A new RIA Law was passed by the USCIS. How does it affect the current EB-5 petitions in the country, and how does it affect the program as a whole? Is this good news for investors and Regional Centers? Tom Rosenfeld, CEO of CanAm Enterprises, chats with host Ali Jahangiri and shares his professional point of view.
EPISODE TRANSCRIPT
Tom: The good news is the U.S. is still everybody’s first choice. And the thing that blows me away is these people are some of the best and the brightest people that you can find in the world. They’re successful entrepreneurs. Why in the hell wouldn’t you want these people here? Because one out of every four jobs in this country is by immigrants. These people come here and help the economy and create jobs. I think the country is really fortunate to be getting this kind of caliber of people wanting to immigrate here. It’s not just the jobs they create through the program, but what they do after they get here.
Ali: Welcome to the Voice of EB-5 podcast by EB-5 Investors Magazine. We will have provoking discussions every week on the EB-5 program, so please tune in to our podcast.
Good morning everybody to the voice of EB-5, this is Ali Jahangiri, your host. I have a very special guest with me today. His name is Tom Rosenfeld, one of the original pioneer founders in the EB-5 space. Tom, welcome to the podcast.
Tom: Thanks, Ali. I appreciate joining you and look forward to the discussion.
Ali: Tom, I think a lot of the people that don’t know you and that don’t know your background in history want a little bit of a synopsis, but I do wanna start with you entering the immigration space and naming your company CanAm. I always thought that was a cool story you told me. Can you elaborate a little bit on that?
Tom: Well, CanAm has been around for a long time. It’s been around for 35 years because initially, we did both the Canadian program and the U.S. program. I’m an immigrant by background, and I just thought given my background with the law and accounting, this would be a perfect fit. And the Canadian program was really the originator, I think the U.S. program copied the Canadian program, but we represented provinces in Canada. And then when the U.S. came into play, we obviously moved into that, and we’ve been in it since 2002, and one of the original players in the business when the pilot program came into being.
Ali: Tom, it’s obviously a huge benefit to have you talking about the program since you were one of the first ones involved. Your background is a lawyer, correct, Tom?
Tom: A lawyer and a CPA. Yes.
Ali: Lawyer and a CPA. And the regional centers that you guys started with CanAm, I’m guessing you started that around 2003, 2004?
Tom: Yeah. Really towards the end of 2002. When the new program came in, I think we were one of the first to be approved by the USCIS. And we were representing the city of Philadelphia and we were fortunate because, at that time, you could go down and meet with the USCIS. And not because of me, but because the city was involved, we did get an opportunity to go down there, and they were excited about having a city agency like the Philadelphia Industrial Development Corp involved. And that was really one of the first regional centers under the new program. And there was a lot of skepticism back there as to what this thing was and whether it was honest or true and the rest of that, but as we can see it’s come a long way since then.
Ali: That’s very cool. So, what was your first project? It was the Philadelphia one?
Tom: Yeah. It was the Philadelphia. We’ve done a lot there. The first one was actually, like, one of the new restaurants down there. Because we only had six investors because it was a start and we never imagined it was gonna grow the way it did. But it was a small one. Obviously, we’ve done a number of them. We have a convention center… They’ve grown from 6 units to 200 units in a matter of a few years. But that one, I’ll never forget because, obviously, that was the start of it. And frankly, even some of the leadership in the city were skeptical about all this stuff. People take it for granted now, but back then, there was a lot of skepticism as to whether this EB-5 program was real and whether it was gonna yield the kind of immigrant visas that everybody now takes for granted. But it was a big deal. We opened up China. I mean, we were the first people there, and there are so many stories back there.
But I remember that we went to the USCIS and said, “Look, we know transferring money out of China is… They have currency restrictions.” And we said, “If that’s a problem, we don’t wanna start.” And they took it right up, like, the chain. It took us three months and they came back and they said that we are not in the business of enforcing Chinese laws, and as long as people met our requirements, that’d be great. And needless to say, had we not done that… I mean, the first thing we got was an RV that asked that question and we obviously got through that. But we think we played a really critical role in opening up China and getting the first I-526s approved. And the truth is it took off once we got our first I-829s and everybody saw that people were getting visas. Then the China market was just exploded as everybody knows.
