EB-5 Funds Face ‘Hair-On-Fire’ Moment As Surprise Termination Letters Arrive In The Mail

Two years after Congress passed reforms meant to guard against fraud, the federal bureau charged with overseeing the country’s EB-5 program has yet to roll out a draft of new regulations, but it has threatened to shut down as many as a quarter of the firms that handle investor funds.

The future of billions of dollars of foreign investment in U.S. commercial real estate development sits on a knife's edge as the agency that administers the visa program threatens to close the companies that manage the projects over a missed fee.

“It's a hair-on-fire-level conversation,” said Adam Greene, an EB-5 specialist at Peachtree Group. 

The EB-5 program gives immigrants a path to a green card by investing in U.S. job creation or development. It has facilitated huge projects, including New York’s Hudson Yards, and helped more than 100,000 people secure permanent legal status in the U.S. However, it has also been vulnerable to fraud. 

In 2022, Congress passed reforms that created new oversight for the firms administering EB-5 loans through a so-called Integrity Fund. Regional centers, companies certified by the federal government to administer EB-5 funds, are required to pay into the fund.

But a slow rollout with unclear messaging has endangered the viability of many of those centers, which are now at risk of being shut down.

“The Immigration Service was meant to write regulations within one year of the new law, which would have spelled a lot of this out. We have yet to see a draft, the first draft of regulations,” said Greene, who joined Peachtree as an executive vice president to push the firm deeper into the EB-5 space.

U.S. Citizenship and Immigration Services didn’t respond to multiple requests for comment. 

Over the last two months, USCIS has issued notices that it intends to decertify as many as 1 in 4 of those regional centers for failing to make the required payment into the Integrity Fund, according to a release from Texas-based CMB Regional Centers.

The letter, called a notice of intent to terminate, or NOIT, informed regional center operators that their certification was subject to termination and they were past any deadline to submit a late payment. In effect, the regional centers that received a notice are dead in the water — and seeking solutions, including by taking the matter to court.

In Montana, Northern Rockies Regional Center LLC filed suit against Ur Jaddou, director of USCIS, arguing that it had no way of knowing it had missed any required payment until it was too late to resolve the issue and that the federal government didn’t follow notice requirements before issuing the intent to terminate letters. 

“The NOIT was a major surprise to us, especially since we received an approval notice from USCIS re-affirming the regional center designation” on May 3, a representative for Northern Rockies Regional Center said in an emailed statement. 

Northern Rockies, under the impression that it had made the required payments, attempted to contact USCIS to dispute the notice but was unsuccessful. It later found out it only paid for one year and still owed $20K. 

“At that point, we realized the only way we could potentially resolve this was through litigation,” the representative said. “Through our attorneys, we reached out directly to express our desire to settle the case with USCIS after filing, but were told that they were not interested at that time.” 

USCIS argued in court that the plaintiff could always reapply for certification if it was terminated, which Greene said is an expensive and lengthy process.

The regional center said it had raised $488M in foreign investment, helping fund billions in development across Montana. It argued that terminating the firm’s certification would jeopardize around 515 visa petitions and $1.7B in job-creating projects under construction.

U.S. District Judge Donald Molloy agreed with Northern Rockies Regional Center. Molloy offered a potential path forward last week by ruling that the federal government should be required to allow Northern Rockies to make its missed payment and remain in operation. 

Molloy found that losing the certification, even if it could reapply to gain it back, could prove to be a death knell for the business.

“The injury to Northern Rockies in this instance is serious and likely irreparable,” Molloy wrote in the Wednesday ruling. “Despite its years of regulatory compliance and its investments in Montana projects, it may never recover from failing to pay a $20,000 fee.”

The regional center plans to pay the full fee and remain operational, but the representative said it had yet to receive any invoice or communication from USCIS. 

The first-of-its-kind case was seen by regional center operators and their lawyers as a potential lifeline, although it set no official precedent. Still, Marlon Hill, a partner at Weiss Serota Helfman Cole + Bierman focused on international business, suspects the decision will motivate USCIS to open a window where late payments would be accepted.

“I don't anticipate that there's going to be any knee-jerk, wholesale termination of these centers,” he said. “No one wins at that point.” 

The notice itself doesn’t trigger a decertification of a regional center, but it notifies the entity of the separate action that USCIS has said it intends to take. 

