Venture capitalists sue Trump admin over foreign entrepreneur rule delay

WASHINGTON (Reuters) - U.S. venture capitalists filed suit against the Trump administration on Tuesday, claiming it illegally delayed a policy that would have allowed foreign entrepreneurs to stay in the United States to build their companies.

The lawsuit, filed in Washington, D.C. District Court by the National Venture Capital Association, argues that the Trump administration bypassed proper procedures when it delayed the Obama administration's "International Entrepreneur" rule, due to go into effect in July, which would have allowed some foreign start-up founders to stay in the United States for up to five years to develop their businesses.

Instead, in July the Trump administration pushed back implementation to March 2018, and said it was "highly likely" to ultimately rescind the rule.

In delaying the program's start date, the Department of Homeland Security did not engage in the standard "notice and comment" period government agencies go through when changing regulations or an effective date.

The DHS argued in July that doing so while the agency was likely to abolish the rule would be contrary to the public interest because it would sow confusion and waste resources and mean the immigration agency would have to expend limited resources to implement the rule.

The lawsuit claims that the government's actions violated the Administrative Procedure Act, which requires advance notice of new rules. It asks the court to require the government to begin accepting applications from foreign entrepreneurs.

"The process followed by DHS in deciding to delay the effective date of the rule was the polar opposite of the careful, deliberative process DHS used to formulate the rule itself," the lawsuit argued.

A DHS spokesman declined to comment on pending litigation.

The lawsuit was joined by several tech start-ups active in the United States that were founded by foreign entrepreneurs who wanted to stay in the country and work with their businesses through the entrepreneur rule but are now unable to.

The Obama administration estimated fewer than 3,000 entrepreneurs would be eligible for the program each year. The rule would have applied to start-up founders who own a large portion of their companies. To qualify, the companies have to have already received significant investment from American investors or government grants.

(Reporting by Yeganeh Torbati; Editing by Marguerita Choy and Richard Chang)