Ali: That’s a very, very cool background. So, Philly was the start. Let’s just hypothetically say your company was one of the first 20, 30 cases ever filed for EB-5.
Tom: I think that’s true. We were one of the first and we had the first I-829s that came back. I mean, it’s amazing bridging back to a lot of memories that were good. We’re like 22, 23 years later. What an amazing run it’s been.
Ali: Now you got a guy doing a podcast 23 years later.
Tom: I know. It’s unbelievable. But I’m starting to age. This stuff will age you, though. I mean, this is not an easy business. There are a lot of war stories, and obviously, we are really careful. I mean, we function out of fear. You don’t wanna get in this game and think you’re gonna outwit the USCIS or do something that’s inconsistent with what the goals and mission of the program are because the USCIS, they can be very tough. And investors can be very tough. Everybody says investors are in it just for their immigration benefits. They’re not. This is a lot of money to a lot of people and you don’t take it for granted and you make sure… Our philosophy was invest this money as if… I don’t wanna do a deal that I wouldn’t put my mother into. And obviously, she passed, but I loved my mother. And we were very careful what we did, and we were conservative.
We introduced the loan program. We were the first one to go the appeals route at the USCIS, and we got that approved. And that was a big game-changer. I think we’ve been involved with a lot of game-changers in this program, frankly, but the loan model…all these memories are coming back. That was a direct result of the case that went to the Administrative Appeals Office at the USCIS. And obviously, before that, people were doing…everybody thought of equity, but we didn’t read it that way. And obviously, the loan model was what? Ninety-five percent of the industry users if not more. And that was the catalyst for a lot of big developers getting into business.
Ali: So, kinda looking at it right now, I’m thinking about where it’s kind of evolved to, but Tom, I think you got a lot of good years ahead of you, to be honest. I don’t think at all you’ve aged or anything. But pushing it through right now in the glimpse, the Feds just came out, or the USCIS came out with a new law, the RIA. Can you maybe look at that law a little bit? Maybe explain what the…maybe the public policy was behind that, you think, and I know you were involved in a lot of the stuff.
Tom: That’s an excellent point. Look, I mean, I think the new integrity laws are good for the industry. Don’t get me wrong, they are onerous. But I think it’s really important for the EB-5 program to have a really reputable name. And as we know, historically, there have been issues about whether there was fraud in some cases and whether some bad people got in, and whether some money went to projects that it shouldn’t have. Frankly, I don’t think it was anywhere near as bad as some of the senators thought it was. But for whatever reason, it was very clear that Senator Grassley and Senator Leahy both wanted strict integrity provisions. And in this bill, there are dozens of pages as to what those integrity provisions are.
And I can tell you they really are pretty onerous in terms of what the requirements are. And equally important, if you don’t meet those requirements, the penalties are horrific. For example, if they wanna know everything about you, if you’ve ever been involved in any securities issue or a case of fraud, everything, these bona fides, which everybody must file, they couldn’t have asked for much more. And the truth is if you don’t do, or if you violate some of these rules, they can…fees are equal to 10% of the total capital, they can suspend you or they can permanent bar.
What they went for, frankly, and the easiest way to look at it is: they effectively want these regional centers to run broker-dealers. They want them to be able to meet the requirements of FINRA and the SEC. And we think that’s all good. I mean, we’re fortunate because we have a broker-dealer and we’ve always had the broker-dealer— We were one of the first to get the broker-dealer, but we also comply with that and we get audited by FINRA all the time. But when we look at the requirements now, and if you look at the SEC requirements for broker-dealers, they’re not very dissimilar. So, the USCIS really went hard as to making sure that good players are in the business, and even people involved in selling it.
They wanna know what their bona fides are. They wanna make sure that this is done by the right people. And I think that’s a good thing for the industry. So, is it onerous? Yeah. Is that good? I think overall it is good because the reputation of the industry is the most important thing for the continuation, and frankly, for the interest of investors. And that’s the other thing. Investors should be happy with this because these provisions are gonna scare the hell out of anybody who doesn’t wanna play by the rules. And we all think that’s a good thing.
Ali: Two things came to mind when you said that. Today I was just reading one of our news articles that popped up under LinkedIn that said that agents have to now follow F form. Did you see that?
