Monday, September 27, 2010

Bigger EB-5 RC = Better EB-5 RC? You Decide.

The EB-5 frenzy is really starting to get out of hand: a just-approved EB-5 Regional Center's first press release predicts that it will create 18,000 jobs in the next five years in one portion of one state. Let's see, that means that if it is in a TEA, that's, what...1800 EB-5 investors each plunking down $500,000.  That's potentially $900 million dollars worth of EB-5 funding.


 Holy COW.


Meanwhile, the three projects I work with -- existing, operational and recognized ventures owned and managed by proven veterans with clear histories of success -- speak of 8-10 investors, 90-280 jobs.


The catastrophic failures of the first decade of the EB-5 Regional Centers involved optimistic predictions; historically speaking, those predictions paled in comparison to the intergalactic projections being irresponsibly thrown around in the midst of an economy where not even the U.S. government can make a dent on job creation.  Meanwhile, the Victorville fiasco continues, with a second USCIS Notice to Terminate making it look pretty grim for those investors.  See Michael Gibson's excellent piece on this HERE.


Guys, please make sure you speak with an objective, educated advisor before investing in any EB-5 Regional Center.  New Regional Centers are getting approved daily; for the most part, it is simply making a clear divide between the handful of excellent programs and the rest of them.  As Yogi Berra would have said if he'd been an immigration lawyer, "It's like 1990's EB-5 deja vous all over again..."


 



EB-5 Finder Fees and the Big BMW Flap: Jose's Take


As many of my attorney readers are aware, a recent SEC decision has the EB-5 bar all abuzz and stressed out.  The BMW involved is not the car company but, rather, a law firm seeking to establish a referral relationship relating to a security.  Here's the lowdown followed by my opinion on how this affects EB-5 practitioners. 

Under the arrangement they proposed to the SEC, the Brumberg, Mackey & Wall, P.L.C. (“BMW”) firm would not:

(1) engage in any negotiations with investors,

(2) provide potential investors any information about the energy company that could be used as the basis for funding-related negotiations,

(3) be responsible for, or make any recommendation regarding, the terms, conditions or provisions of any agreement for an investment or

(4) provide any assistance to any potential investor with respect to any transaction involving the financing of the energy company

The reason for this language was BMW's attempt to distinguish the earnings they would get from their activities as "finder's fees" vs. "commissions".  Why? Because the SEC's cryptic regulatory language makes this distinction and a "finder's fee" does not require registration as a broker. 

If you look at the enumerated "don'ts" above, it is clear that these would apply to an EB-5 referring attorney, but it goes beyond that: with an EB-5 Regional Center, there is no negotiating the terms of a Regional Center EB-5 visa opportunity; price, terms and conditions are defined in the PPM by the Regional Center.   In the BMW decision,the SEC took issue that BMW did NOT state that they wouldn't have contact with potential investors as part of the proposed arrangement.  In other words, despite the above enumerated list of what they would NOT do, the SEC took the absence of that latter statement as meaning that BMW COULD, conceivably, be involved in the investment process.   

All of this begs the question: was, if any, other role was BMW playing in the contemplated transactions?  This is the opening sentence on Martindale-Hubble describing BMW's main areas of practice:

Brumberg, Mackey & Wall, P.L.C. specializes in representing businesses and individuals in commercial, tax, estate, banking matters and real estate.

Based on what the firm does -- primarily transactional and commercial matters (although MH goes on to mention PI and other secondary areas of practice)-- , I believe the SEC reasonably expressed concern that BMW was likely to get involved with negotiations or other aspects of the contemplated transactions, which, unlike EB-5 RC offerings, are not carved in stone.  Furthermore -- and I am speculating -- it is highly unlikely that fees earned via BMW's contemplated transactions were subject to outside conditions beyond BMW's control (e.g., USCIS petition adjudication).  That element of the fulfillment of "conditions precedent" being satisfied before fees are disbursed, while not expressed in SEC regulatory language, goes a long way in making the common sense decision as to whether something is a "commission" vs. a finder's fee/bonus.

In their ruling, the SEC reasoned that the transaction-based compensation BMW sought to receive would give BMW a strong incentive to engage "pre-selling" or other sales activities such that BMW would need to register as a broker-dealer if it proceeded with the proposed arrangement…but I believe that this is because, in contrast to immigration counsel and EB-5 RC projects, BMW had no possible alternative role in the transaction except to broker it...the exact opposite of an immigration attorney working to secure an EB-5 RC based green card for his or her client.

