Published on:

By and

By Catherine DeBono Holmes, Esq. and Victor T. Shum, Esq.

The proposed Senate Bill reauthorizing the EB-5 Regional Center Program would restrict the types of projects that can be funded with EB-5 financing and amount of funds that can be raised with EB-5 financing.

The Senate Bill, entitled “American Job Creation and Investment Promotion Reform Act of 2015,” which was introduced on June 4, 2015, contains some provisions that would strengthen the oversight of the EB-5 Program, but the Bill also contains some provisions that would effectively disqualify many construction projects seeking to obtain financing through the EB-5 Program, and reduce the amount of EB-5 financing that could be obtained for many other construction projects.  In particular, these provisions would change the ways in which jobs are counted for purposes of determining which projects qualify for EB-5 financing, and how many jobs are credited for each project.  There is no explanation in the Bill or by the Senators proposing these changes as to the reasons why they believe these changes are necessary, or in what way they believe these changes would improve the EB-5 Program.  In fact, we believe these changes are unwise and should be removed from the Bill because it is counter to the original intent of EB-5 program by reducing foreign investment and job growth and by hurting small and medium sized American businesses from accessing much needed capital.

The proposal to allow only 90% of the requirements for job creation to be satisfied through indirect jobs would effectively eliminate EB-5 financing for all construction projects to be completed in two years or less which are not associated with operating businesses following completion.

One of the provisions of the Bill states that up to 90% of the jobs required to be created in order to qualify for EB-5 financing may be created indirectly through investment.  The EB-5 Program currently has no requirement that any portion of the jobs created be direct or indirect jobs, and requires simply that at least 10 new jobs be created for every investor.  If the Bill is passed with this provision, it would mean that at least 10% of the jobs for every EB-5 project must be direct jobs.  It is not clear in the Bill if that means that the entity in which EB-5 investors invest their funds must have direct employees (i.e. W-2 employees), or that the project must include direct effect employees, as calculated by an economic model such as RIMS II or IMPLAN.  We assume it means the latter, because if it meant that the entity in which the EB-5 investors invested must have its own employees, that would be an extremely severe restriction, because most EB-5 investment entities are formed as financing vehicles for specific projects, and are not themselves employers of any employees.

Even if this provision is intended to mean that the project must include direct effect employees from an economic model, it would automatically exclude many construction projects.  This is because EB-5 regulations currently do not allow any construction project that will be completed in under two years to count any direct construction jobs for EB-5 purposes.  Therefore, this provision requiring at least 10% direct employees would automatically exclude any multi-family, condominium, office or other construction project that took under two years to build and was not part of an operating business.  This requirement of at least 10% direct employees could be met by developers of real estate intended to be used for an operating business, such as hotel, restaurant, or assisted living facility, because those projects would have direct employees in their operating phase.  In addition the requirement could be met by a construction project that would take over two years to build, because those projects are allowed to count direct construction jobs.  However, it is unclear why the requirement for at least 10% direct jobs should be required at all, given that its effect would be to automatically shut out of any EB-5 financing construction projects to be completed within two years for multi-family, condominium, office or other types of commercial development. Moreover, since smaller, short-term projects which are completed in less than two years are the most viable types of projects in economically disadvantaged communities, this requirement would appear to be counter to the intent of the EB-5 program of promoting job growth and economic stimulus.

Continue reading →

Published on:

By and

The Basic Rules of Website Advertising for EB-5 Securities Offerings

By Catherine DeBono Holmes, Esq. and Victor T. Shum, Esq.

EB-5 securities issuers, sponsors and others who market EB-5 securities often want to use websites to provide information to potential investors regarding their past and current EB-5 projects.  When using these websites, it is important to understand the U.S. securities laws that apply to internet marketing of securities within and outside the U.S.  The purpose of this article is to provide a brief explanation of these securities laws and guidelines to consider when using websites to identify or market EB-5 securities offerings.

