of reflecting matters related to the sustainment period. Notably, EB-5 offering documents today typically have a shorter term for repayment of EB-5 capital to the NCE with extension rights, to accommodate the needs of the EB-5 industry( e. g., a three-year term with three one-year extension options).
Specific EB-5 projects involving the sale of condominiums or residential units provide the advantage of allowing for an ordinary liquidation of assets to easily accommodate the foregoing shorterterm model, where each EB-5 investor’ s time frame will be different, as compared to a lump-sum payment upon the sale or refinancing of other projects. Typically, a three-year term is realistic if the EB-5 project is shovel-ready and / or under construction.
OTHER LITIGATION AND COMPLIANCE ISSUES There are no clear guidelines on who exactly needs to file the Form I-956K, Registration for Direct and Third-Party Promoters, or the Form I-956H, Bona Fides of Persons Involved with Regional Center Program. So there is uncertainty regarding whether they are mutually exclusive. This doubt in the EB-5 industry is further problematic where many sponsors want to limit what principals related to their NCEs and EB-5 projects need to be disclosed. Such disclosures are relevant where they affect the information provided on NCE and Regional Center’ s websites, as well as the documents that are contained in the Form I-956F that is filed with USCIS for each EB-5 offering.
Sponsors are taking greater care in limiting their EB-5 investors’ access to the NCE’ s EB-5 members and limiting their ability to bring class action claims. Additionally, sponsors need to consider whether to require arbitration for any dispute resolution matters. In any event, sponsors must still ensure there are adequate EB-5 investor protections in their EB-5 offering, corporate, and loan documents.
Additionally, sponsors should address in their EB-5 offering, corporate, and loan documents the parties responsible for a claim based upon violations of U. S. securities laws, and allocate risk between the NCE and JCE / borrower to take into account the JCE / borrower only being responsible for the project-related information included in such documents.
Consideration should also be given to including appropriate regional center-related disclosures to the extent that the regional center’ s exposure should be limited to its duties as the sponsor of the EB-5 project under the regional center sponsorship agreement and the EB-5 Program. A primary consideration must be to ensure clear and appropriate disclosure of conflicts of interest where the NCE and JCE are affiliated, whether directly or indirectly, as well as, in certain cases, minimizing or otherwise addressing any such conflicts of interest. For example, engaging an independent EB-5 loan administrator and / or fund manager to administer and enforce the EB-5 loan. Notably, such actions often make an EB-5 offering more marketable to prospective EB-5 investors as they recognize the further protection their investment is given, notwithstanding the conflict of interest that is or may be present.
Also, consider when any of the applicable EB-5 offering, corporate, or loan documents need to be modified from time to time to take into account any of the above issues or following any event that could be
deemed a material adverse change to the EB-5 investment from an immigration and / or U. S. securities laws compliance standpoint.
Regarding bridge financing that is ultimately replaced by EB-5 capital, USCIS has taken inconsistent positions on the look-back period related to any bridge debt and equity funding and the need to create jobs prospectively. For example, there is uncertainty regarding an EB-5 investor’ s immigration status in the case where the EB-5 project has been substantially completed and most of the jobs have already been created; query whether this prejudices the last EB-5 investors who invest in the NCE for such an EB-5 project.
USCIS has, more recently, taken the position that an EB-5 project cannot rely on EB-5 funding to complete. Still, that evidence must be shown of the ability of the JCE to ultimately obtain the other sources of funding required in the capital stack, such as a senior loan commitment and / or proof of developer availability.
EB-5 PROFESSIONALS MUST MITIGATE RISKS UNTIL THESE CASES ARE RESOLVED All professionals involved in preparing the EB-5 package have a responsibility to take reasonable care in providing clear information about the risks regarding making an EB-5 investment.
Given the great uncertainty surrounding many EB-5-related requirements, they must create a financing structure, and a detailed EB-5 package.
This effort will minimize the sponsor’ s risk exposure from an immigration, U. S. securities laws and corporate / fiduciary compliance standpoint.
Hopefully, these moving targets will be narrowed in the future.
RONALD FIELDSTONE
Ronald " Ronnie " Fieldstone is a Partner and EB-5 securities attorney at Saul Ewing LLP in Miami. With more than 45 years of legal experience, he specializes in corporate, real estate, securities, and tax law, having successfully managed over 500 EB-5 projects and raised more than $ 9 billion in capital.
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