Kang Haggerty News
With approximately $15 billion in pre-2022 EB-5 capital still deployed and evolving regulations, these cases present unique challenges blending contract interpretation, duty of loyalty violations and immigration consequences.
In the September 10, 2026 edition of The Legal Intelligencer, Edward Kang and Kyle Garabedian co-authored, “Redeployed and Reluctant: Litigating EB-5 Sponsors’ Reinvestment of Investor Capital.”
Recently, this column examined the litigation strategies available to EB-5 investors seeking to recover their capital from failed or fraudulent projects. This month, we turn to a rapidly growing subset of those disputes: litigation arising from the “redeployment” of EB-5 investor capital. In a redeployment, the sponsor of an EB-5 investment vehicle, typically the general partner or manager of the New Commercial Enterprise (NCE), reinvests capital returned by the original project in a new venture, often without the investors’ meaningful input and sometimes over their express objection. For investors who expected the return of their capital, redeployment can feel like a second investment they never agreed to make. For plaintiffs counsel, these disputes present a distinctive blend of contract interpretation, fiduciary duty law, securities regulation, and immigration strategy.
Why Redeployment Exists at All
Redeployment is a byproduct of two colliding features of the EB-5 program. The first is the familiar “at risk” requirement: to obtain and retain permanent residence, an investor’s capital must remain invested and at risk throughout the applicable sustainment period. The second is the visa backlog. For investors from oversubscribed countries, particularly mainland China, the wait between the initial investment and final adjudication of the I-829 petition has stretched to a decade or more. Original EB-5 projects, by contrast, are typically structured around five-year loans from the NCE to the job-creating entity. When the loan is repaid before the investor’s immigration journey is complete, the capital cannot always be distributed without impacting the green card applications of some investors. It must go somewhere. That somewhere is redeployment, a practice the original 1990 statute never anticipated and one that Congress addressed only in skeletal terms in the EB-5 Reform and Integrity Act of 2022 (the RIA), leaving the specifics to regulations that did not arrive until 2026.
The RIA materially changed the calculus, but only prospectively. Under guidance that the U.S. Citizenship and Immigration Services (USCIS) first issued through its EB-5 FAQs in October 2023, investors who filed after the RIA’s March 15, 2022, effective date need only sustain their investment for two years from deployment, decoupling investment from immigration and largely eliminating the need for redeployment. (Exactly when that clock begins remains contested and is among the questions addressed in the pending rulemaking.) Investors who filed before the RIA enjoy no such relief. The result is a bifurcated system: a legacy population, much of it invested between 2014 and 2018, whose capital continues to be redeployed, sometimes serially, while they wait, and a population of investors who filed after the RIA, subject to a shorter investment period. The scale is enormous: industry groups estimate that roughly $15 billion in pre-2022 investment remains in projects across the country, with billions more at risk of redeployment. It is from this legacy population that redeployment disputes overwhelmingly arise.
The Authority Question: What Do the Documents Actually Permit?
The threshold question in any redeployment dispute is one of authority. Offering documents drafted before redeployment was a recognized phenomenon, including limited partnership agreements, operating agreements, and private placement memoranda of that era, which frequently say nothing about reinvestment at all or address it in broad boilerplate. These documents frequently grant the manager general discretion over investments. Sponsors read these provisions expansively, arguing that such general investment discretion encompasses the selection of successor investments. Investors respond that they subscribed to a specific project, described in a specific offering, with specific collateral and specific principals, and that redeployment into a materially different reinvestment is beyond the scope of anything they authorized.
Where the documents require investor consent, a second dispute emerges: the adequacy of the consent solicitation. Sponsors soliciting approval for redeployment rarely provide a disclosure that resembles the original offering. Plaintiffs have attacked consent solicitations as materially misleading where the sponsor omitted the terms of the successor investment, the sponsor’s affiliation with the new borrower, or the fees the sponsor and its affiliates would earn. And because EB-5 interests are securities, courts apply the Howey investment contract test, which asks whether a person invested money in a common enterprise with a reasonable expectation of profits derived from the efforts of others, to EB-5 NCE interests and treat the investor’s green card motive as immaterial to that objective inquiry. See SEC v. W.J. Howey, 328 U.S. 293 (1946). Accordingly, redeployment accomplished through a misleading solicitation may itself give rise to claims under Section 10(b), Rule 10b-5, and state securities statutes. This theory treats redeployment as a new investment decision procured by fraud.
Layered over the contractual issues are the guardrails USCIS has placed on redeployment. Under current guidance, redeployed capital must remain within the scope of the NCE’s business and “in commerce.” The statute itself requires that it “remain[] at risk and . . . not [be] redeployed in passive investments, such as stocks or bonds.” See Immigration and Nationality Act (INA) Section 203(b)(5)(F)(v). The reinvestment must also occur within a reasonable time after repayment, historically understood as roughly twelve months, though the July 2026 proposed rule would tighten the default to three months absent a showing that a longer period is reasonable. These guardrails cut both ways: a sponsor who violates them may jeopardize the investors’ petitions and supply evidence of breach in one stroke.
Sponsors, however, also invoke them defensively, arguing that the reasonable time constraint left no room for a full consent process.
Fiduciary Duties and Self-Dealing
The most potent theory in redeployment litigation, however, is breach of fiduciary duty. The redeployment decision is made by the general partner or manager of the NCE, a fiduciary, at a moment when investor capital is unencumbered cash, and the fiduciary’s incentives are at their most dangerous. A sponsor choosing a successor investment can select an independent opportunity offering the best available security and terms, or it can lend to an affiliate, prop up a troubled related project, or choose whichever placement generates the richest management, origination, and servicing fees for its own ecosystem. Recent litigation reveals recurring patterns: managers who allegedly accepted early prepayment of a performing loan to manufacture a redeployment event; consent solicitations engineered to approve conflicted proposals; redeployments into ventures controlled by the sponsor’s principals; layered fees, thinly disclosed, collected at each step; and redeployments made after investors already received their green cards.
