Early Withdrawal of EB-5 Capital with Patrick Hogan

Early Withdrawal of EB-5 Capital with Patrick Hogan

EB-5 Investment Voice

Mona Shah & Associates Global Podcast Series

Reported by Hermione Krumm, Esq.


With the ever-increasing visa backlog for certain countries, in particular China, EB-5 investors are unwillingly seeking an early withdrawal from their EB-5 project. But is an early withdrawal allowed from a legal and business perspective? When is the right time for the EB-5 capital be withdrawn from the project? To address this very important and current issue, in this EB-5 episode, which marks the 70th podcast in the EB-5 Investment Voice series – the only Podcast series that focuses on the US immigrant investor visa, EB-5 and foreign direct investment, Mona Shah, Esq. joins hands with Patrick Hogan, to explain why an investment in the program must be both sustained and at-risk, in particular, the consequences of breaking an EB-5 contract and how returning one investor’s money puts all of the project’s contributors at risk.

Patrick Hogan, the founder and CEO of CMB Regional Centers, has been involved with EB-5 since the program’s inception in 1993, before the Regional Center Program was launched. He is known as the “Titan” of EB-5 because of his experience and accomplishments with EB-5 projects and investor approvals, collecting a total of $3 billion in EB-5 capital and $12 billion in partner funds.


When Can an Investor’s EB-5 Capital be Withdrawn from the Project?

There is an arguably common, yet severe, misconception about the EB-5 program: investors eager for the immigration benefits, tend to think they can quit at any time. Yet, as Mona correctly points out, EB-5 is first and foremost a business and any return on investment takes time. In the backdrop of increasing delays affecting almost every stage of the EB-5 process, when can an investor rightfully withdraw from an EB-5 project, without putting their immigration benefits in jeopardy? For guidance, one has to start with the statutes and regulations.

The law states that an EB-5 investment must be “sustained”. In the past, the earliest that money could be withdrawn from a project was after the I-829 was approved, but a recent USCIS policy memo allows for withdrawal at the time the I-829 is filed, due to excessive delays with the I-829 adjudication.

Patrick Hogan surmised that the policy memo does not change the requirement on the investment funds which must be “irrevocably invested” and “at risk”. An irrevocable investment shows actual commitment of the required capital to invest, not merely an intent to invest. The “at risk” element further precludes a debt/redemption arrangement or demand note in place whereby investors would have a free barrier of exit. In an escrow scenario, there are only two instances in which an investment is released: USCIS denies the investor’s I-526 petition which triggers a refund, or the investor is approved which prompts the release of the funds to the project.

However, for investors who no longer wish to pursue immigration benefits conferred by the EB-5 program and just would like to withdraw from the project, the statutes and regulations will clearly not be a stopping force. In this case, the investors should not forget that they are still contractually bound.

Let us delve into how the contracts are comprised, using the loan model as an example. There are two contracts in question: an agreement between the New Commercial Enterprise (“NCE”) and the investor, and a loan agreement between the NCE and the Job Creating Entity (“JCE”). If an investor’s funds have been vested into the JCE from the NCE, he/she cannot easily attain his/her investment if he/she suddenly decides to leave, as his/her decision to rescind would only have impact on the agreement to which he/she is a party, i.e. the agreement between the NCE and the investor, not the NCE-JCE agreement to which he/she is a third party.

The same logic equally applies to a scenario where the project seems unable to be completed within the anticipated time frame (usually 5 years in a loan scenario). The investor will not automatically receive his/her return on investment pursuant to loan maturity. Patrick points out that if the project is stalled, that usually indicates the third-party contractor is in trouble – to try to get money out of that troubled party would be extremely difficult. In that case, the investors would be more than happy to work with the developers to make sure the project is completed in a timely fashion to get repayment.

The project’s offering documents, if drafted correctly, will define circumstances where investors would have a limited right to withdraw, which is usually limited to the death of the investor or the denial of the investor’s I-526 petition. Note here that the right to withdraw/rescind should be limited, otherwise it will be interpreted as a redemption agreement that protects against the investor’s risk of loss, which is prohibited under EB-5 following the groundbreaking case Matter of Izummi. (Mona points out that there is a limited right of substitution in some cases. Due to its complexity, the replacement investor issue will not be further discussed herein and will be analyzed separately in subsequent publication.)

There is another important point, not for the determined investor who wishes to withdraw, but for the developers and all other investors in the same project: if one investor’s early withdrawal is allowed and USCIS gains knowledge of this fact, the Service would come to the conclusion that there was an impermissible unspoken redemption agreement. In that case, USCIS could reject the project and deny its investors; thus, affecting other investors’ immigration pursuit.

It is true that the EB-5 market is under humongous pressure from China and other emerging markets which are also soon to face their own visa backlogs. Some developers are desperate in trying to get everyone on board without properly informing the investors the risk of the long visa waiting line and the long commitment of their investment. Investors should be wary of this and do their own due diligence before committing to any project.


Please see the link below for access to the podcast episode: https://mshahlaw.com/early-withdrawal-of-eb-5-capital-with-patrick-hogan/.


About the Author:

Hermione Krumm, Esq. is an associate attorney with Mona Shah and Associates Global. Hermione works with EB-5, corporate, merger and acquisition (M&A), intellectual property and foreign direct investment (FDI) matters involving China, the UK and the US. Hermione writes and comments frequently on current business and immigration issues. Her articles have been published by LexisNexis, ILW, EB-5info, EB-5 Supermarket, etc. Hermione received her LL.B. (Hons) from the University of Manchester School of Law (UK), and obtained her LL.M. from Cornell Law School. Hermione speaks fluent English, Mandarin and Cantonese.