By: Angelo Paparelli

Seyfarth Synopsis: The legal cannabis business is spreading like weeds.  As several states and foreign countries have enacted laws decriminalizing or legalizing marijuana for medicinal or recreational use, a fresh rush of reefer madness has overtaken the business world.  Investments in the cannabis industry are now available as ETFs (Exchange Traded Funds), and marijuana startups are proliferating at every step along the supply chain.

Not to be a downer, but this blogger worries that many imbibers of high and heady times may not realize that engaging in, and even facilitating, the marijuana trade carries risks – not the least of which are the chockablock provisions of the Immigration and Nationality Act (INA) that portend bad trips aplenty.

Continue Reading Weed and Worry — The Immigration Consequences of Engaging in the Cannabis Trade

By David Warburg and Mark Katzoff

Seyfarth Synopsis: This article discusses the impact of the newly adopted EB-5 regulations on the disclosure obligations of ongoing EB-5 offerings.

The obligation to make full and fair disclosure under the US federal securities laws is most often viewed by many, if not most sponsors who are seeking EB-5 capital as a legal and regulatory burden – sometimes almost as a necessary evil. Moreover, many also assume that a given legal development, such as the new EB-5 rule published late last July, will simply require essentially the same disclosures for every EB-5 financing being launched or currently in the offering process.

The reality is very different. Not only must disclosures be crafted to be consistent with each offering’s dynamics, needs and stage of offering, marketing and development, but required disclosures can often, without in any way impairing accuracy, compliance with law, and the need for the securities law professionals advising clients to offer impartial unconflicted advice and counsel, enhance the marketing of the offering.

To illustrate how this can be accomplished, consider how each of the following three hypothetical on-going offerings could reasonably address disclosure obligations in the wake of the recently published EB-5 Modernization Rule (the “Rule”), which is to become effective November 21, 2019. Click here for a summary of the Rule.

Hypothetical Offering A:  Commenced offering in June 2018, and has closed on investor subscriptions (with accompanying I-526 petitions filed) representing 80% of its targeted offering amount. The unsubscribed 20% is required to complete the project. The underlying project is located in a census tract which previously qualified as a TEA, but the sponsor believes (and has a reasonable and documentable basis for such belief) that the project will continue to qualify as a TEA under the New Rule.

Hypothetical Offering B:  Commenced offering in December 2018, and has closed on investor subscriptions (with accompanying I-526 petitions filed) representing 100% of its targeted offering amount. The company wishes to increase the size of the offering and use the additional funds to replace other components of its capital stack. The underlying project is located in a census tract which previously qualified as a TEA, but the sponsor believes that the project will not (or that there is substantial doubt as to whether the project will) qualify as a TEA under the New Rule.

Hypothetical Offering C:  Commenced offering in March 2019, and has closed on investor subscriptions (with accompanying I-526 petitions filed) representing only 35% of its targeted offering amount. The unsubscribed 65% is required to complete the project. The underlying project is located in a census tract which previously qualified as a TEA, but the sponsor believes that the project will not qualify as a TEA under the New Rule.

How should (or could) each of these offerings address (a) disclosure obligations, and (b) any need for, or how best to avoid rescission offers under the securities laws?  The questions a securities attorney needs to evaluate include:

  • Is a supplement to the offering’s current offering/disclosure documents required to be distributed?
  • What risks should that supplement describe?
  • Must a rescission offer be made to those investors whose subscriptions were accepted and funded?
  • How should the securities attorney and his/her client address the requirements of the New Rule that the “[petitioner investor have] no right to withdraw or rescind the investment….at the time of adjudication of the petition.” 8 CFR § 204.6(n)(3).

The three hypothetical offerings share the following characteristics:

  • The offerings are ongoing.
  • The offerings may remain open after the effective date of the New Rule.
  • Each investor who has invested in an offering to this point has filed their I-526 petitions and accordingly their petitions should be adjudicated under the existing rules.

The primary differences between the offerings are:

  • Hypothetical Offerings A and C have not yet raised their initial targeted amounts and need additional funds to complete their respect projects.
  • In Hypothetical Offerings B and C, the issuer is assuming that the project will not be deemed to be located in a TEA under the new rules.

Existing Investors. With respect to the possibility of rescission as regards existing investors, there are two potential grounds for requiring rescission: (i) a material change in the terms of an investor’s investment, if not approved by the investor,  or (ii) a material deficiency in the disclosure documents given to the investor at the time of their initial investment.  Since the New Rules do not apply to I-526 petitions filed prior to the effective date of the New Rules, the general terms of the investments made by the existing investors should not change. The investors should continue to be deemed to have invested in a TEA and be subject to a $500,000 minimum investment.  As long as the initial offering document was appropriately drafted, with disclosure of risks both relating to the possibility that the issuer would be unable to raise the full amount  (“Offering Completion Risk”) and to the possibility of changes to the terms of the EB-5 program (“Program Change Risk”), an investor should not be able to claim that they were inadequately warned of what could happen.   In short, existing investors should not be entitled to rescission as a result of the New Rules.

