Proliferation of EB-5 “Funds” Spells Trouble for Developers

There is one indisputably clear “job creation” impact of this whole EB-5 business:  it is sure opening one heck of a lot of new collateral businesses within and without the U.S.  Consider:

  • While there were but a handful of immigration attorneys creating complex EB-5 Regional Center structures just a few years ago, we suddenly have hundreds of self-proclaimed experts all to happy to put together an RC.
  • China has the only organized, government-licensed (if somewhat less than ethically pristine) immigration agency structure on earth, but there are suddenly of “immigration agents” in Russia, Brazil, you-name-it aggressively marketing their proven EB-5 results (??) to U.S. EB-5 projects
  • The notion that there is this big, long-line of prospective EB-5 investors lined out the door of each of us who work in this business has triggered a rapid growth in mezzanine debt providers who claim they can use EB-5 investment “pools” to provide short term venture capital to desperate U.S. developers.

I’m not going to get into the cornucopia (hey, give me a break, it’s almost Thanksgiving and I never get to use that word) of SEC violations associated with the notion of collecting money from an investor as the law requires (i.e., via a Reg D or Reg S exemption to registration) and putting that money elsewhere.  I won’t dwell on the notion that you can raise venture capital via a private placement without fulling disclosing the specific use of the funds under U.S. securities and state blue sky lies (you CAN’T.)  And I won’t harp on the AMPLE adjudicatory history, stakeholder dialogue, and regulatory guidance which makes it crystal clear that USCIS wants to see a specific EB-5 investor’s money go into a specific, USCIS-approved EB-5 project and NOT into some vague, general-purpose capital stack distributed for multiple, unrelated projects.

I will simply leave you with a blog entry from my friend Boyd Campbell, who finds this whole mess as downright absurd as I do.  Be careful out there, my sophisticated developer friends, the investors in China aren’t the only ones getting bamboozled.

Boyd Campbell’s excellent blog about USCIS policy wavering