  • Using websites to advertise EB-5 offerings is considered a form of “general solicitation” under U.S. securities laws, unless guidelines to restrict access to non-U.S. persons are followed.  Since 1995, the Securities and Exchange Commission (“SEC”) has held the position that posting offering materials on a website in a way that can be accessed by any viewer is a general advertisement or general solicitation, unless some restrictive access measures are implemented to allow access only to permitted persons.  In 1998, the SEC issued an interpretation on the use of internet websites to offer or advertise securities outside the U.S., providing guidance on specific measures that can be taken to retain the Regulation S exemption for offerings made to non-U.S. persons outside the U.S., and concurrently retain the right to make an offering under Regulation D to persons located in the U.S. at the time of the offering.  The guidelines provided in this article are derived in part from that SEC release.

 

  • If an EB-5 securities issuer intends to accept any U.S. investor, it is necessary to meet the requirements of Regulation D, including the restrictions on use of websites to advertise the offering.  Although EB-5 securities offerings are generally offered to investors outside the United States, it is not unusual that some investors making an EB-5 investment will be located in the United States at the time they receive information about an EB-5 offering, or they receive or sign EB-5 offering documents.  Such investors may be international students attending university in the U.S. or other temporary U.S. visa holders.  All of those types of persons are considered “U.S. Persons” under Regulation S, and issuers are not qualified to rely on the Regulation S exemption with respect to EB-5 securities sold to those U.S. Persons.  For that reason, most EB-5 offerings rely on SEC Regulation S for investors who are outside the U.S. when they are solicited, or they receive or sign offering documents, or on SEC Regulation D for sales to U.S. Persons.  When an issuer of EB-5 securities intends to rely on Regulation D to accept some investors who are “U.S. Persons,” the issuer and its agents must take care to assure that all websites used to promote the EB-5 offering – including those of the issuer and those of all of the agents promoting the offering – will meet the requirements of Regulation D.

 

  • Regulation D now has two options: use general solicitation with verification of “accredited investor” status for all U.S. Person investors or use no general solicitation for U.S. Person investors.   In July 2013, the SEC implemented aspects of the Jumpstart Our Business Startups Act (JOBS Act) and amended Regulation D under Rule 506(c) to allow the use of general solicitation for investors who are U.S. Persons, if the issuer requires verification of every U.S. Person investor’s status as an “accredited investor,” by requiring that investors submit copies of their tax returns, bank statements or other recognized means of verification.  However, the SEC also allows issuers to follow the old Regulation D requirements under Rule 506(b), which do not require verification of accredited investor status from U.S. Person investors, as long as no general solicitation is used for the offering. This means that if an EB-5 securities issuer wants to use general solicitation with no restriction, including no restrictions on websites offering the securities, it can do that, as long as it required every U.S. Person investor to provide one of the recognized means of verification of their status as an “accredited investor.”

Continue reading →

Published on:

By , and

通过使用尽职调查最佳实践保护EB-5投资市场

在芝加哥会议中心案件以后，EB-5利益相关者必须有所行动，保护EB-5投资市场的诚信度。EB-5投资移民项目为美国企业创造就业提供了重要的资金来源，但为了保护这个投资市场的健康发展，EB-5团体必须有所行动，保护EB-5投资者不受欺诈性操盘者的伤害。自美国证监会关于芝加哥会议中心案件以及其区域中心管理者Anshoo Sethi的行动曝光之后，使得很多EB-5投资人质疑到底有多少其他的EB-5投资项目也是由这样不择手段的管理者在他们的发售文件和宣传文件中进行欺诈性的陈述。一些好的区域中心已经建立一些与美国证券发售类似的标准实践，用以防止项目开发商在使用EB-5融资的时候发生欺诈的现象。而那些尚未使用上述实践的区域中心应当将此作为头等大事，这样才能使EB-5投资人确信EB-5投资市场是基于与美国证券市场一样的基本原则：诚信与公平交易。我们建议所有的区域中心与律师一起检视他们的尽职调查实践标准，以确保其与最佳实践保持一致。

