In this episode of Statutes of Liberty: An Immigration Podcast, EB-5 attorneys Ron Klasko and Dan Lundy talk with Anu Nair about a major litigation victory on which they were co-counsel. The litigation is significant because USCIS had put restrictions on the EB-5 regional center program that went beyond what Congress intended when it reinstated the program in March 2022, which would have killed the program for years. Read and listen as they explain the importance of the settlement and what it means for regional centers and investors moving forward. Here is a transcription of the discussion between Ron Klasko, Dan Lundy, and Anu Nair.
Anu Nair: Hi, everyone! Welcome to our podcast. Today we’re going to be talking about the EB-5 Regional Center program. This podcast is being recorded right after a major victory in federal court, and I don’t think I would be wrong to say this is one of the most important victories that we’ve had, and our firm served as co-counsel on this litigation.
I’m really happy to have on the podcast, attorneys who were involved in the litigation. One of whom is our managing partner at the firm Ron Klasko and the other is Dan Lundy who is also a partner at the firm. So welcome to both of you. To give everyone a little bit of a background, we know that the EB-5 the regional center program was a pilot program that had to be extended every once in a while. June 30th of 2021, there was a lapse in the program while we were waiting for legislation to be passed to extend a program to remove the word “pilot” and make it a longer-term program. And of course, we all know that that bill was passed in March of 2022, The industry was really excited because after a long eight months we were finally excited that we were able to have our investors file for their petition, have regional centers be back on track, and have development start again with EB-5. But unfortunately, nothing is ever quite as simple with USCIS, and so we were unable to file petition because of some restrictions that USCIS read into the legislation which really wasn’t there, which resulted in some litigation. So, Ron, I’m going to turn to you to give us little bit more detail about the background of why we needed to litigate to have the regional center program be back again, basically.
Ron: Yea Anu, and that’s a good introduction and you’re certainly right that this is incredibly significant to the entire EB-5 industries. So, when the law passed, the new law we’ll call the reform and integrity act or the RIA. When that past in March it had an effective date of May, and everyone was gearing up to file applications in May 2022. And right around then the immigration service unilaterally posted on its website that everyone in the over 630 authorized designated regional centers were out of business. They were decertified. Well, that created a shock because that would’ve required every regional center to re-file for designation which realistically, without exaggeration, would’ve taken years for all of those to be approved and the program would be dead for years. And it had nothing to do with what Congress had in mind. So, we decided to litigate that, and very happily, five of the largest most successful EB-5 regional centers became plaintiffs in the litigation that we filed. Another plaintiff was IIUSA, the regional center trade group and another regional center we don’t represent named Behring Regional Center, all teamed up to file litigation challenging this.
The good news is that the judge agreed with us and issued a nationwide preliminary injunction preventing the immigration service from deauthorizing all the regional centers. and that was a cause for celebration because finally this program is getting started — but not quite. Because the USCIS issued a new form on called an I-526E for investors to file and in the instructions it says you can’t file this investor petition until you have a receipt notice for the project application filed by the regional center called an I-956F. But there’s only one problem with that, USCIS was not issuing any receipt notices. So, we have months go by where project applications are filed and there’s no receipt notices, so no investor can file. And before we got back to court on that, we were able to settle everything with the government and the result was a settlement agreement signed by all the regional centers and IIUSA and USCIS attorney that puts this program completely back in business in a way that it hasn’t been in many many, many, many years. And that’s what we’re going to talk about today is what the terms of this settlement agreement are and how that puts the EB-5 regional centers full speed ahead.
Anu: So, Ron, you have recently published some, I would say highlights of the settlement agreement on our website., but I did want to kind of go through that today as well. So, you had mentioned that initially the regional centers were decertified, so right now you’re saying that the settlement confirmed that they’re not decertified and so all regional centers are active again?