Let’s draw some distinctions:

AN INDEPENDENT IMMIGRATION PROCUREMENT OBJECTIVE: Clients invest in EB-5 Regional Centers for the primary purpose of getting U.S. residency for themselves and their family.  NO ONE invests in an EB-5 RC for yield, capital preservation, etc...all that are very secondary and tertiary considerations.  An immigration attorney is involved in the EB-5 Regional Center visa process with one client and one purpose: to secure the U.S. permanent residency that client seeks through investment.  In contrast to BMW, who is expressly there to identify prospective investors, the immigration attorney is putting the “cart before the horse”, as he or she SHOULD be, when he or she considers the underlying construction and elements of RC candidates identified by a client.  Put simply, as I have long argued, the immigration attorney has, IMHO, an affirmative duty to conduct basic due diligence on any EB-5 Regional Center project he or she is prepared to present to any client.  Instead, what we have seen is the proverbial ostrich game, where larger firms are so concerned about liability that they protect themselves by pretending that there is an artificial line between the immigration and investment objectives of an EB-5 visa; “Client, pick whatever RC you want, I’m just the visa guy”.  TOTAL irresponsibility as I see it.  Each immigration attorney who sends a client to a Regional Center in which he or she would never personally invest because they believe the I-526 will be approved but the investment is a bad one is every bit in violation of their ethical duties as an attorney who only cares about the referral fee and sends a client to a Regional Center where visa denial is likely.  Yes, we are not investment advisers, but as immigration counsel we are bound to reasonable care, and it doesn’t take Gordon Gekko to see the obvious scams and failures which characterize the majority of the Regional Center projects being shopped overseas.

2-   FEES ARE PAID AS A FINDER'S FEE/BONUS, NOT A COMMISSION:  EB-5 Regional Centers – at least the vast majority – escrow both the capital investment and the syndication fee (from which the referral fees are paid) until the I-526 Investor Petition  is approved by the USCIS.  Accordingly, in contrast to a structure such as that advanced by BMWs argument, in the case of EB-5 visas, no approval…no immigration attorney referral fee.  Now, most state bars prohibit contingency fees on family law and criminal law cases; I am unaware of any state bar which prohibits results-based bonuses relating to success in complex immigration filings.



2-     EB-5 FINDERS FEES ARE NON-EXCLUSIVE AND WILL BE PAID BY WHICHEVER REGIONAL CENTER THE CLIENT ULTIMATELY CHOOSES: This may well be the simplest and most clear distinction to contrast BMW to our EB-5 situation. The referring attorney, unlike BMW, is not tied to any one project nor to any one Regional Center.  If my client shows up and suggests RC's A, B, and C and I can look her in the eye and tell her that I see no fundamental flaws in any of them, I will get my finder's fee whether she picks A, B, or C.  I am not BOUND to one client, hence the "hard sell" implicitly feared by the SEC in a client-specific situation such as BMW's does not apply.  (That being said, as the immigration attorney, I DO have ethical violations to disclose the finder's fee I'll be receiving, to insure that I do not favor one RC over another based on a higher finder's fee offered and, most critical, to UNDERSTAND the immigration infrastructure and job creation methodologies, as well as all aspects of the project, so that I can protect a client from a fundamentally flawed EB-5 investment. )

 ESCROWING ATTORNEYS FEES: THE ONLY WAY TO INSURE BOTH BAR AND SEC COMPLIANCE:  As many of my readers know, I absolutely refused to filed I-526 Regional Center petitions for the last 16 years based upon my belief that one cannot serve both the Regional Center AND someone investing in them.  After many clients complained that I was sending them to another attorney they didn't want and that they didn’t care if I got a referral fee provided their I-526 was approved, I finally figured out what I need to do to address my issues with this only this past June:  just like the RC puts 100% of funds in trust until I-526 approval, I would put 100% of my I-526 attorneys fees in trust until I-526 approval.  My clients pay the filing fees, costs, etc. when we file the I-526 but in the event of a denial, just as they would get their $500,000+ syndication fee back from the Regional Center’s escrow account, they would get 100% of the attorneys fees back from my trust account, which is completely permissible under bar rules as a immigration fee contingent upon approval and held in a Bar-sanctioned attorney funds account.  (Obviously – and we are back to the Ostrich Syndrome – I’m only going to take cases from Regional Centers which I understand fully and believe to be valid permanent residency mechanisms for my clients…not any old Regional Center.  That's why I only work with 3 RCs right now.) 