These fact patterns constitute classic duty of loyalty violations. A manager who is on both sides of the redeployment transaction, or who derives a financial benefit from it that is not shared with investors, bears the burden of establishing the fairness of the transaction under most formulations of the duty. Sponsors respond with contractual disclaimers, as many agreements governed by Delaware law purport to eliminate fiduciary duties to the maximum extent permitted, and with threshold arguments about who owes duties to whom. The leading structural defense is that, under New York law, controlling members and managers of an LLC owe no fiduciary duties to persons who are not themselves members, a defense with real bite in EB-5 architectures, where the investor’s formal relationship is often with an intermediate entity rather than with the principals who directed the funds. But the plaintiffs’ answer is now well marked. In Youyi Chen v. 215 Chrystie Venture, 79 Misc. 3d 1224(A), 191 N.Y.S. 3d 614 (N.Y. Sup. 2023), the defendants raised exactly that argument, and the court declined to dismiss the case on that basis. The plaintiffs had pleaded a promoter theory of fiduciary duty rather than one premised on membership, and the court reasoned that a sponsor who organizes the venture, solicits and controls the invested funds, and holds itself out to unsophisticated foreign investors as possessing specialized expertise may owe a duty of disclosure, an issue too fact-specific for a motion to dismiss. Practitioners confronting the structural defense should therefore plead the sponsor’s promoter conduct with particularity. In every case, trace both the money and the governance: which entity held the capital, who controlled it, which duty the governing documents preserved or disclaimed, and which jurisdiction’s law supplies the rule of decision.
The Immigration Overlay, Again
As with all EB-5 litigation, the immigration consequences constrain strategy. An investor who filed before the RIA and who successfully unwinds redeployment, recovering capital before the sustainment period has run, may win the battle and lose the war: USCIS may treat the recovered capital as no longer at risk and deny the pending petition. An investor whose petition has already been approved or denied faces a different calculus. In addition, the RIA’s investor protection provisions, including mechanisms for preserving petitions after regional center termination or project failure, may offer paths that did not exist five years ago.
The adjudication climate has also hardened. Under policy manual revisions effective Aug. 5, 2026, USCIS may deny a benefit request outright, without issuing a request for evidence or notice of intent to deny, where the initial evidence is missing or insufficient. For investors with thin or contested redeployment documentation, this change removes a procedural safety net. One of the points from the earlier column bears repeating: redeployment cases should be litigated in close coordination with immigration counsel, because the remedy the client wants most (money back, now) may cost the family its green cards. Of course, it would be an entirely different situation when the investors had already obtained their green cards, and the sponsors nevertheless choose to redeploy the investments.
A Regulatory Landscape in Motion
The regulatory front is unusually active. The regional center industry’s trade association, Invest in the USA, sued USCIS in the District of Columbia in 2024, seeking to invalidate the agency’s two-year sustainment guidance, relief that would expand the universe of investors subject to redeployment. On July 29, 2025, the district court denied both sides’ dispositive motions, reasoning that forthcoming rulemaking would likely moot the notice and comment challenge, leaving the two-year interpretation controlling in the interim. The rulemaking has now arrived. On July 2, 2026, the Department of Homeland Security published a proposed rule implementing the RIA that expressly invites comments on redeployment under Section 203(b)(5)(F)(v) of the INA, including how regional centers must document compliance when capital is reinvested and a proposed three-month default window for redeployment. Comments close Aug. 31, 2026. A second deadline looms behind it: although the regional center program itself is authorized through September 30, 2027, the RIA’s grandfathering protection extends only to petitions filed by Sept. 30, 2026, and industry groups are lobbying Congress for an extension. Whatever emerges from this compressed season will shape the standards against which future redeployments, and future redeployment lawsuits, are measured.
Takeaways
Redeployment disputes are best understood as a distinct genre of EB-5 litigation with its own analytical sequence. First, obtain the full document set, from the original offering documents through every consent solicitation, because the authority question frames everything that follows. Second, follow the money: the economics of the successor investment, and who profits from it, usually reveal whether the redeployment was a good-faith necessity or an act of self-dealing. Third, plead the redeployment as a separate investment decision, opening the door to securities claims with fresh limitations periods. Fourth, coordinate immigration strategy from day one, because remedies and petitions can work against each other.
While the sponsors did not create the challenges posed by redeployment, they often turn the situation to their advantage and to investors’ detriment. Unfortunately, sponsors have every incentive to use the redeployment process to keep investor funds tied up for their own purposes, to make self-interested investments, or generate further fees. The population of investors who filed before the RIA and whose capital remains in serial redeployment is large, aggrieved, and increasingly willing to litigate. Those investors whose investments have been redeployed without their meaningful consent need to snap out of plausible denial: they are unlikely to get back their investments unless they take affirmative action.
Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com. Kyle Garabedian, a member with the firm, represents clients in a wide range of business disputes, including breach of contract, partnership disputes, business divorces, fraud and breach of fiduciary duty litigation, construction litigation, and disputes arising under the EB-5 investor program. Kyle’s practice frequently involves urgent, high-stakes disputes that require swift action to file preliminary injunctions.
Reprinted with permission from the September 10, 2026 edition of “The Legal Intelligencer” © 2026 ALM Global, LLC. All rights reserved. Further duplication without permission is prohibited. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.