Tom: Yeah. That’s exactly right. It just came out recently, and it was a draft. They wanna get comments on it. But if you look at that, the same kind of tests for bona fides, they wanna see the agents sign off on. And interestingly enough, they even ask and they’re gonna cross audit. They basically are asking the regional centers which agency you’re working for, what are the agreements? And they wanna make sure that agents file, and then they can compare the two. They want to know who the players are. And you’re right. This form came out, and I think the agents have been waiting for it, I think, but… The same bona fides that the regional centers are required to meet —and they’re onerous— the people who are selling this are required to meet. And we’ll see what happens, but, you know, I’m sure a lot of them aren’t happy about it.
Ali: I actually know a lot of the agents, you and I both know a lot of the agents over the years and it’s…I don’t think their cultures are open to the same kind of ideals as our culture is.
Tom: I agree.
Ali: And I kinda take this as a “What does this mean for us?” Don’t you think they’re gonna be wondering what that means for them?
Tom: I think they will. And the USCIS really, when you think about it, I mean… the securities laws in this country are about what happens in the U.S. and U.S. offerings. The USCIS under this, they actually went to other countries and told, “Determine who’s gonna sell this thing at some level for EB-5.” So, they’ve actually gotten involved indirectly in the securities laws of other countries because, in addition to whatever those requirements are, the USCIS wants to make sure that, in addition to that, that you meet their requirements, which is in itself when you think about it’s unusual, but obviously, they have the authority to do that. And they did. And you’re right. Some of the agents are, “Wait a minute, there are some cultural issues with regard to that”
But they have no… if people wanna be in the program, you gotta play by the rules. And frankly, even the regional centers have an obligation to make sure they do their due diligence on these groups and make sure that we are not working with agents that may not meet certain requirements of the USCIS, which is a really tough burden. It’s pretty hard for regional centers to really audit these agents and stuff. And we’ll do what we can. We’ll get representations, the agreements are gonna be pretty clear, and we’ll do a world check or something.
But there are some issues about how much responsibility the USCIS is putting on regional centers to almost guarantee that they’re working with groups that meet all these requirements. And that’s a very tough standard. And I think a lot of us feel it goes a little too far in making us responsible for those agents and stuff. But it is what it is.
Ali: Yeah. But also, everyone’s probably used to the last regime which didn’t require that. So, there’s gonna be some shifting, I’m sure. As you said, people are gonna have to change.
So, about the cultural… I know that you’ve been really involved in different countries and worked with different groups and cultures. One thing that always comes to mind is the reliability and trust of a brand. And I bring this up as far as CanAm is concerned. A lot of the different Asian cultures and Middle Eastern cultures, the agreements don’t mean a lot, Tom, is what I’ve noticed. And what means to them a lot is track record and name. Have you noticed that, too?
Tom: Yeah. It’s all about trust, and it takes a long time to develop that trust. But once it’s there, that trust is something that really is an interest of anybody who plays in these world markets. CanAm’s been out there a long time. And I think we’re really proud of the reputation we had. We’ve sold. We’ve got more than $3 billion of EB-5 capital. We’ve returned $2.15 billion.
Ali: Congratulations. That is the biggest number in the industry.
Tom: And we’re so proud of that. More than 47 deals have been repaid. And the reason we have such a great staff is because I think everybody knows we wanna do the right thing. But you’re right. Getting a great name is really important. The other side of that is if you do get a great name, a lot of opportunities open up. For example, CanAm is now— because of our name in China and because of what we do— we are independent EB-5 looking at equity deals and investments that don’t necessarily rely on EB-5.
Ali: Kind of parlayed itself to that because of your reputation. Well, it’s kind of interesting. And I don’t know if you know this, Thomas, but the oldest group in Portugal still has not paid back any of its investors because they have a similar structure like EB-5, but there’s been zero payback in Portugal since the program started. Did you know that?
Tom: No. I really didn’t know that. And the weird thing is there are so many issues with some of the regional centers and some of the risk. But, you know, investors should be able to expect to invest in something and get your principal back. I mean, they gotta do their homework and they gotta look at who’s sponsoring it and things of that nature. And it can’t be just every big name that you think is gonna protect you and if any deal in New York City or L.A. is gonna protect you. That’s not true. And we’ve seen in the last couple of years some of the really big players in EB-5 have had serious problems. So, it’s not about the name, a big name or not, it’s about the quality of each deal, and it’s also about the regional center and the people involved in it and what they have done historically. And I think that it should be.