If (while unlikely) sponsor and legal counsel were to conclude (perhaps with the benefit of hindsight) that existing disclosures were inadequate to fully address Offering Completion Risk or Program Change Risk, a rescission offer would be appropriate. In that event, counsel would want to ensure that a full and knowing waiver of all rescission rights was obtained from each existing investor. That waiver would need to be rapidly drafted, communicated and obtained in a manner that ensured its effectiveness both under both (a) applicable securities laws and (b) the New Rule. It is not crystal clear (although one might hope) that compliance with (a) will constitute compliance with (b).

Subsequent Investors. Since the New Rules both potentially change the terms of an offering for subsequent investors and increase the risks involved with the offering by making it more difficult to raise capital, a supplement is warranted in all three of our hypothetical offerings. The content of the supplement may vary somewhat among the offerings, as described below.

Hypothetical Offering A:

  • Indicate that the minimum investment amount will increase to $900,000 (the new minimum for investing in a TEA) for investors who do not file their I-526 prior to November 21, 2019.
  • Indicate that the New Rules will make it more difficult to raise funds from EB-5 investors and discuss the impact on the project of failing to raise sufficient funds. The disclosure would be in the nature of a refinement of existing disclosure of Offering Completion Risk.

Hypothetical Offering B:

  • Indicate that the minimum investment amount will increase to $1,800,000 (the new minimum for investing in a TEA) for investors who do not file their I-526 prior to November 21, 2019.
  • Address any impact the increased offering size will have on job creation estimates.
  • Since the issuer does not need the additional funds to complete the project there should be no need for additional disclosure of Offering Completion Risk – i.e., no need to indicate that the New Rules will make it more difficult to raise funds from EB-5 investors and discuss the impact of failing to raise sufficient funds on the project. If, however, the issuer touts benefits to the investors of the expanded offering size, some discussion of these matters may be warranted to indicate that the benefits may not be achieved.

Hypothetical Offering C:

  • Indicate that the minimum investment amount will increase to $1,800,000 (the new minimum for investing in a TEA) for investors who do not file their I-526 prior to November 21, 2019.
  • Indicate that the New Rules will make it more difficult to raise funds from EB-5 investors and discuss the impact on the project of failing to raise sufficient funds. The disclosure would be in the nature of a refinement of existing disclosure of Offering Completion Risk.

As addressed in the discussion of Hypothetical Investment B above, if an issuer does not need additional funds to allow completion of a project, there is less need to discuss the added risks created by the New Rules with respect to capital-raising.  However, as making investors aware of the pending increase in minimum investments may give investors an additional incentive to make investment decisions quicker, there are likely marketing benefits to updating offering documents to include this disclosure where the offering will remain open.   Some sponsors of existing ongoing EB-5 offerings are already reporting an uptick of investor interest spurred by the New Rules.

In conclusion, while the New Rules warrant updating the offering materials for most ongoing offerings, if the initial materials were properly prepared, there should be limited impact on the offerings beyond making the updates.  The changes in the EB-5 rules should not give rise to rescission claims from initial investors.  In fact, rather than giving existing investors a way out of the funds, in the short term, the New Rules should provide sponsors engaged in ongoing offerings with an enhanced marketing “pitch” to new investors to expedite their investment decisions.

By Dawn Lurie, Mark Katzoff, Angelo A. Paparelli and Randy Johnson

Seyfarth Synopsis: On July 24, 2019, U.S. Citizenship and Immigration Services (USCIS), the immigration-benefits component of the Department of Homeland Security (DHS),   published a final regulation on “EB-5 Immigrant Investor Program Modernization” (the “Rule”) to reform the EB-5 program in the Federal Register.  Absent successful court challenges, or the passage by Congress of EB-5 legislation, the Rule will take effect on November 21, 2019.  The Rule makes pronounced changes to the EB-5 program, including a significant increase in the investment threshold, conferral of exclusive authority to USCIS to designate Targeted Employment Areas (TEAs), and retention of priority dates for petitioners. The text of the Rule can be found here.

Continue Reading USCIS Publishes EB-5 Modernization Rule: the Impact on the EB-5 Program

This blogpost has been updated on July 23, 2019 with information regarding the number of audit notices issued.

