Venture capitalists sue Trump administration over foreign entrepreneur rule delay

WASHINGTON (Reuters) - A national association of 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 suit, filed in Washington, D.C. District Court by the National Venture Capital Association, argues that the Trump administration did not go through proper procedures when it delayed the Obama administration's "International Entrepreneur" rule, which was due to go into effect in July and would have allowed some foreign start-up founders to stay in the United States for up to five years in hopes of growing their businesses.

Instead, in July the Trump administration pushed back implementing the new rule to March 2018, and said it was "highly likely" the administration would 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 typically go through when changing regulations, or a delayed 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 suit claims that the administration's actions violated the Administrative Procedure Act, which requires advance notice of new rules, and asks the court to stop the government from delaying the new rule and instead require it 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 suit argued.

A DHS spokesman did not immediately respond to a request for comment on the suit.

The NVCA was joined in the suit by several tech start-ups active in the United States but founded by foreign entrepreneurs who wanted to be able 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)