Four months after Terry McAuliffe became chairman of GreenTech Automotive in March 2010, a decision by the California regional director of the Department of Homeland Security’s US Citizenship and Immigration Services (USCIS) found that the manner the firm was raising money from investors was “impermissible,” which crippled the company’s ability to solicit funds from foreign investors.
Fundraising had been going well until that time. Under the terms of a 2009 Private Placement Memorandum, GreenTech Automotive obtained $2.5 million from five Chinese national EB-5 investors before McAuliffe became chairman, and an additional $5 million from ten more Chinese national EB-5 investors in McAuliffe’s first four months. With $7.5 million in cash, and prospects of an additional $5 million in loan financing from the state of Mississippi, the financial future for GreenTech Automotive seemed secure.
But when the California regional director of the USCIS determined that the terms of the 2009 PPM “constituted an impermissible redemption agreement” as defined in the 1990 law that established the EB-5 foreign national investor and immigration program, the USCIS stopped approving the I-526 petitions submitted by foreign nationals who invested in GreenTech’s 2009 PPM, and the pool of Chinese investment that had been flowing into GreenTech’s coffers dried up.
As Breitbart News reported previously:
According to the 2009 prospectus, Gulf Coast Funds Management, a sister company of GreenTech, invested “all of the proceeds of this offering in a newly formed Mississippi automotive manufacturer, GreenTech Automotive Inc.” EB-5 investors were told that Gulf Coast Funds Management “will receive, on your behalf, a preferred stock or debt interest in GreenTech Automotive. Five years from the date of your investment in this offering, the preferred stock or debt we purchase on your behalf will be converted into GreenTech Automotive common stock with an estimated fair market value of $555,000.”
Under the EB-5 program enacted into law in 1990, foreign nationals who invest $500,000 in an American company qualify for temporary and permanent green card resident visas. EB-5 regional centers typically work with foreign national investors who have met these investment criteria and need assistance in submitting I-526 petitions to the USCIS. Only when these I-526 petitions are approved by the USCIS do the foreign nationals receive their temporary green card residential visas. After one to two years, temporary green card residential visa holders are eligible to apply for permanent green card residential visas.
A key element of the law that established the EB-5 program required that the foreign national’s investment must be “at risk” in order for the investor to be eligible to file an I-526 petition. It was this element that the director of the California regional center of USCIS found lacking in GreenTech’s 2009 PPM.
What was at risk if a foreign national investor paid $500,000 in cash into an investment fund in 2009, and then five years later received common stock in GreenTech Automotive with “an estimated fair market value” of $550,000?
The director decided none of these funds would be “at risk” as the law required and “determined (1) that the investors [in the 2009 PPM] would have reduced management rights; (2) that the purchase of stock undermined the congressional intent to promote pooled investment; (3) that the proposal to convert each membership unit to an estimated price of $550,000 in common stock in five years constituted an impermissible redemption agreement,” according to internal DHS documents released under Freedom of Information Act requests.
Two weeks ago, it was reported that the Securities and Exchange Commission is investigating GreenTech Automotive over its solicitation of foreign investors. The Washington Post reported that “the investigation is focused, at least in part, on alleged claims that the company ‘guarantees returns’ to the investors, according to government documents.”
Note: The DHS official’s ruling was eventually overturned. Stay tuned to Breitbart News for the extraordinary events surrounding that.