SOFFIC

Interim Decision #3359

In re SOFFICI, Petitioner

In Visa Petition Proceedings

A76 472 614

Designated as a precedent by the Commissioner, June 30, 1998.

(Decided by the Associate Commissioner, Examinations, June 25, 1998.)

(1) A petitioner under § 203(b)(5) of the Immigration and Nationality Act cannot establish the

requisite investment of capital if he lends the money to his new commercial enterprise.

(2) Loans obtained by a corporation, secured by assets of the corporation, do not constitute

capital invested by a petitioner. Not only is such a loan prohibited by 8 C.F.R, § 204.6(e), but

the petitioner and the corporation are not the same legal entity.

(3) A petitioner’s personal guarantee on a business’s debt does not transform the business’s

debt into the petitioner’s personal debt.

(4) A petitioner must present clear documentary evidence of the source of the funds that he

invests. He must show that the funds are his own and that they were obtained through lawful

means.

(5) A petitioner who acquires a pre-existing business must show that the investment has cre-

ated, or at least has a reasonable prospect of creating, 10 full-time positions, in addition to

those existing before acquisition. The petitioner must, therefore, present evidence concerning

the pre-acquisition level of employment. Simply maintaining the pre-acquisition level of

employment is not sufficient, unless the petitioner shows that the pre-existing business qual-

ifies as a “troubled business.”

ON BEHALF OF PETITIONER: LARRY J. BEHA

888 SE 3RD

AVENUE

SUITE 400

FORT LAUD-

ERDALE FL 33316

The preference visa petition was approved by the Director, Texas

Service Center, who certified the decision to the Associate Commissioner

for Examinations for review. The decision of the director will be reversed.

The petitioner seeks classification as an alien entrepreneur pursuant to

section 203(b)(5) of the Immigration and Nationality Act, 8 U.S.C.

§ 1153(b)(5). The director determined that the petitioner had adequately

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established that he was actively in the process of investing the requisite

amount of capital. The director further found that the investment would

result in full-time positions for not fewer than 10 qualifying employees.

In response, counsel urges the Administrative Appeals Office to affirm

the director’s decision. He asserts that the petitioner’s investment exceeds

one million dollars and points out that the hotel is commercially active. He

states that the petitioner’s investment has already created at least 10 full-

time jobs.

Section 203(b)(5)(A) of the Act provides classification to qualified

immigrants seeking to enter the United States for the purpose of engaging

in a new commercial enterprise:

(i) which the alien has established,

(ii) in which such alien has invested (after the date of the enactment of the

Immigration Act of 1990) or, is actively in the process of investing, capital in an

amount not less than the amount specified in subparagraph (C), and

(iii) which will benefit the United States economy and create full-time employment

for not fewer than 10 United States citizens or aliens lawfully admitted for permanent

residence or other immigrants lawfully authorized to be employed in the United States

(other than the immigrant and the immigrant’s spouse, sons, or daughters).

MINIMUM INVESTMENT AMOUNT.

The petitioner indicates that the petition is based on an investment in an

existing business located in a targeted employment area, for which the

required amount of capital invested has been adjusted downward.

8 C.F.R. § 204.6(e) states, in pertinent part, that:

Targeted employment area means an area which, at the time of investment, is a rural

area or an area which has experienced unemployment of at least 150 percent of the

national average rate.

The petitioner’s company, Ames Management, Inc., does business as a

Howard Johnson Hotel located at 950 South Federal Highway in Stuart,

Florida. The City of Stuart is in Martin County. The petitioner has submit-

ted a March 1996 letter from the Florida Department of Labor and

Employment Security indicating that Martin County qualified as a rural

area in 1995. In addition, the Ft. Pierce metropolitan statistical area, which

encompassed Martin County, experienced a sufficiently high unemploy-

ment rate to qualify as a targeted employment area in 1995.

A petitioner has the burden to establish that his enterprise does business

in an area that is considered “targeted” as of the date he files his petition.