Seyfarth Synopsis: The temperature may be heating up in the nation’s capital, but Immigration and Customs Enforcement (ICE) is keeping things cool.  ICE Acting Director, Matthew Albence, confirmed that almost 3330¹ Notices of Inspection (NOI) have already been served, across the 50 states and Puerto Rico, initiating Form I-9 audits for companies of all shapes and sizes. It is expected that over 5000 NOIs will be issued before this latest ICE blitz is over. With the current enforcement climate, there may even be a resurgence of pre-dawn enforcement actions – otherwise known as “raids” – to surprise both workers and their employers. Companies should expect penalties to climb sky high, with recent reports of multi-million dollar fines, especially for non-compliant electronic I-9 systems — that’s right, something that has nothing to do with unlawful workers.  It is expected that over 5000 NOIs will be issued during this round of audits

What is an NOI?

An NOI initiates a government administrative inspection of a company’s Forms I-9 to determine whether they are complying with existing law.  U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) leadership considers civil administrative audits to be just one of many tools that ICE can use to reduce the demand for unauthorized unemployment and to protect opportunities for U.S. workers.  The current enforcement strategy includes an expanded use of civil penalties, employer audits, and debarment, as well as the criminal prosecution of employers who knowingly break the law.

Continue Reading ICE Chills the Summer with Thousands of Audit Notices Issued to Businesses Nationwide

By Randy Johnson and Dawn Lurie

Seyfarth Synopsis: On July 10, 2019, the U.S. House of Representatives passed H.R. 1044 – the “Fairness for High-Skilled Immigrants Act of 2019,” on the Suspension Calendar[1] with a bipartisan vote of 365-65. The legislation, originally introduced by Rep. Zoe Lofgren (D-CA), would eliminate the existing “per-country cap” for employment-based immigrants while also increasing the per-country cap on family-based immigrant visas.

The current employment-based system for immigrant visas (i.e. “green cards”) is based on “per-country caps” which set a cap, or quota, per-country at 7% of the total amount of employment-based green cards issued annually by the United States.[2] As one employer-based coalition put it, “[t]his means that India and China, which account for over 40% of the world’s population are allowed the same number of visas as Greenland, a country that accounts for 0.001% of the world’s population.”  For more information on the operation of the per-country caps, see the Congressional Research Service’s December 2018 analysis here.

Continue Reading Houses Passes Bill Lifting “Per-Country Caps”

On May 29, 2019, forty-seven members of Congress wrote a letter to Attorney General Bob Barr and Acting Secretary of Homeland Security Kevin McAleenan registering their disagreement with the application of USCIS policy guidance to those who have been employed in the legal cannabis industry.

The letter’s signatories, led by Reps. Joe Neguse, Kelly Armstrong and Hakeem Jeffries, noted that thirty states and the District of Columbia have legalized cannabis for medical and/or recreational purposes. The letter criticizes the policy stating that it “targets naturalization applicants based on lawful employment for an activity that is legal in multiple states and and territories (albeit not under federal law).”

The letter is particularly critical of the potential treatment of naturalization applicants who have not been subjects of marijuana charges or convictions, but whose admissions in the course of immigration adjudications would then expose them to potential federal prosecution and deportation. The letter characterizes the new guidance as  “fatally flawed, as it provides no cogent basis for the agency’s apparent conclusion that lawful employment in a state licensed industry could be treated as a negative factor in establishing good moral character.”

The letter concludes by calling on the federal government either to retract the guidance altogether, or to offer more clearly defined standards for obtaining admissions from naturalization candidates disclosing employment in the marijuana industry.

A link to the letter is here.

Whether the letter will result in any modifications of USCIS policy and/or adjudicative processes remains to be seen.  Under either outcome, it is likely that marijuana use, possession or distribution by naturalization candidates, even in the course of legal employment,  will pose hazards to those applicants for years to come.

Seyfarth Synopsis: As a number of states and the District of Columbia have moved to permit possession, use and sale of marijuana for both medicinal and recreational purposes and the business of legalized cannabis distribution has grown exponentially, federal law banning such activity remains unchanged.  Deeming the trend in state law irrelevant, federal immigration authorities have in fact moved in the opposite direction.  Last month, on April 19, US Citizenship and Immigration Services announced policy guidance “to clarify that violations of federal controlled substance law, including violations involving marijuana, are generally a bar to establishing good moral character for naturalization, even where that conduct would not be an offense under state law.”

Continue Reading Too Natural for Naturalization: Even Decriminalized Marijuana Can be a Bar to US Citizenship

By Angelo Paparelli

Seyfarth Synopsis: The Social Security Administration has once again resumed issuing No-Match notices to employers.  The notices alert businesses that SSA has identified data discrepancies between the agency’s records and employer-provided data submitted for payroll tax reporting to the IRS.  Issuance of the notice triggers a duty upon employers to take action.  While a No-Match notice may involve an innocent clerical mistake or an unreported name change, it could also offer a clue suggesting that workers named in the notice may lack the right to work in the United States.  This blog outlines the risks and the measures prudent employers should take to comply with SSA requirements while avoiding the knowing employment of unauthorized workers and the risk of unlawful discrimination under the immigration laws.