Ron: Yea, so everyone of the regional centers, and there’s about 632 I believe. They were designated under the previous law and have not been terminated, are designated now. And fully able to do business they can put file project applications, they can investors in the project compile investor petitions so they are back in business. However, in order to stay in business, they must file a kind of it’s called a regional center amendment on a form I-956 that must be filed by the regional center by December 29, 2022. But in the meantime, between now and December 29th they’re fully operational and it’s the mere filing of the application that keeps them in business. So, if the immigration service does not look at the I-956 application for two years it doesn’t matter because it’s the filing of the application that matters not the approval. So, for regional centers they have every reason to believe now that they are in business in the long-term, and can continue to sponsor projects and investments.
Anu: So, Ron, you mentioned the 956 form and the 956F form can you briefly explain what the differences between those two?
Ron: Sure, I’m glad you asked me that because it’s confusing. So, the I-956 is an application for a regional center to be designated or continue to be designated as an approved regional center. The new law says that if you’re going to have a project for investors to invest in before investors can invest the project has to file a project application called an I-956F. And under the new law it’s the filing of the I-956F that allows investors to proceed with the investment. And just like I said with the regional center, it’s the same thing with a project. If the project files an application today investors can proceed to file investor petition. It may be that the immigration service won’t look at this I-956F project application for 3 years, but it doesn’t matter because it’s the mere filing of the application that allows investors to invest and allows the immigration service to approve the investors petitions.
Anu: So, Dan, Ron had mentioned previously that the 526E instructions require you to have a 956F receipt notice to file for the 526. What sort of documents can investors for regional centers use in order to make sure that they are complying with that requirement and be able to file their 526E petition?
Dan: Okay, so it’s important to note that USCIS is now issuing two different receipt notices. They’re issuing a lock box receipt notice for the filing fees and then they are also issuing a receipt an I-797 when the application is data entered into their system. So, investors have a couple of choices if within 10 days of filing 10 calendar days of filing the 956F, you haven’t gotten a receipt. investors can file the lockbox receipt and the first six pages of the form 956F. Or if they haven’t got the lockbox receipt, they can file with a copy of the cash check or credit card payment evidence, the approximate delivery dates, the regional center name, and the NCE name and that will serve as the receipt number for the purpose of the form. Now in that case, the investors later have to interfile the actual 956F receipt when they get it.
Anu: One of the things that the settlement also allows for is that USCIS is supposed to take “best faith efforts” to give the lock box receipt notice back in a prepaid envelope. I know a lot of attorneys like to submit prepaid FedEx envelopes to get receipt notices back quickly everyone knows that’s a hit or miss at this point but hopefully with this settlement they will take “best faith efforts” even though that’s not defined, and give those receipt notices a little bit faster.
Dan: Right, they’ve also agreed to for the first 16 weeks try to provide electronic copy as receipt notices as well.
Anu: So, Ron, if a regional center was previously authorized before June 30th of 2021, what are the chances that they’re going to have issues getting recertified with the new process of the 956?
Ron: This should be a very small chance of a problem as long as the regional center is doing everything that’s going to be required to do to meet the new compliance procedures securities compliance. The settlement agreement says that everything about the regional center that was approved previously will be given deference under the new law. So, they’re not going to question that. But to the extent the new law adds new requirements fund administrators and audits and securities compliance and lots of investor protections that are added. So, the 956, the regional center has to explain how they have procedures in place to comply with the new law’s requirements. I’m assuming they do that everything else about them that was approved previously there’ll be deference in the new application. The only thing where we – when we negotiated the deal we dealt with separately is the issue of the geography of the regional. So, if a regional center is requesting the same geography that it had before then there should be deference given to that. If the regional center is requesting an expanded geography from what it had before and everything else will be given deference, but the expanded geography will get no deference and the regional center cannot sponsor a project in the expanded new geographical area until that’s actually approved.
Anu: So, is there also deference for projects that had previous exemplar approvals and are there any limitations on that?
