EB-5 Program May Prove Fertile Ground For Lawsuits

A recent suit alleging that some EB-5 applications were improperly delayed based on a regional center's ties to Iran may be a harbinger of increased litigation over the program, spurred by growing scrutiny of the visa category and a policy landscape that is problematic for immigrant investors, attorneys say. 
In a case filed last Monday in Washington, D.C., district court, California-based immigrant investor regional center American Logistics International LLC claimed U.S. Citizenship and Immigration Services has incorrectly delayed or denied a slew of investor petitions.

Although the agency allegedly denied the EB-5 petitions based on an “incorrect” finding that the investor funds weren’t “at risk,” ALI says the real reason for the denials was likely an ABC News “Nightline” segment suggesting that the regional center has ties to Iran, along with comments from Sen. Chuck Grassley, R-Iowa.

Matthew Dunn of Kramer Levin Naftalis & Frankel LLP said the suit is reflective of the increased scrutiny being applied to the EB-5 program.

“There's just so many high-profile examples of fraud and questions about actual job creation,” Dunn said, noting that the fallout can lead to investors finding themselves in danger of not getting green cards.

“So I think we'll see more suits like this,” Dunn said, of the ALI case.

Still, attorneys agree that ALI’s suit is unusual, as most EB-5 cases don’t have quite such a geopolitical bent and are concerned with simply challenging long delays or USCIS legal errors. Regional centers are also typically inclined to settle disputes privately rather than launch highly publicized lawsuits, said Steve Yale-Loehr, a professor at Cornell Law School and an attorney with Miller Mayer LLP.

“Most regional centers don't like publicity — they don’t like to have it known that they had to sue on behalf of their investors,” Yale-Loehr said

Chad Ellsworth of Fragomen, Del Rey, Bernsen & Loewy LLP said part of the problem with the inquiry surrounding the center was the misinformation in both the ABC news report and Grassley’s EB-5 probe, which raised national security concerns.

“EB-5 investors go through the same Department of Homeland Security background checks that any green card applicant would go through,” Ellsworth said. “There's no lesser scrutiny because you're applying through the EB-5 program. So, I think to some extent there's a political angle there.”

Other areas where EB-5 litigation may see an uptick is in the securities realm, as well as over sudden changes in USCIS adjudicatory policy, attorneys say. Within the past six to eight months, for instance, USCIS has begun saying it’s no longer acceptable if EB-5 investment cash comes from a loan taken out by an immigrant's parents, who used their property as collateral, said Kate Kalmykov of Greenberg Traurig LLP.

“Because of that, there have been a number of denials,” Kalmykov said. “And so, very likely, we will see ... lawsuits over the indebtedness issue in federal court very soon."

A representative for USCIS confirmed this policy to Law360, citing recent remarks prepared by USCIS official Julia Harrison for an April stakeholder engagement. Harrison's remarks stressed that petitioners must show that they “bear primary responsibility under the loan documents for repaying the debt.”

Angelo Paparelli of Seyfarth Shaw LLP argued that USCIS hasn’t shown a true concern for the underlying investors in EB-5 projects, and said securities lawsuits over the program may start to increase now that the U.S. Securities and Exchange Commission has begun looking into it.

“I think, inevitably, this is going to cause some plaintiffs securities lawyers with some insight or foresight to see if there are investors that have been hurt in deals,” Paparelli said.

He added that new policy guidance is needed for the program, as the last major memo came out in 2013. Without clearer guidelines, “people are left to guess at what is acceptable,” Paparelli said.

Consistency in policy may also have been affected by the EB-5 program’s recent move to Washington, D.C., said prominent EB-5 litigator Ira Kurzban of Kurzban Kurzban Weinger Tetzeli and Pratt PA. While some attorneys say the relocation from California has helped interagency coordination in the EB-5 area, Kurzban contended that the many lawyers hired for the program’s new office have created policy conflicts.

“They hired like 15 lawyers. You hire that many lawyers, they all come up with their owner theories about what's right and what's wrong,” Kurzban said. “And what you're seeing now, is like this issue of collateral — they're totally changing their policy."

Mentions

• KURZBAN, KURZBAN, WEINGER, TETZELI & PRATT, P.A.
• Greenberg Traurig, LLP
• Fragomen, Del Rey, Bernsen, & Loewy, LLP.
• American Logistics [International] Regional Center
• Miller Mayer LLP
• Stephen Yale-Loehr
• Kate Kalmykov
• Ira J. Kurzban Esq.

Litigation Cases

• American Logistics International, LLC vs U.S. Citizenship and Immigration Services

States

• California
• District Of Columbia