Continue Reading Immigration Haunting: Social Security Administration Resumes Issuing No-Match Notices

Seyfarth Synopsis:  USCIS Announces the FY 2020 H-1B Cap Reached.

On April 5, 2019, United States Citizenship & Immigration Services (USCIS) announced that it received sufficient H-1B petitions to meet the regular H-1B quota (or “cap”) for Fiscal Year 2020, which begins on October 1, 2019. This means that USCIS received more than 65,000 H-1B petitions in the first week of filing (April 1 – April 5).  USCIS will next determine if it received a sufficient number of petitions to meet the 20,000 H-1B visa U.S. advanced degree exemption, known as the Master’s cap.

Seyfarth Synopsis: The Deferred Enforced Departure (DED) work authorization for eligible Liberian nationals has been extended automatically until March 30, 2020. While the previous wind-down period for DED was set for March 31, 2019, President Trump, on March 28, 2019, issued a presidential memorandum directing Secretary Nielson to provide continued work authorization for an additional 12-months.

On April 3, the US Citizenship and Immigration Services (USICS) published notice in the Federal Register with information on the six-month automatic extension of employment authorization documents (EADs) through September 27, 2019. The notice also provides guidance for Liberians with DED status on how to apply for their EAD for the full 12 month period, through March 30, 2020. For an employee with a current DED-related EAD with A-11  under “category” that expires on March 31, 2019, employers may rely on the Federal Register notice as evidence of continued work authorization until September 27, 2019 to update the employee’s Form I-9. After this date, the employee should present their new EAD to update their Form I-9.

How to Update an Existing Employee’s Form I-9?

For an existing employee who presented a DED-related EAD that has now been auto extended, the employer must update their Form I-9 to reflect the changes. Employees may choose to present their EADs to their employer as proof of identity and employment authorization for the Form I-9 through September 27, 2019.

In Section 1, the employee should:

1. Draw a line through the expiration date and write a new expiration date. If the Federal Register notice is used for the automatic extension, the new date in Section 1 should be September 27, 2019. If the employee presents an updated EAD, the expiration date in Section 1 should be the expiration date on the document.

2. Initial and date the correction.

In Section 2, the employer should:

1. If the Federal register notice is used:

a. Draw a line through the expiration date in Section 2 and write a new expiration date.

b. Write AUTO EXTENDED UNTIL September 27, 2019.

c. Initial and date the correction.

2. If the employee presents a new EAD or documents showing update in status:

a. Complete Section 3 in the current version of the Form I-9.

It is important to note that the automatic extension is not a reverification. Accordingly, Section 3 is not used in the example above. That said, once Section 3 is completed, an auto-extension could be recorded on the date in Section 3.

How to Complete an New Employee’s Form I-9?

In Section 1, the employee should:

• Check “An alien authorized to work until” and enter September 27, 2019, as the “expiration date”.

• Enter their Alien Registration Number/USCIS Number where indicated.

In Section 2, the employer should:

• Determine if the EAD is automatically extended 180 days by ensuring that it has category A-11 and has a March 31, 2019, expiration date.

• If the EAD has been automatically extended, the employer should:

• Write in the document title.

• Enter the issuing authority.

• Provide the document number.

• Write September 27, 2019, as the expiration date.

What’s Happens After 9/27/19?

Before the start of work on September 28, 2019, employers will required by law to reverify the employee’s employment authorization in Section 3 of Form I-9. If the original Form I-9 was a previous version, the employer must complete Section 3 of the current version of Form I-9 and attach it to the previously completed Form I-

My company participates in E-Verify, how do we verify a new employee whose EAD has been automatically extended?

Employers should use the data from the Form I-9 and record the auto-extension date for the expiration date of the EAD card.

What Else Do Employers Need to Know?

It is critical that those responsible for the Form I-9 process understand how, and when, to record TPS auto-extensions and Sections 2 and 3 updates. This avoids exposure to fines and penalties associated with incorrectly completed I-9s. We’ve written about the tremendous increase in enforcement activity in 2018, and watched the Administration “reduce the demand for illegal employment and protect employment for the nation’s lawful workforce.” It’s clear that Immigration and Customs Enforcement (ICE) plans to continue building on a strategy that includes worksite enforcement actions, the prosecution of employers, and Form I-9 inspections. Be prepared for 2019 as ICE continues using Form I-9 audits and civil fines to encourage compliance. We also anticipate a renewed focus on the IMAGE program and other employer outreach in an attempt to partner with employers acting in good faith and reserve their attention for egregious violators.