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The fact that a business may be located in an area that was once rural, for

example, does not mean that that area is still rural. The letter from the

Florida Department of Labor and Employment Security contains the fol-

lowing statement: “This listing will only remain in effect until 1996 annu-

al averages are available in early 1997.” The petitioner here filed his Form

I-526 in January 1998, and his data are at least a year, if not two years, out

of date.

The Service has nevertheless independently obtained current employ-

ment information from the Florida Department of Labor and Employment

Security. While Martin County is no longer a rural area, the “Ft. Pierce-Port

St. Lucie” metropolitan statistical area does constitute an area of high

unemployment; all of Martin County is contained in this new metropolitan

statistical area. Therefore, the amount of capital necessary to make a quali-

fying investment in this matter is $500,000.

THE PETITIONER HAS NOT MADE, AND IS NOT IN THE PROCESS

OF MAKING, A QUALIFYING INVESTMENT OF CAPITAL.

8 C.F.R. § 204.6(e) states, in pertinent part, that:

Capital means cash, equipment, inventory, other tangible property, cash equivalents,

and indebtedness secured by assets owned by the alien entrepreneur, provided the alien

entrepreneur is personally and primarily liable and that the assets of the new commer-

cial enterprise upon which the petition is based are not used to secure any of the

indebtedness.

Commercial enterprise means any for-profit activity formed for the ongoing conduct

of lawful business including, but not limited to, a sole proprietorship, partnership

(whether limited or general), holding company, joint venture, corporation, business

trust, or other entity which may be publicly or privately owned. This definition

includes a commercial enterprise consisting of a holding company and its wholly-

owned subsidiaries, provided that each such subsidiary is engaged in a for-profit activ-

ity formed for the ongoing conduct of a lawful business. This definition shall not

include a non-commercial activity such as owning and operating a personal residence.

Invest means to contribute capital. A contribution of capital in exchange for a note,

bond, convertible debt, obligation, or any other debt arrangement between the alien

entrepreneur and the new commercial enterprise does not constitute a contribution of

capital for the purposes of this part.

8 C.F.R. § 204.6(j) states, in pertinent part, that:

(2) To show that the petitioner has invested or is actively in the process of investing

the required amount of capital, the petition must be accompanied by evidence that the

petitioner has placed the required amount of capital at risk for the purpose of generat-

ing a return on the capital placed at risk. Evidence of mere intent to invest, or of

prospective investment arrangements entailing no present commitment, will not suf-

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fice to show that the petitioner is actively in the process of investing. The alien must

show actual commitment of the required amount of capital. Such evidence may

include, but need not be limited to:

(i) Bank statement(s) showing amount(s) deposited in United States business

account(s) for the enterprise;

(ii) Evidence of assets which have been purchased for use in the United States enter-

prise, including invoices; sales receipts; and purchase contracts containing sufficient

information to identify such assets, their purchase costs, date of purchase, and pur-

chasing entity;

(iii) Evidence of property transferred from abroad for use in the United States enter-

prise, including United States Customs Service commercial entry documents, bills of

lading and transit insurance policies containing ownership information and sufficient

information to identify the property and to indicate the fair market value of such prop-

erty;

(iv) Evidence of monies transferred or committed to be transferred to the new com-

mercial enterprise in exchange for shares of stock (voting or nonvoting, common or

preferred), Such stock may not include terms requiring the new commercial enterprise

to redeem it at the holder’s request; or

(v) Evidence of any loan or mortgage agreement, promissory note, security agree-

ment, or other evidence of borrowing which is secured by assets of the petitioner, other

than those of the new commercial enterprise, and for which the petitioner is personal-

ly and primarily liable.

(3) To show that the petitioner has invested, or is actively in the process of investing,

capital obtained through lawful means, the petition must be accompanied, as applica-

ble, by:

(i) Foreign business registration records;

(ii) Corporate, partnership (or any other entity in any form which has filed in any

country or subdivision thereof any return described in this subpart), and personal tax

returns including income, franchise, property (whether real, personal, or intangible),

or any other tax returns of any kind filed within five years, with any taxing jurisdiction

in or outside the United States by or on behalf of the petitioner;

(iii) Evidence identifying any other source(s) of capital; or

(iv) Certified copies of any judgments or evidence of all pending governmental civil

or criminal actions, governmental administrative proceedings, and any private civil

actions (pending or otherwise) involving monetary judgments against the petitioner

from any court in or outside the United States within the past fifteen years.

