From the Desk of an EB-5 Lawyer

by David Hirson

Dear EB5Investors Magazine Readers:

In each edition of the eb5investors Magazine I will review many of the issues that have taken place since my last article. Here is my review of Q1 and Q2 2013.

USCIS service IS improving! 

The first two quarters of 2013 started slowly, but by July it became evident that cases were being adjudicated more expeditiously. Though there were RFEs, NOIDs, and requests for clarification, there were also some approvals.  In fact, our office received four new regional center designations in one week! However, the USCIS has issued multiple RFEs and NOIDs where the basis is “visitor spending” and “tenant occupancy.”  

The Big Event:  USCIS EB-5 Adjudications Memo Dated May 30, 2013

On May 30, 2013 USCIS issued a Policy Memorandum, “EB-5 Adjudications Policy,” PM-602-0083.  It contained many positive instructions to the adjudicators, including many helpful business-friendly clarifications. Omissions to the policy memo will be addressed by stakeholders in the future. The following are some of the main topics covered in USCIS’s direction to its adjudicators.

  • Clearer definitions of key terms for officers

See the memo for several pages of definitions.

  • Reconfirmation of Burden of Proof and Standard of Evidence

The memo confirms that the burden of proof is on the applicant/petitioner. The standard of proof is the “Preponderance of the Evidence” level, requiring that the evidence show that something is “more likely so than not so.” This standard of proof is less than the clear-and-convincing and beyond-a-reasonable-doubt standards.

Adjudication does not need removal of all doubt.  All that is required is the submission of relevant, probative, and credible evidence that leads to the conclusion that the claim is either more likely than not or probably true.

  • Deference Policy

A positive prior evaluation by USCIS will generally be given deference at a subsequent stage as long as the prior adjudication is for the same project. USCIS will continue to completely review a prospective immigrant investor’s lawful source of funds and other eligibility criteria.

  • Actual v. Hypothetical Projects

Business creators may propose hypothetical projects in their application for the designation of a new regional center (“RC”).  Determinations based on hypothetical projects will not receive deference and the actual projects upon which the Form I-526 petitions will be based will be reviewed as new.  An amendment Form I-924 application is not required to perfect a hypothetical project once actual details are available. The Form I-924 for the designation of a new regional center may be for i) a hypothetical project; ii) an actual project; or iii) for a shovel-ready project coupled with an exemplar application.

  • Regional Center’s Geographical Area

USCIS is likely to accept an RC’s geographical extension if it can show by a preponderance of the evidence that the proposed area contributes significantly to the nation’s supply chain and labor pool of the proposed projects. The memo confirms that counting of indirect jobs is permissible outside an RC’s geographical boundaries. Because of this, RCs have greater capacity to sponsor projects without fear of delays caused by amendment applications. Project developers will have more options when looking for RCs to sponsor without fear caused by delays in applying for a formal amendment. 

  • Material Changes

According to the memo, material changes will no longer result in automatic denial.  The new policy allows investors to explain material changes (see memo for definition) when applying for removal of conditions (I-829). 

The timing of a material change will impact a project:

  • If the material change occurs after conditional permanent resident status is obtained and during the conditional residency two year term, the investor can remove conditions as long as investment has been sustained and required jobs generated.
  • If the material change occurs between approval of the I-526 but before adjustment of status or admission as a conditional resident, no changes may be made. A new I-526 will have to be filed.
  • If the material change occurs before the I-526 has been approved, the investor must file a new I-526 with the changed circumstances. This creates the risk that an investor’s child/children could age out and not allow an aged out child to remain under the parent’s application.
  • Job Creation

The memo states that adjudication of cases will no longer be reliant on North American Industry Classification System (NAICS) codes.  NAICS codes will still be used as a reference by economists to verify credibility of assumptions for job creation.  Investors should still establish that requisite direct or indirect jobs will be created.  The jobs created need to be in “substantial compliance” and show creation “within a reasonable time.”

  • Bridge Financing

A developer or principal, either directly or through a separate job creating entity, may utilize interim, temporary or bridge financing prior to receipt of EB-5 capital.  The developer or principal may still receive credit for job creation for the EB-5 investors.  Generally, replacement of bridge-financing with EB-5 investor capital should have been contemplated prior to acquiring non-EB-5 financing and the investors must prove their capital has been put into the project.

Good Practice Point:  Have the following or similar wording be included in the initial loan documents and/or promissory note for the bridge financing: “The lender acknowledges and agrees that the loan may be reduced in part or in full by utilizing EB-5 source funds.”  While this is not a mandatory requirement, it will obviate any intent issues that may arise.

