enterprise has not yet created the requisite 10 jobs, the petitioner must submit a copy of a comprehensive business plan showing the need for not fewer than ten qualifying employees. 8 C.F.R. § 204.6(j)(4)(i)(B). A comprehensive business plan as contemplated by the regulations should contain, at a minimum, a description of the business, its products and/or services, and its objectives. Matter of Ho, 22 I&N Dec. 206, 213 (Assoc. Comm 'r 1998). ……. The decision concludes: "Most importantly, the business plan must be credible." Id. * * * * * At the initial filing of the petition, the petitioner indicated in Part 5 of Form I-526 that his investment had not created any positions. Thus, the petitioner was required to submit a comprehensive business plan pursuant to the regulation at 8 C.F.R. § 204.6(j)( 4)(i)(B) and Matter of Ho showing the need to hire at least 10 employees. At the initial filing of the petition, the petitioner submitted a business plan for . However, the petitioner did not submit a business plan for ,thejob-creating entity. Moreover, the petitioner has never submitted a business plan for . Instead, in response to the RFE, the petitioner submitted a May 31, 2011 letter from Chief Financial Officer of projecting employment at a location based on employment at a location. This letter does not meet the requirements of Matter of Ho, 22 I&N Dec. at 213. ….. Stop right there. Back up a step. Remember that this is NOT a Regional Center Investment but rather an EB-5 Direct Investment. The preceding sentence means that all jobs must be direct as defined at 8 CFR § 204.6(e). In that definition, the “Immigrant Investor Pilot Program” equates to formally affiliated with a Regional Center. That means that there can be no “projecting employment based on employment at [some other employer’s] location”. The only “projecting” allowed is within the Matter of Ho-compliant business plan! C. Multiple Investors The regulation at 8 C.F.R. § 204.6(g)(1) states that the establishment of a new commercial enterprise may be used as a basis of a petition for classification as an alien entrepreneur by more than one investor provided that each investor has invested or is actively investing the required amount of capital, and each individual investment will create at least 10 full-time positions. The regulation at 8 C.F.R. § 204.6(g)(2) states that USCIS shall recognize any reasonable agreement made among the alien entrepreneurs in regard to the identification and allocation of qualifying positions. 1 In this particular case since this is an EB-5 Direct Investment, ALL jobs used to satisfy the statutory job creation requirement can ONLY be “EB-5 Direct Jobs”! That means on the EB-5 investors’ payroll. A Limited Partnership (LP) can satisfy that requirement IF the LP provides an ownership equity interest for the EB-5 investor in the NCE which is also the JCE.
  • Contact author at: joseph.whalen774@gmail.com or 716-604-4233 Page 5 At the initial filing of the petition, the petitioner submitted a continuation sheet for Form I-526 reflecting that there are at least six investors seeking classification as an alien entrepreneur pursuant to section 203(b) (5) of the Act. The petitioner did not submit a business plan for reflecting that his investment would create at least 60 positions. In addition, the petitioner did not submit any agreement among the other five investors in regard to the identification and allocation of any possible positions pursuant to the regulation at 8 C.F.R. § 204.6(g)(2). It is quite simple really. Six investors at ten new jobs each equals a total of sixty qualifying EB-5 direct jobs being created. Since no jobs had yet been created, and therefore no payroll documents could be submitted, a comprehensive business plan was required. In addition, some formal agreement amongst all the investors was needed. Those are the kinds of details that can leave an EB-5 Direct or Stand-Alone Investor or a small group of them, pulling their hair out from frustration. Those devilishly burdensome details along with others are why Regional Center Affiliated investors pay subscription fees. Subscription fees recoup initial costs as well as continuing costs to monitor for compliance and collect evidence for future I-924A and I- 829 filings. The Regional Center has to pay someone to track data, collect evidence, as well as sort and collate it all for numerous investors and for the Regional Center itself on an annual basis. The Regional Center needs a sufficient managerial and administrative infrastructure in place and that means paying employees to do this stuff. Subscription fees are not a “get rich quick” scam fee like some folks might perceive and worse yet, desire. D. Targeted Employment Area Beyond the decision of the director, the petitioner has not established that his investment is in a business that is located in a targeted employment area. ………………. ……… Absent evidence that will be primarily doing business in a rural or high unemployment area, the petitioner is required to invest at least $1,000,000 pursuant to the regulation at 8 C.F.R. § 204.6(f)(1). Another huge mistake! If you cannot prove that the investment was, is being, or will be made in a qualified TEA, then the minimum investment is one million dollars. I find that most foreign nationals considering EB-5 would prefer the half million dollar investment option. I also find that most of those folks have a misperception that the mere fact that an investment is through a Regional Center that that alone qualifies all of its investments at the lower rate. However, this case does NOT even involve any Regional Center so how they got “confused” is genuinely confusing to me, unless they were scammed, of course. No, couldn’t be! E. Investment of Capital
  • Contact author at: joseph.whalen774@gmail.com or 716-604-4233 Page 6 Also beyond the decision of the director, the petitioner has not established that he has placed the required amount of capital at risk in the new commercial enterprise………. As discussed above, absent evidence that will be principally doing business in a rural or targeted employment area, the petitioner is required to invest $1,000,000 into the new commercial enterprise…... However, the petitioner has only invested $500,000 and has not submitted any documentary evidence demonstrating his commitment or even intent to fully invest $1,000,000. As such, the petitioner has not established that he has placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk…….. * * * * * As the petitioner has not sufficiently documented the source of his funds with probative evidence, the petitioner did not establish that he invested capital obtained through lawful means pursuant to the regulation at 8 C.F.R. § 204.6(j)(3). While my main purpose in examining this decision and penning this article is to broadcast mistakes made by the EB-5 investors and their misguided “helpers” in an effort to warn others against making the same mistakes, I find one item worth mentioning for the benefit of AAO. AAO, if you seek to edit this case decision or include it in a grouping of similar case decisions for use as a precedent, fix the following error: “.…doing business in a rural or targeted employment area….”. A “Rural Area” is a defined subset of the definition of a Targeted Employment Area. The other subset is an area of High Unemployment. I know it may seem minor and petty but it is statutory and a point that far too many folks get confused about without any unintended “official misinformation”. That’s my two-cents, for now! Joseph P. Whalen, Independent EB-5 Consultant, Advocate, Trainer & Advisor 1348 Ridge Rd | PMB 36 | Lackawanna, NY 14218 Phone: (716) 604-4233 E-mail: joseph.whalen774@gmail.com web http://www.slideshare.net/BigJoe5 or http://eb5info.com/eb5-advisors/34-silver-surfer DISCLAIMER: Work is performed by a non-attorney independent business consultant. It is the client's responsibility to have any and all non-attorney work products checked by an attorney. I provide highly-individualized training based on consultation with my clients. I serve Regional Center Principals and their counsel, potential EB-5 investors, and project developers. I am not an attorney myself although I have trained numerous attorneys and INS/USCIS adjudicators in complex issues within immigration and nationality law when I was an adjudicator there for many years. I do not prepare forms, write business plans, or create economic analyses. I do review them for clients prior to submission and suggest corrections and/or modifications to run by your attorney and investment advisor. NAICS Code: 611430 Professional and Management Development Training
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