POOLED EB-5 DIRECT INVESTMENTS CAN BE GREAT DEALS OR SCAMS JUST LIKE ANY OTHER POOLED INVESTMENT.docx
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POOLED “EB-5 DIRECT” INVESTMENTS
CAN BE GREAT DEALS; OR SCAMS!
(JUST LIKE ANY OTHER POOLED INVESTMENT)
By Joseph P. Whalen (Saturday, November 28, 2015)
While I believe that Regional Center investments are usually safer and
much easier than “EB-5 Direct” investments whether pooled or not, they are
not the only game in town and might be the wrong fit for a particular investor
or “entrepreneur”. If time is a critical factor in the alien’s decision and (s)he
has what it takes to open their own “new commercial enterprise” (NCE)
then going it alone may be their best option. If, however, a particular
individual either does not have what it takes to go it alone; or the logistics of
getting started from abroad demands a presence in the U.S. early on; or the
NCE requires more money to start and run successfully, then having a
partner in the U.S. may be the right way to proceed. Also, if the particular
NCE will likely create far more qualifying jobs than needed by a single
investor, then multiple EB-5 investors can collaborate with each other in a
EB-5 regulations make it abundantly clear that EB-5 investors can have
partners in their NCE whether through a Regional Center or in a Direct
investment. Such partners can include both, individuals who are seeking EB-
5 visas, and/or those who are not. Choosing the path to follow towards EB-5
visas is not a simple decision to make. It is imperative to fully investigate any
offers of help, services offered, potential partners, and especially business
models. Only a few franchises will be suitable for EB-5 and cookie-cutters
offers usually do not work out very well.
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II. SOLO EB-5 DIRECT INVESTMENT
In 1990, Congress codified and expanded a regulatory exemption to the
requirement for a labor certification. That regulation, which exempted
“investors”, was created in response to the Immigration Act of 1965. It
changed over the years and eventually it fell out of use because there were no
visas immediately available anymore. That circumstance basically killed
immigrant investing for most of the 1980s.
The “new” EB-5 visa was originally for individual investors only. It drew so
little interest that Congress went back to the drawing board in 1992, and
created Regional Centers which came onboard in 1993. This brought a
renewed interest in investment visas because it brought U.S. promoters into
the mix. Unfortunately, many of them were either incompetent or crooked.
AAO issued the four EB-5 Precedent Decision in 1998, and the EB-5
visa and Regional Centers entered obscurity and stayed there for about a
decade. EB-5 visas did remain available for solo “Direct” investments. Today
they only comprise approximately 5% of EB-5 investments. This rare use of
EB-5 visas is generally pursued only by members of that rare breed of true
Beware the EB-5 Direct investment “facilitators” who advertise in
foreign markets and promise success. There are no guarantees of success in
any investment or any business venture. Only a fool would believe such
claims. That is why it is rarely ever advertised in such strong language
anymore. Such frauds now most often come in disguise. They might be
accompanied by quite convincing fake documents, false claims, and
endorsements. Endorsements might be total fabrications or might be real
endorsements from people who have also been deceived. There will be
further discussion on scams below.
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III. POOLED EB-5 DIRECT INVESTMENT
a. Pertinent EB-5 Regulations
8 C.F.R § 204.6 Petitions for employment creation aliens.
(g) Multiple investors—
(1) General. The establishment of a new commercial enterprise may be used
as the basis of a petition for classification as an alien entrepreneur by more
than one investor, provided each petitioning investor has invested or is
actively in the process of investing the required amount for the area in which
the new commercial enterprise is principally doing business, and provided
each individual investment results in the creation of at least ten full-time
positions for qualifying employees. The establishment of a new commercial
enterprise may be used as the basis of a petition for classification as an alien
entrepreneur even though there are several owners of the enterprise,
including persons who are not seeking classification under section
203(b)(5) of the Act and non-natural persons, both foreign and domestic,
provided that the source(s) of all capital invested is identified and all
invested capital has been derived by lawful means.
(2) Employment creation allocation. The total number of full-time
positions created for qualifying employees shall be allocated solely to those
alien entrepreneurs who have used the establishment of the new
commercial enterprise as the basis of a petition on Form I-526. No
allocation need be made among persons not seeking classification under
section 203(b)(5) of the Act or among non-natural persons, either foreign
or domestic. The Service shall recognize any reasonable agreement made
among the alien entrepreneurs in regard to the identification and allocation
of such qualifying positions.
b. Pooled investment with non-EB-5 investors.
As stated in the regulations, the other investors or
“partners” in the NCE who are not seeking an EB-5 visa are not
allocated any jobs because it is irrelevant to them. This means
that larger investments in larger businesses which result in a
larger number of jobs benefits the alien investors in that pooled
investment. This is especially important in today’s economy
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because, let’s face it, a dollar does not buy as much as it used to.
In 2015, it now takes $1.82 to purchase something that used to
cost $1.00 in 1990. The cumulative rate of inflation is 82% from
then to now. The required investment amount has not been
adjusted since it was first set in 1990. No wonder it has become
harder to make EB-5 work when investing on your own.
c. Pooled investments with other EB-5 investors.
Also, as stated in the regulations, if the other investors or
“partners” in the NCE are seeking EB-5 visas, then they must
each create ten jobs in addition to your ten jobs. Job allocation
agreements become a necessity because this issue may be critical
to the eventual removal of conditions for all of these EB-5
investors. If the business does not create enough jobs for all of
the EB-5 investors to have conditions removed then only some
who sought EB-5 visas will meet the legal requirements for
removal of conditions. The others might be served with a Notice
To Appear (NTA) for Removal Proceedings. It is theoretically
possible to overcome this adversity and still have conditions
removed if enough jobs are eventually created but it may
demand increasing the amount of one’s investment. When these
businesses are planned and the job count is sketchy, the safe
move is to increase investments from the start so that a larger
business can be created in the first place. When multiple
investors/partners are seeking EB-5 visas it is often a wise move
to include additional partners who are not seeking visas. The
non-EB-5 investors can be the best safety net in these deals.
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d. Scam Danger!
Much like the “facilitators” mentioned above, there are
those entities and individuals who try to act like a Regional
Center but are not one. Do not be fooled. These would be
individuals who talk about making loans to other businesses,
paying off bridge loans on completed projects, or those who offer
economic impact analyses for projected job creation and indirect
jobs. Those possibilities only exist for regional centers.
Be sure to ask questions. When someone is reluctant to
answer your valid questions, take a pass on that deal and keep
looking. Independently investigate claims made about past
business deals. Check the qualifications of the people involved in
any current negotiation. Remember that cookie-cutter models
seldom work. When they do work, they tend to become well
known franchises or chains. Even when they become household
names, they might not be right for EB-5. Many well-known
franchises are successful because they use part time workers
which do not count for EB-5 Direct investments.
This might sound like it is so obvious that it should not need to
be stated. I feel the need to state the “obvious” because if it is not
brought forward, then you are not likely to even think about it. Be
cautious when dealing with people previously unknown to you. Check
all claimed successes and “affiliations”. Check references. In other
words, perform due diligence because if you do not; and you lose your
investment; and you fail to get lawful permanent residence; it is your
own damned fault!