美国证券市场得益于相关的法律和规章，要求发行人和保荐人使用合理的尽职调查核实他们发售文件中陈述的准确性，而相似的实践也应当被所有的区域中心在其推广的每一个EB-5项目上使用。美国证券市场的个人投资者依赖于美国证券发行的发行人和保荐人对未来企业发展做出事实及合理的预估并进行相关陈述。美国证券法赋予发行人和保荐人很大的法律责任，他们需要证明其在证券发售文件中所作的陈述是真实的并且不具有误导性，如果他们不能证明这一点，发行人和保荐人将可能对任何事实上的错误陈述负法律责任。这些问责标准为证券市场投资人提供了保障，使他们确信发行人和保荐人会尽最大努力核实事实陈述并决定其在证券发行中所作的未来预期的合理性。为了提高EB-5投资市场的诚信发展，我们认为所有的区域中心都应当在准备和使用发售文件时纳入类似的在美国证券市场所使用的标准实践。区域中心应当让潜在的EB-5投资人知道区域中心所使用的保护投资人的尽职调查标准，这样投资人可以使用已由区域中心核实之后的信息来评价他们所投资的EB-5项目。

区域中心是EB-5投资市场的“看门人”，他们应当为保持市场的诚信度负责。区域中心收到了美国移民局的批准，准许他们发起EB-5投资产品，而超过95%的EB-5投资产品发售都是通过区域中心完成的。而在EB-5的发售中一般情况下没有美国券商的介入，因为大多数的EB-5投资机会都是在美国证券交易协会S法令的规定（本法令允许没有证券发行资格的实体在美国以外发行EB-5产品——译者注）下，通过在国外的宣传或移民中介卖给居住在美国以外的投资人。一般情况下对外国投资人或中介来说亲自对EB-5投资产品做尽职调查是不太现实的，主要有以下几个原因：包括语言障碍、地理位置以及在美国和其他EB-5投资人所居住的国家之间不同的风俗和商业习惯。而对于区域中心而言，他们则可以评估EB-5投资产品的发行人陈述内容的真实性以及发行人的商业计划是否具有合理基础。而当区域中心是发行人和发售文件撰写人时，区域中心则负担着向市场提供其陈述的真实性与预期的合理性的证明责任。区域中心通常会参与准备EB-5投资产品发售文件，并且要查阅发行人的商业计划。并且，在所有的计算了间接工作岗位的EB-5投资产品中，区域中心的参与都是必不可少的。因此，区域中心应该保障其发行的项目在出售时使用的是真实的发售文件以及合理的经济计划。最好的实践是由区域中心监督或撰写经济计划和发售文件。如果区域中心只是监督上述文件的制作的情况下，也应该核实这些文件中所作的一切陈述的真实性。

区域中心并不是EB-5投资项目的保证人，但他们应该在发起EB-5投资项目发售的过程中遵守适当的标准。区域中心不是，也不应该是他们所发起的每一个EB-5项目的保证人，因为为了满足EB-5签证的要求，EB-5投资必须是有风险的，同时也因为每一个商业企业在本质上都是有一定风险的，而这些风险均由其企业的投资者适当承担。然而，每一个区域中心应当有一个合理的基础来判定他们发起的每一个EB-5投资产品所陈述的事实都是真实的且没有误导性，并且如果EB-5投资人投资这个项目，这个项目有合理的机会可以按照其发售文件里的商业计划完成。

区域中心应当使用与美国证券发行的发行人和保荐人类似的尽职调查实践。区域中心所使用的项目评估与选择标准不应当与银行或其他投资来源的标准有所不同。尽管每个投资来源在风险评估上都有所不同，但有一些都是基于风险投资的风险评估原则应当是相通的。例如，私募基金投资人一般都愿意接受比银行更高的风险，来换取私募基金投资人所期待的更高的收益。EB-5区域中心在为其资金定价的时候会独立于其在资金结构中的位置（即独立于风险），但其风险评价和项目评估标准应当与其替代的机构融资类似。如果区域中心替代的是银行贷款，那么区域中心所使用的尽职调查标准应当与银行类似。如果区域中心替代的是私募投资，那么其使用的尽职调查标准则应当与私募投资提供者类似。这并不是说资金的成本应当与其替代的融资成本相同，而是说区域中心所应遵循的尽职调查程度应当丝毫不比其他金融投资者在同一个项目中所做的尽职调查程度低。