Purchase of the hotel.

Ames Management, Inc. filed its articles of incorporation with the State

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of Florida on June 27, 1997. All 1000 authorized shares were issued to the

petitioner in July 1997. On October 31, 1997, Ames Management pur-

chased a Howard Johnson’s Motor Lodge for the sale price of $2.4 million,

paid as follows: $25,000 in earnest money, consisting of a $10,000 initial

deposit and a subsequent $15,000 deposit; $705,298.79 brought to settle-

ment; and $1.7 million borrowed from 1st United Bank.

In a document entitled Sources of Investment Funds, the petitioner stat-

ed that the money used to purchase the hotel came from two sources.

Approximately $450,000 were transferred to Barnett Bank from Argentina

over the period 1994 to 1997; these funds “originated from personal savings

and a sale of a house.” An additional $500,000 were transferred from

Argentina in December of 1996; these funds originated from the sale of

“our business.” The petitioner explained that, for both sources, “[t]hese

monies were loaned to me by my father and I loaned them back to my com-

pany Ames Management, Inc. It has not been stipulated when I should

return the funds.”1

The balance sheet for the petitioner’s hotel, dated November 30,

1997, confirms that the business’s liabilities include long-term loans, total-

ing $922,136.09, payable to the shareholder (the petitioner), See also the

Continuing and Unconditional Subordination of Debt discussed below. The

accompanying “Transactions by Account” breaks down the amount, date,

and destination of each loan. It is clear from this document that the $25,000

in earnest money and the $705,298.79 brought to the settlement table are

mere loans from the petitioner to Ames Management. As specified in the

definition of “invest” set forth in 8 C.F.R. § 204.6(e), debt arrangements

between a petitioner and his business do not constitute qualifying contribu-

tions of capital. Therefore, the $730,298.79 paid toward the purchase of the

hotel cannot be considered to be an “investment” by the petitioner.

Ames Management financed the balance of the purchase price, or

$1.7 million, through 1st United Bank. According to the Mortgage and

Security Agreement, the loan is secured by the hotel and all of its contents,

including inventory, accounts, leases, the franchise agreement, furniture,

patio umbrellas, landscaping, etc. First, it should be noted that a loan

obtained by a corporation is not the same as a loan obtained by an individ-

ual, and it cannot be said that this loan through 1st United Bank is an invest-

ment of the petitioner’s personal capital. Second, even if it were assumed,

arguendo, that the petitioner and Ames Management were the same legal

entity for purposes of this proceeding, indebtedness that is secured by assets

of the enterprise is specifically precluded from the definition of “capital.”

See 8 C.F.R. § 204.6(e).

1

The petitioner has not disclosed the terms of the loan from his father, and it is not

known if, for example, it is secured by assets of Ames Management.

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Counsel points out that the petitioner has personally guaranteed the

payment of the loan. In a Continuing and Unconditional Subordination of

Debt dated October 31, 1997, Ames Management and the petitioner agreed

that all debts owed by Ames to 1st United would receive priority; all obli-

gations owed by Ames to the petitioner would be subordinated to those

owed to 1st United. In case of default by Ames with regard to its loan from

1st United, the petitioner would not seek or accept payment from Ames

with regard to Ames’s debts to the petitioner. In an Unconditional and

Irrevocable Guaranty of Payment, also dated October 31, 1997, the peti-

tioner agreed to make the mortgage payments if Ames Management did not.

1st United would have the right to proceed against the petitioner without

first proceeding against Ames Management or against any property secur-

ing the note.

As the guarantee does not obligate 1st United to proceed against the

petitioner, it does not prohibit 1st United from first seeking payment from

the business.2 The petitioner’s personal guarantee of payment does not

change the character of the mortgage; the assets of Ames Management are

still primarily securing the mortgage. As such, the $1.7 million that the

mortgage represents cannot properly be considered an investment of the

petitioner’s capital.

