USCIS cracks down on EB-5 regional center applications

The USCIS has issued new guidelines that basically say, "new EB-5 jobs are not created when existing employees of a business are merely moved by an employer that changes work sites and reassigns existing workers to newly leased space in a building financed by EB-5 investor funds."

Lawyers and petitioners who've filed Regional Center applications containing tenant-occupancy calculation methods soon found out that they need to directly create jobs as their mailboxes were hit with a “blizzard of blue” Requests for Additional Evidence (“RFEs”), symbolic of both the color of RFE cover sheets and the seasonal affective disorders triggered in individuals receiving these cerulean missives this past winter.

For EB-5 immigrants doing direct investments, it is quite easy to prove creation of 10 jobs as the financial records speak for themselves. For EB-5 immigrants wanting to get approval via a Regional Center, it is now hard if not impossible to get approved.

http://www.nationofimmigrators.com/investor-immigration/immigration-agency-lawbreaking-revealed-usciss-eb-5-tenant-occupancy-scandal/

Who in their right mind would want to risk their money in a Regional Center?

Regional Centers don't even have a clean exit strategy as you are holding illiquid assets that are not easily saleable. Go ahead, ask them about their exit strategy. Compare it with direct investment, where you usually get total autonomy over when to sell your business and more importantly, get to keep the profit if the business appreciates. They may offer you a subpar return on equity, but certainly won't offer you any appreciation in profits. Most of them require you to use their affiliated entities to liquidate your investments.

Every investor needs to ask EB5 Regional center promoters whether the promoters actually tried raising money from Banks and / or through public offerings? The reason EB5 regional center promoters can't usually raise money from banks is because their projects can't withstand the scrutiny of a bank's underwriters, and the reason why promoters can't raise money by offering securities in the projects to US investors is because US investors simply won't invest their money in projects with low return on investment and an inherent inability to liquidate the investment in short order.

The above are reasons why it is smarter and safer to invest money in a direct investment. At the very least, an investor can usually expect to earn at least 15% return on equity each year and easily sell off their business within weeks if needed instead of locking up money in an unviable project for years.

Are Regional Centers violating Securities Laws too?

I recently spoke with a promoter (Michael C. Palmer, CPA) of a Los Angeles based Regional Center (http://www.eb5socal.com). The legal name of their firm is California Real Estate Regional Center. When I asked Mr. Palmer whether he as a CPA was sure that his firm was tax compliant with US tax laws that specifically PROHIBIT pass through taxation for Non-US persons (i.e. US citizens and Permanent Residents), he had no answer. On further investigation, I noticed that their firm claims on their website that they're a boutique bank and apparently lend money to hotel projects.

This firm was recently certified as a Regional Center in 9/2011, so the question to ask them is, how many investors have obtained permanent resident status through them? The answer is probably a big fat zero!

The other apparent question is, are there any conflicts of interest or are the borrowers at arms length?

The more important question is, are the promoters violating US Securities laws too in addition to tax laws? The reason I have this question in mind is because apparently Mr. Palmer's firm is doing a Reg S offering of membership units in a Limited Partnership to non-US persons in a possible violation of US tax laws. In a number of states, an LLC cannot be formed to conduct certain types of businesses (e.g. banking, insurance), so I am not sure EB5Socal is fully on the up and up when they claim to be an investment bank.

http://www.avvo.com/legal-answers/can-i-have-a-foreign-national-as-my-partner--106402.html


The question is either the entity can do sales of shares in a C corporation to non-US investors or sell shares in a limited partnership to US persons. Better still would be if their attorneys obtained a certificate of compliance (opinion letter) from the US IRS and SEC.

I would certainly like a tax attorney and securities attorney get together and certify that this structure is legal and complies with US laws, because I believe that any entity, irrespective of structure, is prohibited by law from pass through taxation if it has foreign owners. On a final note, I asked Mr. Palmer what is the expected rate of return, and he mentioned a 3% rate. Even I could easily help investors earn at least 3 times better than Mr. Palmer's rate of return without needing to lock up funds in a firm that seems rather shady to begin with.

Finally, failure to disclose material facts is classified as securities fraud, and regional centers routinely fail to fully and truthfully disclose all material facts, such as conflicts of interest and securities law violations.