尽职调查指的是核实发售文件中的事实陈述，并确定是否有其他应该纳入而没有纳入的事实，以确保发售文件不具有误导性。核实发售文件中的事实陈述指的并不是依赖于项目方填写的调查问卷以及和项目方的谈话，而是要求开发商提供从而获得事实陈述的文件证据，并且由专家来评估项目成本和未来运营收入和开销的预估在项目特定的行业中是否合理。核实发售文件中事实陈述的方法主要有下面几种：（a）核实项目开发商在相关行业的经验，询问其背景的详细情况以及开发商主要管理人的经验，包括他们雇主的名称、雇佣的时间以及他们在与项目相同的行业中所参与过的项目的细节；（b）核实发行人是否有与项目密切相关的一个或多个合同，比如酒店项目是否已获得酒店特许经营协议，要求查阅所有重要合同的签署版本，并与酒店特许人核实合同是否有效；（c）核实发行人已收到或将要收到项目计划所需的政府许可，要求发行人提供相关政府部门批准项目计划的证据；（d）核实出资土地的价值，要求查阅最近的土地价值评估的副本，或自己雇佣第三方独立评估，如果之前的估值超过12个月或市场条件自上次估值后有变化，应当要求重新估值；（e）核实对特定行业市场条件陈述的真实性，要求提供支持上述陈述的数据的副本；（f）核实项目预算以及项目建设时间表，雇佣一个对项目类型比较熟悉的建筑顾问来审查项目预算和建设时间表并提出意见；（g）核实项目未来营业收入与支出的预估，雇佣一个行业专家顾问审查此预估并提出意见。这与美国证券发行的保荐人承销证券或银行对贷款人或商业借款人对商业贷款进行审核时自己所做的尽职调查的程序是一样的，而这一般是由开发商承担费用的。上述核实过程一般均要求有一个独立的第三方专家参与。

区域中心应当记录他们的尽职调查过程，以及他们收到的相关证据，用以支持事实陈述和发行人的项目成本以及将来运营收入和开销的分析。为了保持有效性，尽职调查的审核过程应该以书面的形式加以记录。有很多记录尽职调查的方法可以使用。一种方法是做一个私募备忘录或其他发行文件带注释的版本，在其中添加脚注以注明用来核实每一个事实陈述的文件。另一种办法是做一个表格，将所有的发售文件中的事实在其中一栏中列出，同时在旁边的另一栏列出核实每一件事实的证据。这样当一个投资人或是市场中介问区域中心都做了哪些尽职调查来核实项目事实及经济计划的时候，区域中心可以提供一份尽职调查文件的副本，展示其为尽职调查所做的工作。项目事实的证明材料应当在区域中心的尽职调查文件夹里随时可供查阅。尽管大多数的区域中心不会允许这些保密性信息离开中心或以电子邮件的形式发送出去，一些做得好的区域中心会允许任何投资人或顾问去他们办公室查阅他们相关投资项目的全部尽职调查文件。

区域中心应该要求项目开发商在发放发售文件前证实其发售文件不包含任何错误陈述。作为EB-5发售的尽职调查过程的一部分，区域中心应该要求一个或多个项目开发商的高级官员证实EB-5发售文件中不包括事实上的错误陈述或隐瞒。区域中心也可以让其他对项目有重大关系的第三方核实发售文件中由此第三方负责的部分。这样，区域中心可以记录其在尽职调查过程中纳入了项目开发商和其他重要的第三方，并且尽了合理的努力来保证他们已经披露了发售文件中所有的重要事实。

与EB-5投资发行人有附属关系的区域中心应当考虑使用第三方做尽职调查报告。因为尽职调查的目的是对发售文件的事实陈述做一个独立的审查以及对发行人的商业计划做一个独立的分析，因此与发行人有附属关系的区域中心在没有第三方参与的情况下无法提供一个独立的审查。我们相信为了EB-5市场的诚信发展，区域中心加入第三方来核实其自己准备的发售文件是很重要的。区域中心可以通过自己准备尽职调查材料并将其提供给第三方审查人审查来加快尽职调查的速度。第三方审查人可以证实审查人在审查区域中心提供的材料和文件时使用了与区域中心为第三方开发商发起项目时相同的尽职调查标准，并核实了发售文件中事实陈述的准确性。

