EB5 Investors Magazine Volume 2 Issue 1 - Page 74

Continued from page 71 As petitions filed in to U.S. consulates abroad, consuls questioned the complex legalese that allowed investors to receive a visa on the cheap. In 1997, with too little knowledge to dissect the complicated documents, the consuls deferred to INS headquarters in the United States. Then general counsel of INS, David Martin, realized that little of the investor’s already minimal investment was ever at real risk. He issued a memo on December 19, 1997 clarifying that such techniques were in violation of the law, effectively shuttering the EB-5 Regional Center program.5 Countless investors were left in limbo. The next year, INS issued a series of precedent decisions that became hallmarks of the program. The decisions—matters of Ho, Hsiung, Izummi, and Soffici—clarified regulations, restricted the use of promissory notes, prohibited the promise of returns to the investor, limited what qualified as capital toward the minimum investment amount, and required that the investor be personally involved with the business, among many other important decisions.6 They aimed to refocus the program on its original goals of infusing capital into the U.S. economy and creating U.S. jobs. Nonetheless, the EB-5 world would soon be hit with yet another scandal. In 2001, James F. O’Connor and James A. Geisler, of InterBank, were convicted of 48 counts of immigration, tax and wire fraud, among other charges, in connection with their abuse of the EB-5 program. The InterBank Group, LLC marketed EB-5 projects to international investors by misrepresenting the program. The con didn’t last long before Geisler and O’Connor were investigated. According to court documents, the two “jointly devised a scheme” to market the EB-5 program to individuals without the necessary funds to participate. Furthermore, they falsified documents to convince INS that the investors had made the requisite investment. From 1996 to 2000, InterBank subscribed about 335 investors, none of whom invested the full required amount, and collected about $21 million in EB-5 funds. Most of the investors involved lost all of their original investment, and none were found complicit in the scheme.7 Unfortunately for investors, they not only suffered at the hands of unscrupulous business, but also at the hands of INS, who put the brakes on their pending immigration cases. The guidelines established in the matters of Ho, Hsiung, Izummi, and Soffici were applied retroactively, and halted cases that had already passed hallmark obstacles of the EB-5 process, leaving many investors stranded. In order to remedy this, Congress passed a law in November 2002. This special EB-5 legislation allowed investors who had filed their I-526 petitions between January 1995 and August 1998 an additional two years to fulfill the requirements of the program.8 Despite the legislation, investors had to wait years for regulations to be put in place while their immigration status remained uncertain. See INS General Counsel Memorandum, HQCOU 70/6.1 & 70/9-P (Dec. 19, 1997). See http://www.eb5immigration.com/library/files/00707899.pdf 7 See http://www.leagle.com/decision/20041043321FSupp2d722_1972. xml/U.S.%20v.%20O’CONNOR 8 See 21st Century Department of Justice Appropriations Authorization Act, §§ 11031-37, Pub. L. No. 107-273 (Nov. 2, 2002) 5 6 72 During this time, all petitions associated with regional centers were put to a halt. While INS was still adjudicating direct investment cases, the flow of investors was a trickle at best, with only 44 I-526s approved in 2001, and 69 in 2002—the lowest approval numbers in EB-5 history. The renewal Despite the setbacks that plagued the young EB-5 industry, proponents of the program recognized its potential. In the early 2000s, the program experienced a resurgence through regional centers. These pioneering regional centers confronted negative perceptions of the program, hesitation on the part of government officials, and general ignorance of the program (for more on this, see our interview with Tom Rosenfeld on page 50). Some of the early regional centers that are still active today are American Life Inc., Vermont EB-5 Regional Center, CMB Export Regional Center, Seattle Regional Center, CanAm Enterprises, and California Consortium for Agricultural Export. All of these regional centers have demonstrated the benefits of the program by pooling $500,000 investments into projects that have spurred economic growth in run-down areas of a city, county and other metro areas by developing infrastructure, hotels, and other commercial businesses to bring jobs into those areas. As USCIS demanded stricter proof of job creation, as set forth in a USCIS policy guidance memorandum on tenant occupancy dated Dec. 20, 2012, some of these pioneers encountered difficulties with p