Continued from the first installment in a 4-part series on investment reimbursement insurance for EB-5 visa investors:
Jason Blatt, an attorney representing the Idaho State Regional Center, believes that the Sidecars policy is completely legal. Responding to questions from EB5info.com, he offered the following:
When an insurance company, a third party not related to the EB-5 regional center or its investment projects, sells an insurance policy to an EB-5 investor, and the EB-5 investor uses funds completely unrelated to his or her $500,000 EB-5 investment funds to buy that insurance, the $500,000 in EB-5 investment funds invested by an investor in a regional center's project remain 'at risk.'
|Screenshot from the Sidecars Insurance website|
Blatt cites USCIS' response to a question posed during a 2009 EB-5 stakeholder session, which maintains the legality of such insurance schemes in cases when the policy is provided by an "unrelated" third party and "does not constitute a redemption agreement or a guaranteed buy-back arrangement for the alien investor's investment in the commercial enterprise."
But that explanation goes on to state that a "determination" of whether a specific indemnity policy does or does not violate the law "has to be made on a case-by-case basis."
Language like this leaves other attorneys unsure whether such an insurance guarantee really is permissible.
"These arrangements have a significant possibility of being found to undermine the 'at risk' nature of an investment," said immigration attorney Robert Divine in comments submitted to EB5info.com.
Divine, a former Chief Counsel and Acting Director of USCIS, acknowledged that arguments in favor of such insurance products could sometimes be valid. After all, if investors purchase the insurance with their own money in a transaction unrelated to the EB-5 green card investment, one could make a case for the policy's permissibility.
But given USCIS' response during the stakeholder session, Divine admits it's not so simple:
This USCIS evasive answer is classically unhelpful to people trying to plan their affairs. As a practical matter, since USCIS does not ask about insurance arrangements in Form I-526, someone who bought [the policy] would not tend to disclose it. Given USCIS? murky position, one could argue, if later challenged for nondisclosure, that it was not a material omission. USCIS should clear this up.
Blatt, on the other hand, insists that an investor's choice to purchase the insurance is unquestionably within the bounds of the law. Purchasing the policy from a third party "does not change the fact that the investor's funds are at risk," he said. "Purchase of such insurance is legal."
To provide a frame of reference, there are EB-5 specialty insurance products about which nobody has raised any concern. However, those policies usually cover the regional centers themselves, not immigrant investors.
David Souders, a broker at Todd Associates, Inc., offers errors and omissions (E&O) and directors and officers (D&O) insurance policies that specifically address the potential liabilities of regional centers and their principals.
"Suits can be brought against regional centers and their affiliates for a variety of reasons," Souders explained. "The policies we craft for our insureds are tailored to protect and defend them against potential litigation stemming from investors, competitors, regulatory bodies, etc."
But that is a far cry from guaranteeing the investment. "I don't offer a policy that promises a repayment of principal to the investor," Souders said.
Continue reading Part 3 of our series on EB-5 investor reimbursement insurance.