Regional centers act as the hub for EB-5 investments, especially those targeting real estate development. Developers, lenders, investment firms, special-purpose vehicles and other businesses make up the 712 approved regional centers in the country. 

They collect the investor dollars from noncitizens — the minimum investment is $800K in certain rural regions but is typically $1M — and disburse those funds to developers or other businesses. 

There was $2.2B put toward EB-5 programs in 2023, and another $2B followed in the first half of 2024 from more than 7,000 investors, according to Invest in the USA, the regional centers’ trade association.  

There is no official sector breakdown for where EB-5 investments are going, but around half of the projects in a database maintained by IIUSA are real estate developments, excluding hotels and restaurants, a researcher for the firm said in an email. 

The 2022 amendments created the Integrity Fund and gave it a mandate to conduct investigations and oversee regional centers, paid for with fees from the firms themselves of $10K or $20K per year, depending on how many investors the regional center represents.

Confusion abounded in the rollout of the amendment, with regional centers all briefly shuttering because USCIS sought to require every regional center to seek “redesignation,” a stance that was ultimately overturned in court in August 2022. 

USCIS delayed the initial 2023 deadline for payments into the Integrity Fund while it established guidelines and rules, ultimately making both the 2023 and 2024 payments due on Oct. 1, 2023. Regional center operators and advocates say payment notices were never mailed out and that the online payment portal was buggy and at times unavailable.  

Some regional centers didn’t pay the fee because their projects were winding down. Others paid for one year but not two. Still more mistakenly paid $10K when they owed $20K, Greene said. He has heard of at least one case where a regional center paid, but its internal reference number at USCIS was changed, so the payment wasn’t registered. 

The immigration authority makes clear in the termination notices that it has no intention of accepting late payments to remedy the issue, pointing to language in the law that says the agency shall decertify a regional center if it fails to pay within 90 days of the due date. 

The missed payments are relatively small in comparison to the multibillion-dollar industry, and few doubt that the regional centers facing termination would pay the fee along with any late penalty USCIS would impose. 

USCIS, however, argued unsuccessfully in court that it was prohibited by statute from extending the payment window.

“This was administratively difficult to roll out, it was complicated, but this can't be the result,” Greene said. “If that complicated rollout means everyone gets terminated, we're living in a Kafkaesque world.”

The effect of the terminations could ripple across the entire industry supporting the EB-5 visa program, which has been used by 123,914 investors to obtain permanent legal residence in the U.S. since 2000, according to IIUSA. 

USCIS has said that investors who have put money into a regional center that was terminated could move their cash into a firm that was in compliance, but it has yet to issue any guidance on how to handle the process. 

Reassociating with a new regional center is also likely to cost thousands of dollars in fees. But most individual EB-5 investors aren’t even aware of this potential industry contraction quietly taking place, a process that could upend immigration status.

“They have to figure out a plan, not only the plans for their business but also the plans for their family,” Hill said. “This could be life-changing.”

Hill said he expected a developer would generally be able to transfer a project to a new regional center that is still certified, although he suspects the process could shake an investor’s confidence in their investment.  

USCIS could also change its stance and allow late fee payments, a solution ordered by the federal judge in the Northern Rockies case and one that would add more cash to the coffers of the Integrity Fund, giving it more resources to conduct its oversight mandate. 

The investigatory aspects of the 2022 reforms were meant to address perceptions that the EB-5 program was susceptible to fraud following a series of high-profile cases. 

There are success stories. Related Cos. raised at least $1.2B in EB-5 funding for the Hudson Yards megaproject in New York. The Wharf mixed-use complex in Washington, D.C., was built with $100M in EB-5 funds  

But the Securities and Exchange Commission also won a $272M judgment last month against Fleet Financial and its head, Richard Xia, that found his firm misled 400 investors as it sought to raise funds for two New York projects.

EB-5 investors in the foreclosed Century Plaza project in Los Angeles have alleged in a suit that their investment vehicle, CMB Export, “engaged in an intentional scheme” to cover up misconduct and negligence. The suit was brought by 185 investors who had put $92.5M into the project. 

The program is also politically fraught, with both Republicans and Democrats making immigration a key facet of their platform. Congress will have to renew the program in 2027, and the program’s future could depend on who wins the next election. 

For now, investors, fund operators and developers wait for a sign.

“At the end of the day, it remains to be seen whether the USCIS will ultimately exercise its termination authority or reset the program in an election year,” Hill said.