区域中心作为EB-5合规的管理人而不发起一个项目的情况下应该要求项目发起人开展一般情况下区域中心所做的尽职调查。有时区域中心可能会作为一个发行项目的管理者而本身并不作为项目发起人参与项目或项目的销售。在这种情况下，区域中心应当要求项目发起人开展与区域中心自己发起这个项目一样的尽职调查，并由项目发起人提交一份第三方所做的尽职调查报告。

区域中心尽职调查的义务应延伸至整个发行完成之时。有些EB-5发行认购需要几个月的时间，而在此时间段里，有可能项目事实会发生改变。比如，一个使用EB-5的建设项目可能在EB-5融资募集完毕前已经开始，而建筑预算在此过程中有可能发生改变。除此之外，项目的融资状况也可能发生改变，或有其他的重要改变需要向投资人披露。区域中心应当经常与项目开发商沟通询问项目的重要变化，看是否需要在发售文件中做进一步的披露。

区域中心进行适当的尽职调查实践将实现多重效果。区域中心进行详尽的尽职调查审查可以在早期发现项目的弱点。有些弱点可以在早期通过干预而得到改正，这样可以避免其发展为一个严重的问题从而影响到整个项目的成功完成。进行尽职调查并妥善记录的区域中心对美国以外的投资人和市场中介来说更为可靠，从而其发售将比其他不能很好的证明其尽职调查实践的区域中心有更大的市场接受度。一个有强有力的尽职调查记录的区域中心在一个项目出现问题，但却跟项目发售文件虚假陈述无关时也会有相关的尽职调查证据，这样倘若投资人或其他与项目相关的第三方起诉时区域中心也可以用此证据来保护自己。最重要的是，区域中心执行尽职调查标准将加强整个EB-5市场的诚信发展，这对EB-5继续做为美国就业创造的一个重要融资来源十分必要。

我们认为所有的区域中心可以也应该遵守上述尽职调查最佳实践，以保护EB-5市场的所有参与者。

 

 

Published on:

By and

This article is the fourth in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws.

You may want to read:
Part 1 – EB-5 offerings do not fit standard SEC registration requirements;
Part 2 – Securities broker-dealer registration requirements and hiring U.S. and Non-U.S. brokers; and
Part 3 – Investment Company Act requirements.

Check back soon for new articles on raising investment capital, or subscribe to the Investment Law Blog, and you will be notified when the next article is published.

Investment Advisers Act or state law registration requirements for investment advisers may apply to managers of EB-5 funds

In a presentation on securities law issues applicable to EB-5 regional centers and sponsors at the May 2014 annual conference of the Association to Invest In the USA (“IIUSA“), the trade association for EB-5 regional centers, a representative of the Securities and Exchange Commission (“SEC“) stated that the registration requirements of the Investment Advisers Act of 1940 (“Advisers Act“) may apply to general partners and managers of EB-5 investment funds. It was recommended that EB-5 regional centers and sponsors consider this issue as part of their efforts to comply with U.S. securities laws. In our view, the Advisers Act should not apply to most EB-5 regional centers or sponsors, for reasons that relate to the characteristics of EB-5 funds in general. However, unless and until the SEC provides further guidance on this issue, it is necessary for every EB-5 regional center and sponsor to analyze the registration requirements of the Advisers Act and determine if they apply. In addition, the regulation of investment advisers is bifurcated between the SEC, for investment advisers with over $100 million in assets under management, and the states, for those with under $100 million in assets under management, and so it is also necessary to determine whether there is a requirement to register as an investment adviser under applicable state law. Continue reading →

Published on:

By and

This article is the third in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws.

You may want to read: Part 1 – EB-5 offerings do not fit standard SEC registration requirements and Part 2 – Securities broker-dealer registration requirements and hiring U.S. and Non-U.S. brokers.

Check back soon for the rest of the series, or subscribe to the Investment Law Blog, and you will be notified when the next article is published.