You know, we’ve been out there between the Canadian and this program 35 years. A lot of the agents that we met in Hong Kong and who introduced us to agents in China were people we work with during the Canadian program. And so reputation is a big deal. And one thing that we do that I think is really unique, and I’m bragging a little bit, there’s so much misrepresentation about track record out there. We actually had PKF audit every one of our transactions, every one of each I-526 approval, I-829 approval, each repayment, and we put that audit, which is really like a forensic audit right on our screen.
Ali: You guys audited the paybacks or you audited the deals or?
Tom: Yeah. And the audit from PKF is right on our website. And no one’s done that because, for the most part, nobody wants to talk about the bad things. And we think being open— I think that helps our credibility a great deal, too. Credibility is everything, particularly when you’re dealing with a different language. And there has to be a level of trust, but if you get that trust, that’s invaluable.
Ali: So, like you said, it’s so easy to lose that trust. I mean, this last iteration, I’ve had agents complain to me that certain organizations haven’t paid their commission. And this dates back to 2017, 2018. But just because a company had a big name and raised a bunch of money doesn’t mean that they’re gonna pay you back.
Tom: Yeah. It’s incredible. These agents are the people who can represent you and raise a lot of money for you. Why you would wanna screw those people makes no sense to me.
Ali: I don’t wanna be controversial in this, but I’m gonna be. I think it’s the structure they set up. So, when we’re talking about culture, the Chinese culture, and the Asian culture, the deal is in the relationship and the fabric of the human, like you were talking about. But with the U.S. type of business, the deal is in the words that are written on a piece of paper. So, I think they structured it in a way that gave them the flexibility to be able to not pay the agents, don’t you think?
Tom: Well, we’re very litigious and we are very much “legal documentation”. That is not the way things are done abroad. You can write any contract and stuff. You can always find a hole in it, but it is about relationships and trust. And here, I think people are…well, it’s a business transaction, you should have read the documentation. And you may get away with that for a little while, but eventually, that comes to fruition. And it’s a shame because, again, these investors are…this is a lot of money and they’re acting in good faith. And this is the most important investment they make in their lives because they’re moving the whole family here. So, it’s a big deal. And so, there’s so much emotional attachment to this investment and how important it is to these families. So, it’s still a business and people have to read the agreements, but we’re happy with the way we approach it. And I think frankly, it’s helped us grow our business significantly. And so, if I had to do it again, we wouldn’t…of course, we wouldn’t do it any different and we sleep pretty well at night.
Ali: No, that’s good to know. And it’s at the same token, like the players that have been in the business like yourself and a group of others that are still in the business and have built those relationships and trust have kept on doing it. And I think the few that screwed it up are kind of out of the business, I think. I haven’t even seen them pop their heads back in, to be honest.
Tom: You’re right. And Ali, in fairness, it goes both ways, too, because really good deals, you can’t pay really heavy commissions. You can give them good agent fees and things, but some of the agents are going for the highest commission, and guess what? They’re paying you that highest commission because they’re dealing with relatively risky deals. And so, they’re like it’s worth it to them. So, the agents play some role in this, too, because it’s a business to them. And in many instances, you’ll see people make a decision solely on the basis of what their fee is in the commission. Oftentimes, they pay the price later on.
Ali: Yeah. Recently I heard of a pretty absurd commission number that came out recently and I couldn’t believe it. And I thought to myself, I’m like, “Is this happening again?” It’s ridiculous nonsense of using money to lure in an investment where you should be looking out for the investor’s best interest on the best deal.
Tom: Right.
Ali: But these commissions to the agents, the varying commissions, I think is an issue.
Tom: Yeah. And frankly, one of the things the new law did is they’re requiring people a fee disclosure form where you have to disclose and the investor have to sign a sheet of paper acknowledging what the fees are or at least signing a paper that describes all those fees because the USCIS understands that people don’t know how much money these people are making. If you did, then you would understand that you should be a little cautious about which investment you do. But again, most of the agents are good and they wanna do the right thing because a lot of these investors or their family and friends, and saving face is a big deal, obviously, in China and these other cultures. But it’s not just the developers here. Also, there are a significant number of agents around the world who are focused on one thing.
