The technical requirement under the program is that investor funds need to remain at risk for the requisite time period under the program. In the event that investors need to be paid back sooner, the project must help investors to find another way to keep their capital at risk.
The question of how is an important one and is one that is currently frequently asked about on USCIS stakeholder calls. At current, there has not been much guidance from USCIS on what is allowable and what is not in this regard. It is certainly safe to assume that deploying the investors' capital to another approved EB-5 project would be acceptable, however, this is less than optimal for investors.
Another thing to be aware of is that a project's offering documents should stipulate upfront what may be done with investor money in this event. If this is not done, the investor must approve and agree to whatever redeployment of capital is planned. This is something that should be discussed with your legal team, and ideally planned for in advance.
This post is not intended to provide legal advice, as I am not a securities attorney.
The best way to avoid this situation is to plan this from the beginning so it doesn't happen. Having said that, this is something that developers don't realize overnight but see as a potential risk and as a reality as the project matures. Because of this, a course of action should be implemented and executed to ensure that EB-5 capital is always at risk. Some of the options are to move on to a new project/development, find an alternative EB-5 project for their money, or expand in terms of size and scope the existing one when feasible.
This question is being debated very often now. As of this writing, there is still not a clear guidance as to what kind of action constitutes as keeping the funds at risk. Investors, when picking a project, rightly expect that their risk is limited to the successful completion of that project. Other than whether the required number of jobs will be created and whether they have reasonable assurance that they will get their investment back in full, they are frankly not in a position to evaluate any unspoken further risk. The uncertainty that could be created from having to reinvest their funds into new unapproved (by the investors) projects is very uncomfortable to them. Our hope is that when the law will be revised and clarified, the investors will be given a chance to fully comprehend the risk they are accepting to take before they invest rather than years later when they are already committed to the EB-5 project.
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