Ron: Yeah, so separate from we’re talking two different things as you point out, Anu. One is we’re talking the deference to the regional Center designation, which is what we just talked about. Separate from the that we have a what we call under the old law exemplar project approvals. So, if a project had received approval previously, nothing needs to be done if the project is not going to accept anymore new investors under the RIA. However, if that same project that was previously approved want to accept investors under the RIA the project has the file this 956F project application. And the approval of the exemplar under the previous law will be given deference when they look at the I-956F. And assuming everything is the same and there’s no material differences, then the I-956F should be approved if the exemplar under the old law was approved.
Anu: So, Dan, we have a couple of investors, not a couple, we have a number of investors who went into smaller regional center projects before the expiration of the previous law in June 30th of 2021. And because there were smaller regional center projects and the regional centers are really looking to stay in the business, they’re not sure if they want to file 956 to recertify as a regional center. So, what does that mean for the investors who have filed 526 petitions before June 30th of 2021?
Dan: So, if an existing regional center fails to file an I-956 by December 29th of this year, the regional center will, you know, will not continue to be able to do business as a regional center. They won’t be able to sponsor a new projects or new investments. However, any investor that filed pre-enactment of the law will not be denied because the regional center no longer continues. Now I don’t believe that applies necessarily applies investors to file after the enact after the effective date of the settlement, but for anybody who filed before the program lapsed, they’re going to be fine. They should be grandfathered and even if the regional center decides not to continue they should be okay with going forward with their process.
Anu: A couple of the other things really quickly that I want to mention is that USCIS had said that they were going to have new forms and instructions that are supposed to be available by December 1st and they’re going to kind of engage in that notice and comment rule making for all new EB-5 forms. They’re also supposed to update their website regarding the terms of the settlement agreement within about three weeks, 21 days. So, all this information should be available on the USCIS website itself, but there’s one other last part that I want to spend a little bit of time on. And Ron, if you can take us through this because I think you were the architect of this, it’s something really interesting about being able to meet with USCIS on a quarterly basis?
Ron: Yeah Anu, this is huge and you’re right I did have something to do with getting it in the agreement. So, under the agreement USCIS is required to meet with representatives of the plaintiffs, and I expect we’ll be involved in that as co-counsel to the plaintiffs. Meet with representatives of the plaintiffs at least four times per year for two years. So, at a minimum for eight different meetings, to talk about the implementation of the settlement agreement, any changes need to be made, and basically whatever we can discuss that might help the, you know, success of the EB-5 program. So, it’s a opportunity that has not existed previously for the EB-5 industry to have ongoing dialogue with the Immigration Service which is really been sorely lacking in for a very, very long time and hopefully that will be very very useful.
Anu: So, I think that covers the most important aspects of the settlement agreement from what is really a seminal litigation. I think it’s going to be discussed in the EB-5 industry for quite some time. And as Ron mentioned the ability to have these quarterly engagements, I think is a huge victory because a lot of times we’re very excited and then there’s no contact with USCIS and so this is very exciting to be able to have that ongoing discussion. Ron, Dan, I don’t know if you have any additional information or anything you wanted to discuss that you wanted to impart to our listeners.
Ron: Yeah, I guess I just want to give a shout out and a thank you to our clients who chose to be plaintiffs in this litigation. You can have all the right arguments in the world, but if regional centers didn’t stand up and become plaintiffs we wouldn’t have gotten where we’ve gotten. So, we had the privilege of representing EB5 Capital, CanAm Enterprises, Civitas Capital Group, Golden Gate Global, and Pine State Regional Center, as well as IIUSA which has a well over 100 regional center members in this litigation and our thanks goes out to them for standing up and being plaintiffs.
Anu: Definitely. Well, thank you Ron and Dan for not only participating in this litigation, but also for being on this podcast to explain it. We really hope that you found this information useful. Don’t be surprised if you get a ton of notifications for other information regarding not only this settlement, but also what the next steps of being an investor will look like in this new landscape, what it will look like for regional centers in this new landscape. So, we hope you turn to us for all the information that you need.
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