Purchase of the van, pre-opening expenses, and corporate accounts.

On November 1, 1997, Ames Management purchased a van to be used

as the hotel shuttle. The petitioner made a down payment of $8,000 and

Ames Management financed the balance of $17,477.06 through Primus.

Counsel and the petitioner count this van as part of the petitioner’s invest-

ment. The loan through Primus does not constitute a qualifying investment

of capital because it is secured by the van itself, which is an asset of Ames

Management; moreover, it is not an investment of the petitioner’s capital

because it is a loan obtained by Ames and not by the petitioner.

The $8,000 down payment also does not qualify as an “investment” of

the petitioner’s funds; according to the Transactions by Account referenced

above, it is part of the $922,136.09 in long-term loans payable to the peti-

tioner. In other words, the $8,000 must be repaid to the petitioner.

Counsel and the petitioner include bank accounts and pre-opening

expenses as investments in Ames Management. The pre-opening expenses

of $44,836.09, however, appear on the Transactions by Account and are part

of the long-term loans payable to the petitioner. The amounts transferred to

the bank accounts also appear on the Transactions by Account as long-term

loans and therefore cannot constitute qualifying investments.

2

It is not clear why, in the event of default, 1st United would prefer to

research and pursue the petitioner’s personal assets, which are not specified in the guarantee

and which do not total $1.7 million, in lieu of seizing the easily accessible hotel itself.

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Resources to invest.

As discussed above, the petitioner has not made a qualifying invest-

ment in Ames because the amounts he has paid on behalf of Ames are mere

loans to Ames, prohibited by the regulations. It should be noted that the

petitioner has not documented that he has the means to begin the process of

investing, either. He submits a personal net worth report as of November 30,

1997, purporting to show that his net worth is $761,747.02. It is not clear

who prepared this report, and the report contains certain irregularities. For

example, the hotel, which belongs to Ames Management, is counted among

the petitioner’s personal assets. Also, the mortgage held by Ames

Management is included among the petitioner’s personal liabilities. On the

other hand, the hotel van owned by Ames Management is correctly omitted

from the report. In effect, with this personal net worth report the petitioner

is attempting to show that he has sufficient wealth to invest in the hotel

because he has invested in the hotel. Subtracting the hotel entries leaves the

petitioner’s alleged net worth at $61,747.02.

The petitioner counts the funds in various personal bank accounts as

part of his personal assets. A letter and bank statements from Barnett Bank

reveal that the petitioner has held joint accounts with his father since

October 1994. It is not possible to determine what portions of these

accounts belong to the petitioner’s father and what portions to the petition-

er. Unlike the situation of a husband and wife, funds in a pooled joint

account cannot be attributed to only one person.

A letter from Bank Boston states that, since April 1997, “Ames

Resources Limited maintains an International Private Banking

Relationship” with BankBoston. The petitioner is the secretary of Ames

Resources Limited, and the account has always had balances in the mid

seven figures. These funds belong to Ames Resources Limited, a corpora-

tion, and do not belong to the petitioner, an individual. Furthermore, “Ames

Resources Limited” is not the same thing as “Ames Management, Inc.,” and

at most, this letter indicates that the petitioner serves as an officer at a sep-

arate corporation in addition to his own corporation, and that this separate

corporation has a bank account with BankBoston.

Source of funds.

The source of the funds lent to the petitioner (and in turn lent to Ames

Management) has also not been adequately documented. The petitioner

claims that the first $450,000 came from personal savings and the sale of “a

house.” The second $500,000 came from the sale of “our business.” No

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documentation, such as a sales contract or deed establishing ownership and

price, has been submitted regarding the house or the business. Such docu-

mentation is relevant to the question of whether the funds have been law-

fully obtained, which is a requirement under 8 C.F.R. § 204.6(j)(3).3

Simply going on record without supporting documentary evidence is not

sufficient for purposes of meeting the burden of proof in these proceedings.

See Matter of Treasure Craft of California, 14 I&N Dec. 190 (Reg. Comm.