I’m not a securities lawyers so I won’t get deeper into the 4 prong test, the Paul Anka decision (which required there to be zero contact between the finder and investor if a fee was permissible for someone not registered as a broker-agent, so it’s irrelevant since all immigration attorneys referring EB-5 prospective investors obviously know them), etc.   But here's why I, for one, am not stressed out about the BMW decision:


  • A performance-based incentive or bonus triggered by a favorable adjudication of an I-526 is not – and will never be – a brokerage commission.  It is a finders fee contingent upon approval via a federal adjudication.

  • I am authorized as an immigration attorney to receive a performance-based bonus as long as my client is aware of that bonus and agrees to it, and there is nothing regulatory of which I am aware which defines WHO may pay that bonus.

  • Unlike the BMW firm, I am not obligated to a particular client nor selling an "investment"; I am advising the client on WHICH Regional Center is most likely to meet their immigration goals.  Whether the client chooses A, B, or C, I am obligated to no Regional Center and - assuming I subscribe to the ethical self-checks described above -- will receive my finder's fee regardless of which center the client chooses.

It’s all about that one thing missing from so many in our profession, folks: good faith.   The day I get into the “business” of headhunting for EB-5 investors, I’ll sit for my SEC license.  Till then, I’m just an immigration attorney putting his money where his mouth is and, at least for now, the government is okay with that.

If you want more on this, see this excellent article by commercial transaction firm Faegre and Benson:



Friday, September 24, 2010

November Dubai EB-5 Event Filling Up Quickly

Folks, we opened registration for the EB-5 Seminar in Dubai after Labor Day and registrations for the free November 17th event, which will take place at the Shangri-La Dubai, are pouring in.  We have only made folks aware of this through Immigration Insider and few online mentions here and there and already have filled about 30% of the 70 available seats.

There are a lot of EB-5 events going on all over the world, but our presentation is unlike anything you've seen or heard.  Instead of being "sold" anything, I will cut through all the baloney -- and that's putting it politely -- being pumped out by the vast majority or U.S. EB-5 Regional Centers and developers looking for YOUR investor dollars.  Attendees will hear:


  • why, as a former U.S. visa officer and EB-5 cynic, I did a 180 degree turnaround on the subject several years ago and now believe that a handful of select Regional Centers ARE smart green card AND financial investments;

  • why I am the ONLY U.S. attorney who is willing to hold attorneys fees in trust until your I-526 Investor Visa petition is approved...I don't get paid until you get approved;

  • the differences, pros, and cons of an individual EB-5 investment vs. an EB-5 Regional Center investment and how we can custom tailor an individual plan for you which stays within the $500,000 investment cap;

  • Pre-immigration tax planning and why it is IMPERATIVE, and why other laws sweep the issue under the rug

  • how so many EB5 Regional Centers hide their fundamental flaws in terms of protecting your investment, securing the 10-jobs-per-investor, and general partner "omnipotence"

  • the importance of an exit strategy which is REAL

  • the online LIES perpetuated by a number of "leading" Regional Centers

  • why most immigration attorneys don't examine the fundamental structure of the EB-5 Regional Center they are recommending

  • why the due diligence conducted on the underlying owners and general partners is far more critical than the DD you do on the particular investment project

  • the dangers of certain "Umbrella" Regional Centers

  • How most equity-based EB-5 Regional Center projects wind up losing hundreds of thousands of dollars

  • WHICH are the "handful" of Regional Centers which meet my exacting criteria and why I am willing to make your visa approval a pre-requisite to my getting paid for the immigration work.


So far, only a small percentage of the folks coming to the Dubai seminar are resident in the UAE...most are coming in from other countries for the event, including Kazakhstan, Lebanon, Iran, Iraq, Kuwait, Jordan, and Saudi Arabia.  I am presenting the seminar for free because this is the first visit I make to your part of the world and I am looking to forge bona fide, lasting relationships with Middle Eastern investors who are qualified to invest for U.S. permanent residency and who are planning a future in America.  I invite you to join us at this debut event since it may not be repeated for another year or so, and since there will be a seminar fee in future events.

If you are in the position to invest $500,000 to secure permanent U.S. residency for you and your family and want to learn more, please join us at the beautiful Shangri-La Dubai on November 17, 2010, for what promises to be a dynamic presentation, a lively Q & A session, both followed by several days of private client assessments to help you in building your migration plan to the U.S.

Here's the link:   Latour's EB-5 Investor Seminar-DUBAI 

See you in November!!



