The COVID-19 pandemic has brought disruptions and changes to nearly every aspect of the global economy, and the EB-5 Immigrant Investor Program is no exception. Travel restrictions, extended medical leave, hiring freezes, supply chain interruptions, and temporary or permanent business closures are all factors that can drastically alter the plans of a particular EB-5 project.
EB-5 investment participants should expect to see updated securities disclosures from new commercial enterprises (NCEs) and other EB-5 project operators pertaining to the impacts of COVID-19 on the investor’s capital and the project itself. These updated disclosures will help investors reassess the various risks for their projects in the wake of the pandemic.
Full and Fair Disclosure
The Securities Exchange Act of 1934 requires an investment’s offering documents to include a “full and fair disclosure” of an investment’s material information. It also bans untrue statements and the omission of material facts that could make previous statements misleading. The U.S. Securities and Exchange Commission (SEC) requires investment offerings to include cautionary language, statements of general risk, and any safe harbors to which the Private Securities Litigation Reform Act of 1995 (PSLRA) avails various NCEs.
Material Changes
United States Citizenship and Immigration Services (USCIS) allows a certain level of flexibility between a project’s original documents and its final outcome. However, an EB5 investment participant’s visa eligibility may be put at risk if there are discrepancies that materially change the project. Material changes mean significant delays for EB-5 petitioners, as USCIS requires applicants to update and refile their I-526 petitions detailing the new circumstances of the project.
Material changes can be any major shifts in the project’s business plan, such as timing, scope, and staffing structures that alter job creation. Significant alterations to offering documents and investment structure, particularly regarding the source of funds of an investor’s capital, can also be deemed by USCIS as material changes. An EB5 investment participant changing their regional center sponsorship can also force a material change refiling of Form I-526.
COVID Disclosures and Material Changes
An NCE’s disclosure documents should address the various ways in which the COVID-19 pandemic may impact a project’s documentation or eventual success. Strategies for capital redeployment, shifts in organization staffing, plans for new sources of capital, and any expected operational changes should be found in these disclosure documents. Additionally, documents may include language regarding the ways in which the virus could affect a project’s job creation or its construction timelines. If the project is a hotel, there may be a disclosure about the effects COVID-19 has had on the tourism industry.
Next Steps for Investors
Included in a project’s offering papers, EB-5 investment participants will find an explanation of their individual rights, as well as when certain changes would require their consent. Working with an immigration lawyer or an experienced EB-5 professional, investors should review all updated securities disclosures on a given project to understand whether such changes signify a material change. The challenges presented by the COVID-19 pandemic can be easily navigable with the experience and expertise of the right EB-5 professionals.
