EB5 Investors Magazine "Top 25 Awards Edition" Volume 8 Issue 1 - Page 102

We know many regional centers that have redeployed funds outside their geographic area. The fact that USCIS plans to apply this policy retroactively for all existing I-526 and I-829 applications is unfortunate. That said, if the redeployment outside the regional center’s geographic area has occurred after the sustainment period, this policy change should not be material. It will only be problematic if the redeployment occurred before I-829 filing within the conditional residency period. Many inves tors , whose regional ce nte r re de ploye d ou tside the region , could receive R FE ’s or s traight out denials if USCIS does not retract its new policy’s requirement to reinvest the funds within the limited geographic jurisdiction of the regional center. Broker- dealers disclose the redeployment policy at the time of the initial investment. Therefore, those regional centers that use the services of a broker-dealer could avoid such potential costly litigation. DISCLOSURE REQUIREMENTS B r o ke r - d e a l e r s a r e r e s p o n s i b l e fo r r e v i e w i n g a n d approving the of fering documents. No es tablished issuer would ever consider tapping the capital markets without the active involvement and participation of a broker-dealer or an investment-banking firm. Exemption from registration requirements cannot be an excuse for nondisclosure of material information. 16 17 Security counsels make sure that offering documents disclose material information. Yet, it is the responsibility of the broker- dealer to check that the disclosure is adequate and prominent. Security counsels worry about the rollover project not being disclosed in the initial p r i va te p lac e m e n t m e m o r a n d u ms (P P M ’s) b eyo n d generalizations like “similar to the initial EB-5 Project,” or “another real estate development with the same or similar developer ” or whatever, but still without a separate PPM of its own detailing the potential upside and risks of the reinvestment. Broker-dealers do not implicitly endorse any offerings that they are marketing to the investors. That said, they could choose to walk away from an offering due to inadequate disclosure. In many instances, the broker- dealers could also work with issuers to reengineer the offering by, for example: • making changes to the priority of payments in the waterfall • increasing the equity contribution of the project owners • decreasing the debt amount senior to the EB5 investors These are some concrete examples as to how the broker- dealers c an e nsu re that th e r isk- re tu r n profile of the offering aligns better 102 EB5 INVESTORS MAGAZINE against other offerings in the marketplace. As a result, the active involvement early on of a broker-dealer creates a win-win situation for all par ties involved. Investors win because they get an unbiased, regulated entit y whose responsibility is adequate disclosure. Issuers win because they can get their offering structured with a fully disclosed risk/return profile. They achieve efficient exe c u tio n an d avoid c os tl y li tiga tio ns by u n ha p py investors and their attorneys. REDEPLOYMENT CONSIDERATIONS POST-NOVEMBER 21, 2019 When an EB -5 project is completed and sold or refinanced, such that the JCE or its affiliates can pay- off the loans extended to it by the NCE or its affiliates, the funds cannot sit idle in an escrow account, as they ne e d to b e at- risk . 18 O the r wise , the investors could jeopardize the whole immigration benefit of their EB-5 application. A well-thought- ou t re de ploy me n t s tr ate g y is a way to fulfill the “capital at- risk requirement.” 19 "Many investors conduct rigorous due diligence at the initial stage of project selection but are unaware of the redeployment risk until they can get their capital back" Many investors conduct rigorous due diligence at the initial stage of project selection but are unaware of the redeployment risk until they can get their capital back. Without