Ali: But at the same time, I’ve seen agents even leave the business because of deals gone bad. And I’ve seen their whole companies kind of go out of business. So, I think it’s happening on that side, too.
Tom: Absolutely. That’s what they realized and what’s really happening on a lot of the deals where the fees were the highest. And some of the biggest players in China, they’re not getting paid because those deals will have problems. And they regret ever, ever doing that because, like you said, a lot of the businesses will shut down, their reputation is not great, and to boot, they never got paid on a lot of their deals. Some did, but, you know, some of these deals that are paying those kind of commissions really had problems. And we’re starting to see a lot of those problems now. I mean, I don’t think COVID helped, but for the most part, you are seeing the ramifications of those deals because they’re all maturing and people are accountable. And when you see what’s going on, people, including the agents, are thinking twice about how they did business. And it is what it is, but it’s not a surprise.
Ali: So, fast forwarding to kind of a future perspective. I know now things have been, as you and I talked about, kind of flushed out, you got the old players in the business. Hopefully, we have more regulations as you talked about. Good public policy, which is I think all beneficial what you were saying. So, kind of looking at this in the future, what is this picture gonna look like with the regulation, the players? Do you see more developers getting involved? Do you see more regional centers taking a bigger role as a third-party company kind of regulating, or do you see a lot of developers getting back into the business again?
Tom: It’s interesting. There’s a couple of things here. First of all, in this current environment where interest rates are going up and banks are being… again, financing is much tougher than it’s ever been. You’re gonna see developers come back in and you’re gonna see developers who wanna do their own regional center, which there’s a conflict of interest there, obviously. But you’re gonna see people come in because there’s gonna be a much greater need. And so, history is gonna repeat itself. I’ve seen it in the Canadian program. It ends up doing the same thing over again. They may be different players and different kind of names, but big players. But I think you’re gonna see a lot of people come in. And I think investors need to be careful about the deal. You can meet all the integrity provision requirements, and these companies probably do, but it’s still about how good an investment it is. And I think people need to really take a look at that.
The other thing I think you’re gonna see, and this is the other side, every time the USCIS has new rules and regulations, there is a learning curve. And they learn by issuing RFEs. And there’s a lot of frustration because the industry is like, “How could you possibly require whatever you’re requiring? Your S-word is not practical,” or, “Why would you take that position? That’s not what the law says.” We’re gonna see a lot of that, too. It’s inevitable because every time there’s new laws, there is gonna be a difference between the USCIS’s interpretation and what the industry does. And some will get resolved, and some won’t. And what we saw previously is some of these rules, there is no precedent for some of the things and they just start… Nobody knows what the rules are, but the USCIS always takes a pretty tough interpretation. And I think that’s just natural. I think it’s growing claims. I don’t even claim it’s malicious for the USCIS, I just think they’re trying to do their job. And that’s what they think it is. And the industry knows what practically can happen. And I think that those two things collide at some point and over time, I think there’s a hybrid acceptance of certain policies.
But frankly, I think it’s most important in the beginning to be as conservative as you can with whatever projects you’re doing because there is that tendency to kind of question more and have RFEs and things of that nature. So, I expect that, too, but I think you’re gonna see a lot of people in the business coming back and we’ll see what happen. But investors aren’t stupid and they learn. And I think that eventually the truth is gonna prevail and we’ll see what happens.
Ali: Yeah. Do you see retrogression happening after two, three, four years? What do you see? How long do you think this is gonna be before there’s gonna be a stance, though, with the long line?
Tom: Yeah. Obviously, the biggest hurdle for the continuation of the EB-5 program is this retrogression and the limited number of visas. And there’s 10,000 a year, and each family has 3 people. So, there’s three visas per family. So, you’re really talking about 3,500 applications a year. And that can get eaten up pretty fast. I think it’s really hard to tell. Right now because the program was suspended, you’re seeing there’s backlog from that, there’s new… Yeah.