Tuesday, September 14, 2010

As Cuba Admits Failure, Venezuela Continues Its Economic Death Spiral

The pain in the eyes of the Venezuelans I see these days is more palpable and more real than the concern across their faces as early as last fall, when I began visiting clients in Caracas and discussing the EB-5 immigrant investor "just in case" Plan B option.  While there has been a steady and growing concern that Mr. Chavez' continued mismanagement of this resource-rich paradise would lead to ruin, the reality of being the world's 8th largest petroleum producer seemed to provide some sort of invisible credibility forcefield.  If I heard it once, I heard it a thousand times: "If it wasn't for the oil revenues, [fill in the catastrophe of your choice]"...

Well, the shields are down, my friends, and it is heartbreaking to see the cold statistics.  For a great detailed article on just how ugly things have gotten, click HERE, but here's the nitty gritty:

-the Economist's most recent report
forecasts that gross domestic product in Venezuela will decline by 5.5 percent in 2010. Next worst
is Greece, with a 3.9 percent decline. Analysts at Morgan
Stanley worry th
at Venezuela is moving toward debt default...like Greece.

-GDP is expected to fall by 6.2 percent in 2010.

-Inflation, where Venezuela sets the current international standard: consumer prices are already up 31 percent for 2010 and
are expected to rise more by year-end. Only two of the remaining 56
nations monitored by the Economist are suffering double-digit inflation: India and Egypt, both with 11 percent price increases.

-Crime: Caracas now has
nine times the homicides per 100,000 people as Bogota and 15 times the
rate of Sao Paulo. Overall, according to Newsweek,
Venezuela has “the worst murder rate in the hemisphere”

-Retail sales were
down 12 percent in the first half of the year; sales of food,
beverages, and tobacco in specialty stores were off 30 percent.

I still remember visiting Venezuela as a little boy and seeing the splendor and comfort with which my uncle, a middle manager for Owens-Illinois (the U.S. packaging company), lived in Valencia.  Like so many Cubans who saw their lives, their properties, and their culture disemboweled via expropriation by a dictator, today's Venezuelans are witnessing the very same process...courtesy of their democratically elected president.

Let's hope that on Sept. 26 Venezuelans seize the opportunity to tell Mr. Chavez that they've had enough of his leadership.



Friday, September 10, 2010

Venezuela's Land Redistribution is Taking a Very Human Toll

As Chavez continues to eviscerate the Venezuelan economy through corruption and mismanagement, the expropriation of private lands has remained somewhat on the back burner in terms of topics of discussion between my clients and me.  While I have had more than one client whose farms have been stolen by the government, no one I have personally met has lost his or her livelihood as a result.

Unlike the rapid-fire expropriation of all private property in Cuba undertaken by Mr. Chavez' puppet master Fidel shortly after lying his way into power through flat out denials of his communist agenda, Mr. Chavez' expropriations have been very much in his own personal style:  haphazard, inconsistent, and driven by little visible strategy.  Instead of the immediate redesignation of private property as state property, the Venezuelan government seems to be parceling out private property as a means of ensuring continued support by the poorest Venezuelans.

To me, from my point of view as an attorney focused on investment based immigration, the human elements of my job tend to deal more with families: the threat of kidnapping, the random violence, the constant governmental meddling which impacts the lives of entrepreneurial Venezuelans.  To date it hasn't been about the impact of these expropriations.

That's changing, and it is visible via the increasing number of still-affluent Venezuelans with still-prospering business quietly making their way to my office to begin the complex process of planning the big move.  They've had it and they are reluctantly coming to terms with the fact that they cannot continue to build their empires, large and small, on the slippery, muddy foundation of Chavizmo. Being one of the very few immigration attorneys who will NOT initiate an investor petition until my client has addressed pre-immigration tax planning via an expert like the brilliant Steven Cantor, these are busy days full of big decisions for my Venezuelan clients as we discuss everything from schools to housing to business transition plans.  They don't want to leave their beautiful country, but just like my father reluctantly left Cuba as it slipped toward catastrophe, they are leaving their beautiful country, in what looks an awful lot like a slow-motion sequel.

Perhaps Mr. Castro's admission to The Atlantic that the Cuban economy is a failure would have tempered Mr. Chavez' emulation of the Cuban Revolution had it been made years ago, but it's too late now.  Despite his mentor's eating crow pie, for Mr. Chavez this is now completely about one thing: Mr. Chavez.  Megalomania is never pretty, but fueled with petrodollars and protected by a military regime, it's particularly ugly in Venezuela.