As mentioned in Part 1 of this article, “EB-5 offerings do not fit standard SEC registration requirements,” U.S. securities laws were designed primarily for offerings of securities in the U.S. to protect U.S. investors, and these laws are not well suited to the EB-5 investment market. Nevertheless, it is necessary for EB-5 regional centers and sponsors of EB-5 offerings to understand the requirements of U.S. securities laws, and to structure EB-5 offerings in a way that will allow them to qualify for exemptions from the registration requirements. In Part 1 and Part 2 of this article, we discussed the requirements for exemption from registration of securities under the Securities Act of 1933 and exemption from registration as a securities broker-dealer under the Securities Exchange Act of 1934. In this Part 3, we discuss the registration requirements and exemptions under the Investment Company Act of 1940 (“ICA“).

What is an “investment company” under the Investment Company Act?

The ICA generally applies to every public or private company which invests over 40% of its assets in securities of one or more other companies, except securities of its own wholly owned subsidiaries. This definition includes any EB-5 fund, whether it is a limited partnership or limited liability company, that invests in the securities of a project company. For example, in the EB-5 “equity” model, if an EB-5 investment fund consisting of EB-5 investors (the new commercial enterprise or “NCE”, using USCIS terminology) purchases preferred equity interests in the project company (the job creating enterprise or “JCE”), the fund will be investing in securities of the JCE, and will therefore be deemed to be an investment company under the ICA. Loans are also considered securities under the ICA, meaning that in the EB-5 “debt” model, if an EB-5 investment fund makes a loan to a JCE, the fund will be deemed to be an investment company under the ICA. However, if the EB-5 fund itself owns the project (EB-5 investors are direct equity holders of the JCE), or one of its wholly-owned subsidiaries owns the project (EB-5 investors are equity holders in the fund, and the fund’s wholly-owned subsidiary owns the project), then the fund will not be considered to be investing in securities, and so will not be an investment company under the ICA. If an EB-5 investment fund meets the definition of an investment company under the ICA, the fund will be required to meet all of the requirements of the ICA, unless the fund is able to rely on one of several exemptions from the ICA, which will be discussed further below.

Continue reading →

Published on:

By and

This article is the second in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws.

You may want to read: Part 1 – EB-5 offerings do not fit standard SEC registration requirements

Check back soon for the rest of the series, or subscribe to the Investment Law Blog, and you will be notified when the next article is published.

Part 2: Securities Broker-Dealer Registration Requirements and Hiring U.S. and Non-U.S. Brokers

As mentioned in Part 1 of this article, “EB-5 offerings do not fit standard SEC registration requirements” the Securities and Exchange Commission (“SEC“) is studying the EB-5 investment market, but there is no indication whether or when it will issue any guidance regarding the registration requirements applicable to the sale of EB-5 investments.  At the May 2014 annual conference of the Association to Invest In the USA (“IIUSA“), the trade association for the EB-5 regional center program, representatives of both the SEC and the Financial Industry Regulatory Association (“FINRA“) gave presentations regarding the potential application of registration requirements to EB-5 regional centers and others engaged in the marketing and sale of EB-5 investments, but there was no indication that the SEC or FINRA had developed any policies specifically addressing the unique characteristics of the EB-5 market.

There are exemptions from broker-dealer registration that are available to EB-5 regional centers and entities which act as general partners or managers of EB-5 investment funds.  In addition, there are exemptions that apply to non-U.S. broker-dealers in connection with the sale of U.S. securities that could be applied to the sale of EB-5 investments.  However, there is a lack of clear guidance specifically applicable to the broker-dealer registration requirements that apply to persons engaged in the marketing and sale of EB-5 investments outside of the U.S.  Until such time as the SEC provides specific policies, the EB-5 community is in need of practical advice on how to conduct their business in compliance with U.S. securities laws, and in a way that fits the realities of the EB-5 market. Continue reading →

Published on:

By and

This article is the first in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws. Check back soon for the rest of the series, or subscribe to the Investment Law Blog, and you will be notified when the next article is published.