1972).

In summary, the petitioner has failed to demonstrate that he has invest-

ed, or is actively in the process of investing, the requisite amount of capital

obtained by lawful means. The amounts referenced by the petitioner either

do not constitute qualifying “capital,” because they are not his, or have not

been properly “invested,” because they are debt arrangements between the

petitioner and his business. Even if the petitioner and Ames were to be con-

sidered one and the same entity, the loans obtained by Ames from other

banks would not be considered qualifying capital because they are secured

by assets of the business. The petitioner has also failed to document the

source of his funds other than to say that the funds are a loan from his father.

THE PETITIONER HAS FAILED TO ESTABLISH

A NEW COMMERCIAL ENTERPRISE.

8 C.F.R. § 204.6(h) states that the establishment of a new commercial

enterprise may consist of:

(1) The creation of an original business;

(2) The purchase of an existing business and simultaneous or subsequent restructuring

or reorganization such that a new commercial enterprise results; or

(3) The expansion of an existing business through the investment of the required

amount, so that a substantial change in the net worth or number of employees results

from the investment of capital. Substantial change means a 40 percent increase either

in the net worth, or in the number of employees, so that the new net worth, or number

of employees amounts to at least 140 percent of the pre-expansion net worth or num-

ber of employees. Establishment of a new commercial enterprise in this manner does

not exempt the petitioner from the requirements of 8 C.F.R. § 204.6(j)(2) and (3) relat-

ing to the required amount of capital investment and the creation of full-time employ-

ment for ten qualifying employees. In the case of a capital investment in a troubled

business, employment creation may meet the criteria set forth in 8 C.F.R. §

204.6(j)(4)(ii).

5

A petitioner must also establish, pursuant to 8 C.F.R. § 204.6(e), that funds invested

are his own. The petitioner has already conceded that the funds lent to Ames are not his; the

funds belong to his father and must be repaid.

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8 C.F.R. § 204.6(e) states that:

Troubled business means a business that has been in existence for at least two years,

has incurred a net loss for accounting purposes (determined on the basis of generally

accepted accounting principles) during the twelve- or twenty-four month period prior

to the priority date on the alien entrepreneur’s Form I-526, and the loss for such peri-

od is at least equal to twenty percent of the troubled business’s net worth prior to such

loss. For purposes of determining whether or not the troubled business has been in

existence for two years, successors in interest to the troubled business will be deemed

to have been in existence for the same period of time as the business they succeeded.

Although Ames Management was incorporated in 1997, it is the job-

creating business that must be examined in determining whether a new

commercial enterprise has been created. The Howard Johnson’s Motor

Lodge purchased by Ames Management had been in operation for approx-

imately 24 years and was an ongoing business at the time of purchase;

Ames Management, doing business as Howard Johnson Hotel, has merely

replaced the former owner.

The petitioner has provided no documentation whatsoever to establish

that the Howard Johnson’s was a “troubled business,” as defined above,

prior to his purchase. He also does not claim that he will expand the hotel

by 40 percent as provided in 8 C.F.R. § 204.6(h)(3). The petitioner has not

shown the degree of restructuring and reorganization required by 8 C.F.R.

§ 204.6(h)(2); the hotel has always been a Howard Johnson and is still a

Howard Johnson today. A few cosmetic changes to the decor and a new

marketing strategy for success do not constitute the kind of restructuring

contemplated by the regulations, nor does a simple change in ownership.

Therefore, it cannot be concluded that the petitioner has created a new com-

mercial enterprise.

THE PETITIONER HAS NOT ESTABLISHED THE

REQUISITE EMPLOYMENT CREATION.

8 C.F.R. § 204.6(j)(4) discusses job creation, and states:

(i) General. To show that a new commercial enterprise will create not fewer than ten (10)

full-time positions for qualifying employees, the petition must be accompanied by:

(A) Documentation consisting of photocopies of relevant tax records, Form I-9, or

other similar documents for ten (10) qualifying employees, if such employees have

already been hired following the establishment of the new commercial enterprise; or

(B) A copy of a comprehensive business plan showing that, due to the nature and pro-

jected size of the new commercial enterprise, the need for not fewer than ten (10) qual-

ifying employees will result, including approximate dates, within the next two years,

and when such employees will be hired.

