Thursday, January 4, 2018

EB-5 Regional Center Termination Overturned: AAO Gets it Right

(Wolfsdorf Rosenthal) In a huge win for EB-5 regional centers, the USCIS Administrative Appeals Office (“AAO”) overturned a previous regional center termination order by the Immigrant Investor Program Office (“IPO”) in Matter of P-A-S-, LLC, ID# 513109 (AAO Dec. 21, 2017).  This is the first time the AAO has overruled the IPO since creating the new standard for EB-5 regional center terminations articulated in Matter of S-D-R-C-, ID# 13768 (AAO Mar. 15, 2017).

In the non-precedent decision, the AAO issued a thorough and balanced analysis of the negative and positive factors for EB-5 regional center authorization.  This decision provides a particularly just outcome for the EB-5 investors, since all I-526 petitions would have been denied if the regional center’s termination had been sustained.  Wolfsdorf Rosenthal LLP has previously written on the types of “positive and negative indicators” that IPO is to balance when determining whether an EB-5 regional center is continuing to promote economic growth in accordance with 8 C.F.R. § 204.6(m)(6).

The EB-5 regional center in this decision, Path America SnoCo LLC, was first designated in August 2011.  In August 2015, the U.S. Securities and Exchange Commission (“SEC”) filed a complaint in federal court alleging that the former principal of the EB-5 regional Center fraudulently raised EB-5 capital and misappropriated investors’ funds for other projects or his personal use.  As part of the SEC litigation, a court-appointed receiver took possession and control of the regional center’s projects in October 2015.  Due to the SEC allegations, IPO terminated its regional center designation in November 2016 for failure to promote economic growth.

On appeal, the regional center provided documentation from federal court and the receiver indicating that the former principal accused of stealing the money is no longer a principal of the regional center and no longer controls its activity or EB-5 investor funds.  The regional center provided evidence of positive steps it took to overcome the diversion of EB-5 investor funds and to rectify the lack of procedural safeguards that allowed this to occur, including a new management company to run the regional center’s operations.  The regional center also presented evidence to show that the sponsored EB-5 project continued to make significant progress on construction before and during the SEC proceedings, and included evidence that the project was operational and creating jobs.  These positive factors outweighed the negative factors related to the diversion of funds, mismanagement, and lack of monitoring safeguards.

EB-5 regional centers struggling with a dreaded Notice of Intent to Terminate (“NOIT”) should look to this pivotal decision with cautious optimism.  While it may be difficult to acquire traditional financing while under SEC investigation for budgetary shortfalls, and to recover misappropriated funds, the AAO appears to be looking more at the “whole picture” surrounding the regional center’s termination to determine whether it is more likely than not to promote economic growth in the future.

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