The Adjudications Memo dated May 30, 2013

The 27 page May 30, 2013 Policy Memorandum, “EB-5 Adjudications Policy,” PM-602-0083 can be located at:


The policy memo is solely for the training of USCIS personnel and does not create any right or benefit outside of the USCIS; applicants, petitioners, appellants, and litigators, as well as counsel, may not use this policy memo to establish a case against the USCIS.

Implementing regulations under a portion of the JOBS Act

On July 10, 2013 the SEC issued regulations implementing the portion of the Jumpstart Our Business Startups Act (JOBS Act), enacted in April 2012, allowing an issuer enjoying exemption from registration under Rule 506 of Regulation D under the Securities Act of 1933 to engage in general solicitation and advertising, even in the United States. The SEC news release, with links to the regulations and related discussion, can be found at http://www.sec.gov/news/press/2013/2013-124.htm.  The regulations took effect September 23, 2013.

This ruling will have several implications on the EB-5 industry. The new exemption is separate from the existing and continuing Regulation D exemption that prohibits general solicitation, but does not dictate specific methods for verifying accreditation status. 

  • The rules do not require confirming that potential investors are accredited before soliciting them through general means; instead they require verification of purchasers before they actually subscribe. 
  • The issuer must also take reasonable steps to verify that purchasers of securities are accredited investors. 
  • Determining how to verify the accredited status of foreign investors, few of whom would have filed U.S. tax forms or would be susceptible to a meaningful credit report from a U.S. credit reporting agency, will be one of the most significant challenges for EB-5 issuers.
  • Allowing general solicitation under Regulation D does not exempt issuers from prohibitions on using unregistered brokers. 
  • Many EB-5 issuers who have become accustomed to using foreign sales agents under the Regulation S exemption for purely foreign offerings may be tempted to use those same or other unregistered agents for general solicitation for investors who will not qualify under Regulation S. This is prohibited.
  • In a separate final rule, the SEC now bans any person that is a “bad actor” or who is affiliated with a bad actor from relying on the regulation exemption. The disqualification applies only for events that occur after the effective date of the rule, but events occurring before that date must be disclosed to investors. 

Recent activity in the Securities & Exchange Commission (SEC) enforcement

The SEC enforcement action against the Intercontinental Regional Center Trust of Chicago and its affiliated companies may have broad implications for the EB-5 program.  The judge denied the motion of the defendants Chicago Convention Center to dismiss for lack of jurisdiction and/or for failing to state a claim. The defendants said that the securities were sold overseas (almost exclusively in China) and therefore SEC has no jurisdiction.

The judge used three tests to come to her decision:

  • The "conduct test";
  • The "effect test"; and
  • The "transactional test”

The results of these tests were as follows:

  • Using the prospect of gaining U.S. residency through the EB-5 program satisfied the "conduct test"
  • A minimum investment of $500,000 which creates or preserves 10 jobs for U.S. workers satisfied the "effects test"
  • The signing or accepting the subscription agreement in the United States satisfied the "transactional test"

It will be important to all regional centers to be aware of this important development and govern themselves accordingly.

EB-5 Impacts on Job Creation & Economic Stimulus

Study Results for 2010-2011*:

33,000 jobs supported

$2.7 billion contribution to GDP

If 10,000 EB-5 visas are used:

83,000 jobs supported

$6.6 billion contribution to GDP

With a change in the law and 20,000 EB-5 visas are used:

166,000 jobs supported

$13.2 billion contribution to GDP

Tax Revenue

Spending by EB-5 investors contributed $347 million to federal tax revenues and $218 million to state and local tax revenues.

EB-5 Processing Statistics Q1 and Q2 2013

  •  I-526s: 3,285 received, 1,526 approved, 483 denied
  • I-829s: 427 received, 467 approved, 24 denied
  • I-924s (includes amendments and initial designation): 325 received, 65 approved, 13 denied

EB-5 Visa Usage and Projection

The September 2013 Visa Bulletin issued by the visa office of the State Department shows that the EB-5 category is current for all countries.  The maxing out of EB-5 visas for Chinese nationals in the fiscal year ending September 30, 2013 is unlikely.  There is a high probability that China will reach the maximum number of EB-5 visas in FY 2014, unless the U.S. Congress changes the allocation of immigrant visa numbers.


 *Information from report by IIUSA in collaboration with IMPLAN Group LLC.: Economic Impacts of the EB-5 Immigration Program 2010-2011 Report.


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