IIUSA is pleased to launch a new members-only resource: monthly litigation summary highlighting the most topical EB-5 litigation cases taking place in the courtrooms. Members can view full case updates and access the court documents from the EB-5 Litigation Library on IIUSA’s Member Portal (click here).
IIUSA members can also read the in-depth summary here. In this months recap you will find an analysis on the most important cases including:
Indebtedness vs. Debt Arrangements
Five recent decisions from the D.C. District Court clarify the distinction between “indebtedness” and a “debt arrangement.” “Indebtedness” is included in the definition of “capital” and refers to a debt owed to a new commercial enterprise by the investor. Only the investor’s personal assets, and not the assets of the new commercial enterprise, can be used to secure the indebtedness…Read the Full Summary (Members Only)
John Doe v. USCIS (15-cv-273)
Here, investors challenged USCIS’s denial of their I-526 petitions as arbitrary and capricious. According to the denial notice, “a call option is suggestive of a prohibited redemption mechanism whereby an issuer has the ability to call (redeem) the covered securities in exchange for agreed upon consideration… [t]his call option can be more accurately characterized as a guaranteed return. Matter of Izummi prohibits redemption agreements and guaranteed returns.”…Read the Full Summary (Members Only)
Click here to view court documents related to this case.
Chang v. USCIS (16-cv-1740)
Investors again challenged USCIS’s denial of their I-526 petitions as arbitrary and capricious. USCIS’s denial found that the “call option” which gave the new commercial enterprise the choice to buy plaintiffs out, was an impermissible debt arrangement….Read the Full Summary (Members Only)
Click here to view court documents related to this case.
Zhang v. USCIS (15-cv-995)
Here, two investors borrowed money from companies that they owned, and invested the loan proceeds into the new commercial enterprise. USCIS characterized the investments as “indebtedness” and denied the investors’ I-526 petitions because the loans were not secured by the investors’ personal assets…Read the Full Summary (Members Only)
Mirror Lake Village v. Nielsen (16-cv-1955)
Here, the investment contract included a “put option” which gave investors the option to compel re-purchase of their equity interests for a certain price at the expiration of the “At Risk Period.” The investors’ right to exercise this option was contingent on available cash flow…Read the Full Summary (Members Only)
Click here to view court documents related to this case.
Wang v. USCIS (16-cv-1963)
Like Zhang, the issue here is whether loan proceeds used for an investor’s capital contribution are “indebtedness” or “cash.” Wang and her father jointly owned real estate that was used to secure the loan…Read the Full Summary (Members Only)
Conclusion
Although the court’s opinions provide some clarity, these issues are far from resolved. Notices of appeal have been filed in both Zhang and Mirror Lake Village. Complicating matters is the pending Supreme Court decision in Kisor v. Wilkie, which may alter the rule for deference to agency interpretations. Meanwhile, a new motion for summary judgment is pending in John Doe v. USCIS because investors’ petitions have been denied again for different reasons. The safe course of action for now is to avoid redemption language in investment contracts, and strive to ensure that “cash” obtained through a loan is secured by the investor’s personal assets.