One of the things it does that I think is gonna encourage a lot more people to get in the program is the grandfathering provisions of the law, which basically says, “Once you make an investment and you played by the rules, the USCIS can’t not fulfill their obligation.” In the past, if the program went dormant for a while, the USCIS… Technically, there weren’t any visas to issue. So, I think the predictability that this gives investors is gonna be a real positive and encourage more investors to get in. The good news is investors who had played by the rules are being protected under this new legislation. And I think everybody agrees that that’s really important. But I think the program is gonna grow.
I mean, and we’re seeing China come back in largely because of the reserve visas and things of that nature. But the good news is the U.S. is still everybody’s first choice. And the thing that blows me away is these people are some of the best and the brightest people that you can find in the world. They’re successful entrepreneurs. Why in the hell wouldn’t you want these people here? Because one out of every four jobs in this country is by immigrants? These people come here and help the economy and create jobs.
And yeah, you may find one or two or a few bad apples, but for the most part, I think the country is really fortunate to be getting this kind of caliber of people wanting to immigrate here. And I think it’s not just the jobs they create through the program, but what they do after they get here. I would bet you, and we know so many examples where people create a multiples of the 10 jobs that they’re required to create with their investment once they get here because they start businesses. And that’s a gift to this country. It really is.
Ali: That’s a great point you bring up because I always wondered the big picture of things, the way you’re talking about the people that come in, the value they add. I’m an immigrant, too.
Tom: Right.
Ali: Have you built any personal relationships with these investors?
Tom: You do. I mean, and I gotta tell you my favorite thing with this. The irony is the bigger you get, you do less of it, but my favorite thing is to meet these investors. Particularly, it’s always nice they come into the office and they meet. But it’s also nice to meet them after they got their I-526, they got their I-829, they got permanent residency for their families, and then they got repaid. They really appreciate. They come in, they talk, they wanna have dinner. And they’re good. They’re really good people. And we’re doing a lot of business with a lot of these people, unrelated to EB-5 because, as we discussed, once you have trust, it doesn’t stop just with the EB-5 program. It continues way beyond that.
Ali: Tom, some of the things you say resonate, especially because it makes a lot of sense to create a reputable industry like you have and helped build. And if there is a certain bad actor and they get out, there’s the good actors like yourself and a few others that are in the business that have really helped shape that trust. And I’m really happy to see that even after any of the stuff panned out in this last iteration that people are still pretty positive. I mean, we had 800 people show up in Vietnam.
Tom: Wow.
Ali: And the program is as good as ever. We had as big of a turnout.
Tom: You have a better gauge of that, frankly, than I do because you’re seeing a lot of these… you can measure it. And that energy level is back. And I think that’s great. And there’s a lot of great stories. I mean, the papers don’t write the good stories about all the great projects that have repaid and done all the right things because that doesn’t make news. The bad stories are the only thing they wanna write about, but there is trust in the program. And that’s based on a number of regional centers and groups doing the right thing, but it’s also based on this new legislation that does make people feel comfortable, particularly the grandfathering clause there.
Once you make your investment, the U.S is committed to making sure that they fulfill their side of the obligation. And I think it’s good. And I think you’re right. I think this is… I’m always cautious and stuff, but I think the program is gonna grow, and I think that’s why you’re seeing a lot of big players thinking about coming back in.
Ali: Tom, I appreciate you being on the podcast. And all of your insight does not go unnoticed. You have years and years, you have your 10,000 hours, maybe 20,000 hours!
Tom: Yeah.
Ali: I appreciate you giving your advice to everyone, and I hope to see you soon, either at your offices or abroad.
Tom: Absolutely. And we’re looking forward to the new program. And I think your organization is gonna be… There’s gonna be a lot of seminars. The magazine is great. I think it adds to the integrity of the program. And you’ve done a lot to really help the integrity of the program, and thank you for that.
Ali: Appreciate it, Tom. Everyone that’s still in the industry and is on the same page, now let’s make it as good as we can make it.
Tom: You got it.
Ali: Thanks so much, Tom.
Tom: Thank you. I really enjoyed it.
Ali: You have been listening to the “Voice of EB-5” podcast by EB-5 Investors Magazine. To learn more about this episode, please visit eb5investors.com/podcast. Join again soon for more conversations. And please stay tuned.