(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.