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(ii) Troubled business. To show that a new commercial enterprise which has been

established through a capital investment in a troubled business meets the statutory

employment creation requirement, the petition must be accompanied by evidence that

the number of existing employees is being or will be maintained at no less than the

pre-investment level for a period of at least two years. Photocopies of tax records,

Forms I-9, or other relevant documents for the qualifying employees and a compre-

hensive business plan shall be submitted in support of the petition.

8 C.F.R. § 204.6(e) states, in pertinent part:

Employee means an individual who provides services or labor for the new commercial

enterprise and who receives wages or other remuneration directly from the new com-

mercial enterprise...This definition shall not include independent contractors.

Full-time employment means employment of a qualifying employee by the new com-

mercial enterprise in a position that requires a minimum of 35 working hours per

week.

In a letter dated January 15, 1998, the petitioner states that Ames

Management employs 23 full-time United State citizens or lawful perma-

nent residents. It also employs part-time employees on an as-needed basis,

as well as multiple subcontractors.

Section 5.1.19 of the Agreement for Sale and Purchase refers to an

Exhibit H containing the payroll of the Howard Johnson’s Motor Lodge as

of the date of the petitioner’s purchase. The petitioner has furnished copies

of the neatly-labeled exhibits, but the only document between Exhibit G

and Exhibit I is an unlabeled, one-page worksheet. This worksheet, for the

1997 quarter to date, merely provides the amount of taxes withheld, wages

paid, etc. It does not name any of the employees or specify the positions

held or hours worked, although it does mention the number of employees

as 29.

To show the current level of employment at the hotel, the petitioner has

supplied the payroll journal for the period ending November 28, 1997.

Assuming that this journal reflects one week of work and not two, only 16

individuals clearly worked at least the minimum 35 hours to be considered

full-time employees.4 Another three were paid salaries and not by the hour,

while the last three worked fewer than 35 hours and must be considered

part-time employees. The petitioner has submitted a Form I-9 for one other

person who was hired after the date of the payroll journal. At most, the hotel

employs 20 full-time workers. The petitioner has not established that this

figure constitutes either the maintenance of the previous level of full-time

4

If the payroll journal reflects two weeks of work instead of one, then only two individ-

uals worked at least the minimum 70 hours to be considered full-time employees.

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employment or the addition of 10 new, full-time positions. As noted above,

the hotel previously had 29 employees of unknown designation.

If a petitioner has not already created the requisite number of positions,

he must submit a comprehensive business plan clearly demonstrating that

the business will need the applicable level of employment. 8 C.F.R. §

204.6(j)(4)(i)(B), The plan must contain a timetable for hiring and must be

credible. The petitioner has provided a Marketing Plan 1998 for the hotel.

The plan discusses, in detail, the petitioner’s marketing strategies and

employee-incentive programs, among other things. It does not address the

issue of hiring, however. While the plan states that a new position will be

created in sales, the person named to occupy this position, Janet Mills, has

been working at the hotel since 1994.

CONCLUSION.

In conclusion, the petitioner is ineligible for classification as an alien

entrepreneur because he has failed to show that he has invested, or is active-

ly in the process of investing, the requisite amount of money. In every trans-

action, he has attempted to distance himself from making an actual invest-

ment in Ames Management by instead becoming Ames Management’s

creditor. The petitioner has not shown that Ames Management has been

established with anything but loans; in essence, the petitioner has attempt-

ed to create something from nothing. The petitioner has further failed to

demonstrate that he has established a “new” commercial enterprise, and he

has failed to show that his business has or will engage in either employment

maintenance or employment creation.

The burden of proof in these proceedings rests solely with the petition-

er. Section 291 of the Act, 8 U.S.C. § 1361. The petitioner has not met that

burden. Accordingly, the petition is denied.

ORDER: The decision of the director is reversed. The petition is

denied.

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