U.S. Court Reverses USCIS in Favor of EB-5 Investors

There has been much discussion of late regarding USCIS’ interpretation of call options in EB-5 investment structures.  For reasons which I have expressed in other forums (see my comments at here, the USCIS has been making a fundamental error in equating an option which can only be exercised by the New Commercial Enterprise (NCE, that is, the entity in the U.S. creating the EB-5 jobs) versus options which can be exercised by the EB-5 investors. While it has been long-standing –and reasonable –policy that any form of exercisable option on the part of the investor can mean a reduction in the required “risk” element of the investment, there is no relevant reduction of risk for an option which can SOLELY be executed by the NCE.

I am happy to report that earlier this week, the U.S. District Court for the District of Columbia rejected USCIS’s interpretation of the so-called “call option” to deny EB-5 investors’ I-526 petitions. You can see the full decision here,  Chang v. USCIS, — F. Supp. 3d —-, 2018 WL 746081 (D.D.C. 2018). The USCIS had denied the petitions on the theory that a “call option” (or “buy option”) giving the new commercial enterprise a right to redeem the EB-5 investors’ interests was an impermissible “debt arrangement”, citing Matter of Izummi , the original case which prohibited investor-exit options. 

In what was a refreshingly clear and strongly worded opinion, the Court chastised the USCIS for its logic, concluding what was obvious to the rest of us: Izumni extends only to financial arrangements which give investors a contractual right to receive their investment back at a particular time and does NOT prohibit options by the NCE, specifically saying:

 “USCIS has acted in a manner that conflicts with the plain language of its regulations, that is not compelled by statutory or regulatory purpose, that unreasonably stretches the rationale of Matter of Izummi, and that runs counter to the evidence in the record.”

With USCIS adjudicators under tremendous pressure and the massive processing backlogs, I feel for the adjudicators who are wrestling with complex EB-5 issues requiring them to draw very fine distinctions between what is and what is not permissible.  As a former visa officer, I wish USCIS’ fine EB-5 team could have some sort of “brainstorming” forum with those of us who have been immersed in the nuances of EB-5 adjudication for so long.  I have no doubt that if such a forum existed, the adjudicating officer(s) in question would have immediately understood the distinction and instead of issuing the NOIDS, issued the approvals.  A lot of time and money could be saved for both the USG and for EB-5 investors if we could work together to provide USCIS adjudicators with the collective experience of bona fide EB-5 experts who are equally focused on adhering to regulatory details.