Jay Peak Fallout Discussion

This post will address only the Jay Peak circumstances, subject matter which prevailed at the 2016 IIUSA EB-5 Advocacy Conference in Washington, D.C. Additionally, this post will serve as contemplation of several of my follow-up telephone calls with immigration counsel and their investors who are investors in the Jay Peak projects.

Needless to say, the Jay Peak situation was a major topic of conversation at the IIUSA conference both formally and informally. The concerns reflected the following:

  1. The need for integrity measures in EB-5 governance both legislatively and procedurally in order to better prevent situations such as Jay Peak or Chicago Convention case that have been injurious to the industry.
  2. Attempt to create a financial model that maintains a degree of independence between the new commercial enterprise [EB-5 investor entity] advancing funds to a developer/borrower and the borrowing party. For instance, it seems it would appear to be unacceptable and not best practices to have the same party oversee the funding of money from the NCE to the project company that is under the same control as the project company. In other words, there needs to be more independence in the financing portion of the transaction.
  3. Whether another loan model or equity model is in place, there needs to be more active administration of the funds in process on an ongoing basis.
  4. There needs to be regular financial reporting that is reviewed and verified by a qualified independent certified public accounting firm.
  5. Heightened due diligence standards before projects are undertaken for the benefit of regional centers, investors and marketing agents.
  6. At the IIUSA Conference, one of the panels involved securities regulators perspective on EB-5, and a rather significant degree of focus on the Jay Peak case and the repercussions related thereto. The representative of the SEC, Stephanie Avakaian, commented on the status of the SEC case which included the appointment of a receiver, the appointment of an administrator for the project and the appointment of a forensic accounting firm to update all of the financial information involved in the Jay Peak projects. It was also noted that a website for the receiver has already been established and is accessible to the public (http://www.jaypeakreceivership.com).

As part of the panel members’ presentations and the questions and answers that took place during the presentation, there was concern addressed about the status of the EB-5 investors in Jay Peak and not only the preservation of their financial interest in the project, but the preservation of their immigration rights. It was noted that the SEC and the applicable court should take into account the immigration needs of the investors and not just focus on maximizing the return of monies to investors since the nature of the EB-5 program substantially involves an immigration component as well as a financial component. The SEC representative acknowledged that although the interest of the SEC appointed receiver is to maximize the return of capital to investors, there was also an acknowledgment that the immigration concerns should likewise play a role in evaluating the process and the decisions to be made by the receiver in the transaction.

In reviewing the current situation with multiple immigration attorneys as well as a few of their investors, it has become apparent that the following different classifications of the respective investor positions should be noted:

  1. Those investors that have not received I-526 petition approval and whose money is pending in escrow. Most of these investors will ask for a return of their funds since they are in escrow and it could be argued that the closing conditions can never be satisfied given the status of the project in question and the receivership that is now in place.
  2. Those investors receiving I-526 petition approval who have not received their EB 5 visas. This poses a much more serious problem since the investors capital has supposedly been funded for the applicable project, yet from a visa standpoint and given the status of the receivership, there may be heightened concerns about whether the investor will now be eligible to receive a visa given the material change in circumstances as a result of the Jay Peak receivership.
  3. Those investors that have received I-526 petition approval and conditional residency status. The status with respect to projects that have not been completed and are in the process of being constructed. These investors have the unique concern of ensuring that the project be completed in order to support the job creation requirements of the program when the I-829 petitions will be potentially filed. If a project is stopped in midstream, then there is a serious risk that the I-829 petition will not be approvable.
  4. Those investors involved in projects that have been completed and by whose I-829 petitions have yet to be filed.
  5. Those investors involved in project that have been completed and whose I-829 petitions have been filed.
  6. Those investors involved in projects have already received their I-829 approvals and only want a receiver return of their capital investments in accordance with the terms of their applicable corporate documents.

To complicate matters further, it is noteworthy that unlike a typical receivership case involving one project, the Jay Peak receivership involves multiple projects where there may have been the improper transfer and/or allocations of funds from one project to another project, thus resulting in a reconstitution of the balance sheets of the various projects entities in order to determine who the final funding will be reconstituted. Accordingly, in addition to the above-referenced categories of investors, each of the investors will have been involved in a different project that may have competing interest based upon the economics of the project and the potential diversion of funds from one project to another project.