Part 1:  EB-5 Offerings Do Not Fit Standard SEC Registration Requirements

  • The SEC has not provided clear guidance on how to comply with U.S. securities laws requiring registration as a securities broker-dealer, investment company or investment adviser when conducting EB-5 offerings

The U.S. Securities and Exchange Commission (“SEC“) has stated in open meetings with the United States Citizenship and Immigration Services (“USCIS“) and the Association to Invest In the USA (“IIUSA“), the trade association for the EB-5 regional center program, over the past two years that EB-5 investment offerings are subject to U.S. securities laws, even though EB-5 investments are offered primarily outside the United States to persons who by definition are not currently U.S. residents but are seeking to become U.S. residents as a result of making their investment in an EB-5 offering.  However, the SEC has not provided any specific guidance to the EB-5 investment community on the ways in which they can comply with the registration requirements that apply to the registration requirements for securities broker-dealers, investment companies or investment advisers under U.S. securities laws, other than to suggest that they speak to an experienced securities lawyer.  This advice leads to conflicting opinions among lawyers, and makes it difficult for everyone involved in the EB-5 investment market to know exactly what they are required to do in order to comply with these registration requirements under U.S. securities laws. Continue reading →

Published on:

By and

USCIS has challenged EB-5 financing for hotel projects that rely on stabilized revenues as the basis for determining job creation. Since 2012, the U.S. Citizenship and Immigration Services (USCIS) has issued multiple Requests for Evidence (RFE) challenging the validity and reasonableness of economic job creation models for hotel projects that rely on the revenues anticipated to be generated after the second or third year of hotel operation, instead of the revenues generated in the first or second years of hotel operation. In the hotel industry, a new hotel’s future value is based on its anticipated “stabilized revenues”, meaning revenues anticipated after the first two or three years of hotel operation. The USCIS has instead used revenues from the first one to three years of a new hotel’s operation, which are referred to as the “ramp-up phase” of a hotel’s operation. However, using revenue predictions from the ramp-up phase of hotel operations does not reflect the full economic value or job creation potential of a hotel development. In this article, we explain why we believe the USCIS should use stabilized revenues in evaluating the job creation from hotel projects, for the reasons we discuss below. Readers should note that the USCIS has not accepted the use of stabilized revenues as of the date of this article, and this article is intended to suggest that it should do so in the future. Continue reading →

Published on:

By and

USCIS has challenged EB-5 financing for hotel projects that rely on guest expenditures. Since 2012, the U.S. Citizenship and Immigration Services (USCIS) has issued multiple Requests for Evidence (RFE) challenging the validity and reasonableness of economic job creation models for hotel projects that include jobs created from increased visitor arrivals or guest expenditures (also referred to as visitor spending), meaning expenditures of hotel guests for goods and services outside the hotel, such as restaurants, retail and entertainment. This has resulted in high levels of uncertainty for regional centers and developers seeking to build hotel projects that include jobs from increased guest expenditures.

The current stated position of the USCIS is to accept job credit based on guest expenditures so long as the applicant demonstrates by a preponderance of the evidence with a data-based analysis that the new hotel project will result in an increase in new visitor arrivals and new guest expenditures. In this article, we explain what standards we believe the USCIS should use to determine that a new hotel will create new jobs as a result of filling demand for additional hotel rooms in a local market. Readers should note that the USCIS has been hostile to the use of guest expenditure jobs since approximately 2012, and this article is intended to suggest that it should more readily credit jobs from guest expenditures in the future where appropriate based on market data. Continue reading →

Published on:

By , and

通过使用尽职调查最佳实践保护EB-5投资市场

EB-5 stakeholders must act to protect the integrity of the EB-5 investment market in the wake of the SEC fraud complaint against the International Regional Center Trust of Chicago, LLC. The EB-5 immigrant investor program provides an important source of capital for investment in job-creating businesses in the United States, but in order to protect the market for these investments, the EB-5 community must demonstrate its commitment to the protection of EB-5 investors from fraudulent operators. The recent action by the Securities and Exchange Commission against the Intercontinental Regional Center Trust of Chicago, LLC, and its operator, Anshoo Sethi, have caused investors to question how many other EB-5 investments are being offered by unscrupulous operators making fraudulent statements in their offering documents and presentations. The best EB-5 regional centers already have established practices that are based on the same standards as are used in U.S. securities offerings and are designed to prevent fraud by project developers using EB-5 financing. Those regional centers who have not already adopted these practices should make this a priority in order to assure EB-5 investors that the EB-5 investment market is based on the same principles of good faith and fair dealing as are the foundation of the U.S. securities markets. We would recommend that every regional center review its due diligence practices with counsel to verify their compliance with best practices. Continue reading →