For immigrant investor capital to be “at risk,” it must be
subject to gain and loss, and be invested in a for-profit
entity. Related, the regulations prohibit debt arrangements
between immigrant investors and NCEs. So it’s worth noting
that the mere fact that an immigrant investor holds a right
to resell his or her interest to the NCE doesn’t necessarily
violate the at risk requirement, as the investment could still
be subject to gain or loss. Nevertheless, such an agreement
would likely constitute a debt arrangement, although an
unsecured one.
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the petitioner's capital from risk because it provided the
petitioner with a right to receive its capital back at a set
price, the Call Option does not provide the Plaintiffs in
this case with any rights. Unlike in Matter of Izummi, no
guarantees were made to the Plaintiffs in this case that
their capital would be returned regardless of the success
or failure of the business. The Call Option gave Quartzburg
Gold's general partner the right to repurchase the Plaintiffs'
interests if the business was successful, but that right did
not limit the substantial risk that Plaintiffs' investment
could be wholly lost if the business was unsuccessful."
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USCIS’ new policy generally conforms to the holdings in
Izummi, with one notable exception in a section entitled
“Option exercisable by the new commercial enterprise.” A
commonplace agreement between
immigrant investors and NCEs is
referenced here as an example: a call,
or buy, option wherein the NCE has
the option to repurchase immigrant
investor interests. USCIS states that
it “generally does not consider these
arrangements to be impermissible
debt arrangements” but qualifies
i t wi th “suc h an option may be
impermissible if there is evidence
the parties construct it in a manner
that effectively converts it to a mandatory redemption
or an option exercisable by the investor.” Examples of
impermissible agreements include those wherein an NCE is
required to repurchase immigrant investor interests upon the
occurrence of a specific time or event.
8
Accordingly, the court properly found that the call option
complied with Izummi because it was held by the NCE, not
the immigrant investors, and it did
not limit the immigrant investors’
exposure to risk of loss or gain on
their investment.
"Izummi found that the
put option violated the
at risk requirement
because it bore the
hallmarks of a debt
arrangement"
9
10
While, on their own, these examples are perhaps reasonable
extensions of Izummi’s holdings given that they provide
certainty to immigrant investors with respect to time of
repayment, more concerning is the language allowing
USCIS to find the existence of an impermissible debt
arrangement “if there is evidence the parties construct”
the call option as a put option. This begs the question:
what evidence? In other words, what would allow USCIS to
determine that an NCE and its immigrant investors interpret
an agreement in that fashion? Moreover, interpretations
are necessarily subjective, so how is USCIS to accurately
review and opine on the subjective intentions of other
parties?
11
We’ll circle back to these questions at the end of the article.
For now, let’s review how federal courts have viewed
prior attempts by USCIS to stretch Izummi’s holdings on
redemption.
FEDERAL COURT CASES
Doe v. USCIS centered on a call option allowing the general
partner of the NCE to "repurchase the interest of a Limited
Partner for a purchase price of either $550,000 in cash, or 400
ounces of gold (99 percent purity)." In denying the underlying
immigrant investor petitions, USCIS relied on Izummi, claiming
that a call option is “suggestive” of a prohibited redemption
agreement. In response, the court reasoned:
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“Unlike the sell option in Matter of Izummi, which insulated
15
Similarly, in Chang v. USCIS, the
court held that the NCE’s buy option
in that case did not constitute an
impermissible debt arrangement and
did not violate the at risk requirement.
The court reasoned:
16
17
A buy option … is a contractual right held by the company
to end the financial relationship by returning the investor's
money. The investor does not contribute her capital "in
exchange for" a debt arrangement, because she does not
receive any consideration in return for her money. Rather,
it is the company that benefits from both sides of the
agreement: it has both the money and the right to return the
money if it would prefer to have the investor's partnership
interest back. For the same reason, a buy option places
the investor's "capital at risk for the purpose of generating
a return on the capital placed at risk," id. § 204.6( j)(2),
while the debt arrangements prohibited by the regulation
do not. Unlike a sell option — or a note, bond, or similar
arrangement — a buy option provides the investor with no
security that she will ever see her money again.
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THE POLICY ALERT
Despite these holdings, USCIS’s new policy alert once again
stretches the bounds of Izummi. Indeed, USCIS incorrectly
cited Izummi for the proposition that a call option might be
impermissible: “Matter of Izummi addressed redemption
agreements in general, and not only those where the
investor holds the right to repayment.” The Chang court
squarely addressed this erroneous conclusion on the
part of USCIS, stating that “even the broadest language in
[Izummi] underlines the distinction between sell and buy
options that USCIS now attempts to blur.”
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Most troubling about the new policy alert, however, is the
language mentioned above allowing USCIS to deem a sell
option impermissible upon evidence that the immigrant
investors and NCE “construct” it as a “a mandator y
redemption or an option exercisable by the investor.”
So again, what evidence? The new policy alert does not
provide any insight by way of examples or otherwise.
EB5INVESTORS.COM
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