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  1. 1. Page 1 of 5 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) I. INTRODUCTION 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 venture. 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.
  2. 2. Page 2 of 5 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 entrepreneurs. 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.
  3. 3. Page 3 of 5 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
  4. 4. Page 4 of 5 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.
  5. 5. Page 5 of 5 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. IV. CONCLUSION 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!