Today it's farms and banks, tomorrow it will be grocery stores and pharmacies...we know the drill.  One can only hope that like in The Emperor's New Clothes, all Venezuelans, rich and poor, will call Mr. Chavez on his smoke and mirrors and reveal him as he really is.  Now THAT is a terrifying image...(-:

For a great Herald Editorial discussing this subject, click: HERE



Wednesday, September 8, 2010

Imagine What a BIG EB-5 Regional Center Would Look Like...



My
favorite dumb EB-5 marketing quote of the week:



“We
are a small regional center…our center can only accommodate up to 320 clients.”



Sounds
like a cozy little venture, eh? (-:  I’ll
tell you guys, in this colorful world of EB-5 Regional Centers, there is never
a dull moment. But sometimes the hyperbole associated with the marketing of
EB-5 RC projects goes totally overboard and kind of makes the whole sector look
ridiculous.  In fact, I've had more than one savvy investor who really WAS
interested in the EB-5 but concluded it was all shady business after wading through
the muck of several bombastic RCs promising the world.





One
misconception further perpetuated by both Regional Centers and those who market
them is that "bigger is better".  While one cannot quarrel with
historical facts such as the number of approved I-526s or I-829s, there is
often a tendency for prospective investors to come through the door asking
"who has the most approvals?"  It's a good question; but it is
only part of the picture.  The other part: “how likely are the investors
to recoup their investment.”  In reality,
Congress crafted the EB-5 visa way back in 1990 (or thereabouts) so that
investors who took a legitimate risk
with their investment could not only get their permanent U.S. residency…but
maybe even make a buck.  Revolutionary!



But
as history shows, some of the largest and most successful equity-based programs
got those impressive approval numbers without addressing that second part of
the question…and only now is the real downside coming to light.

 What downside?  I'll answer that by
asking you a question:



“Where is the market for private equity
investment limited partnership shares?



I'll
tell you where: Nowheresville!  When you're finished with permanent
residency and it's time to cash out, what is the exit strategy for an
equity-based EB-5 Regional Center?  Well, in the vast majority of cases
involving non-branded equities (as opposed to recognized franchises showing a
profit) there is only one interested buyer: the General Partner who got you in
the Regional Center in the first place. 
In fact, the GP isn't interested at all in letting you out;  they’d just as soon you keep those hyper-inflated
condos in the money-losing rental pool and just go away.  But if you make enough noise, some will give
you a fraction of your $500,000 to make you quietly go away.





Things
have changed in these past years since CMB invented their brilliant loan-based
model, now emulated (less brilliantly, I should add) by an increasing number of
RCs, and more recently, when folks like Queensfort have compartmentalized
single-store Sonic franchises for small groups of 8-10 investors, providing the
kind of LP protections never before offered to EB-5 investors in an
equity-based project.  With those kind of options, does it really make
sense to go "old school equity"?  I mean, do you really want to own three condos with
maintenance fees for the foreseeable future? Not me.





A
client the other day said something that made me smile: "Jose, anyone who
goes into EB-5 expecting their $500,000 investment back in full is
dreaming".  I had to disagree! 
I told him that “the better mousetraps”, in both equity and loan
incarnations, have been built, and no longer is it necessary to think of the
EB-5 investment as the “purchase price” for your green card.  For some
very smart investors, the green card is coming with a tidy return and, someday,
maybe a profit.
 
Hey, it can happen!



The
fact, however, is that risk is the non-negotiable, quintessential element which
everyone avoided in the 90s and which drove this wonderful visa category into
the ground faster than you could say "creative financing". 
Anybody besides me remember Golden Rainbow?  
As so eloquently state by the 9th Circuit U.S. Court of Appeals:





"The
long and short of it is that they lost their gamble that Golden Rainbow's
creative financing approach would manage to get through the whole process. The
INS finally acted to prevent a perversion of the program contemplated in the
statutes and the regulations. The mischief that was avoided far outweighed any
detriment to Golden Rainbow or anyone else."



So
don't get fooled by stats, and do not let your immigration attorney
weenie out of opining on the EB-5 project you are considering; we may not be
investment advisers, and we may make you sign 50 pages of disclaimers saying as
much, but we have a duty to view all elements of the investment vehicle you choose,
be it an EB-5 or an L-1, since that is the basis upon which your immigration objective will be judged.  Educate
yourself before investing and dispense with the notion that “bigger is better”;
times are a changin’…talk to me if you have questions! J