The EB-5 Immigrant Investor Program is the pathway of choice to U.S. permanent resident status for foreign investors around the world, and while it is among the easiest and quickest routes to U.S. immigration, it still encompasses a myriad of requirements, such as the “at risk” requirement. EB-5 applicants must maintain their EB-5 investment capital at risk throughout the entire investment period to be considered for a green card. This does not mean that an EB5 investment must be risky—just that it must incur the possibility for gains as well as the risk for loss.
Given the “at risk” requirement, guaranteed redemptions are typically prohibited, and United States Citizenship and Immigration Services (USCIS) has denied numerous I-526 petitions for precisely that reason. However, not all guaranteed redemptions are actually free from risk—those that depend on the cash flow of the new commercial enterprise (NCE) still incur the risk for loss. Adopting this argumentation, Klasko Immigration Law Partners took USCIS to court over the denial of I-526 petitions that involved “put options”—the investor’s right to sell their EB5 investment back in the future.
The case was successful, with the court ruling in Klasko Law’s favor. The decision is monumental in that it effectively nullifies a portion of USCIS’s regulations regarding the “at risk” requirement. As the first such federal court decision, the ruling could spur a wave of appeals from similarly denied EB-5 investment participants and trigger a change to the official USCIS regulations.
What Was the Case?
Klasko represented five Chinese investors who had made EB5 investments in a senior living facility called Mirror Lake Village in rural Washington. As the petitions had included put options, USCIS had denied them on the grounds that the “investments did not qualify,” but the federal court ruled that the immigration body had failed to provide a reasonable justification for the denials and was operating under an unreasonable interpretation of “at risk.”
According to the Court of Appeals, the put options depended entirely on the cash flow of the project, and if the NCE failed to generate sufficient revenue, the investors would lose out. Similarly, if the NCE flourished, the investors would make gains on their EB5 investments—thus, the investments included both the opportunity of profit and the risk of loss.
USCIS’s Judgment Dubbed an Error
U.S. Circuit Judge Merrick Garland considered USCIS to have erred in its interpretation of its own definition of “at risk.” USCIS requires an EB-5 investment to include the possibility for both gain and loss, but in the denials of these Chinese investors, the adjudicators seem to have judged the possibility for gain as a negation of the possibility of loss. Garland noted how the interpretation directly contradicts USCIS’s own definition of “at risk,” adding that if the possibility of success always negated the possibility of failure, no stock investment would ever be considered “at risk” because there is always the possibility of a business succeeding.
USCIS defended its decision by citing Matter of Izummi, which stipulates that redemption agreements are prohibited. The federal court overturned the immigration agency’s overly broad interpretation of the matter by ruling that the prohibition can only apply to redemption agreements that incur no risk of loss. Redemption agreements contingent on the NCE’s success are, by definition, subject to risk, as a business is never guaranteed to succeed.
The USCIS Policy Manual directly states that redemptions need not be guaranteed to constitute an impermissible EB-5 investment by EB-5 regulations. Instead, the mere fact of the investor having a right to demand a repurchase is, according to the USCIS Policy Manual, impermissible. This passage sheds light on the adjudicators’ decisions, but ultimately, the federal court’s decision overpowers that of USCIS. In this way, the court ruling essentially voids much of USCIS’s regulations regarding redemptions.
In light of the court decision, changes to the regulations could be coming in the future, as USCIS faces the possibility of further appeals from EB-5 investors rejected in similar circumstances. The court decision reignites hopes for a life in the United States of numerous investors who believe their dreams have been dashed unjustly.