Top Changes in EB-5 Following the JOBS Act
The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) was signed into law in order to relax restrictions contained in U.S. securities laws. Particularly, the law required the SEC to amend Rule 506 of Regulation D. In the EB-5 market, most capital raises take advantage of Rule 506 of Regulation D. Below you will find some of the important changes to the EB-5 market from the JOBS Act:
- General Solicitation. This is the biggest and most talked about change. Issuers of securities may now take out billboards, radio ads, internet ads and other general advertisements in an effort to broadly market their securities. Before everyone rushes to place ads, this is only permitted provided an issuer of securities maintains compliance with new and existing regulations.
- Additional Steps Required to Verify “Accredited Investor” Status. Many people who seek to take advantage of general solicitation may envision broadly marketing and selling securities to a large number of people. However, this is mostly untrue. If an issuer seeks to take advantage of the general solicitation provisions, they must ensure those individuals who purchase their securities meet the definition of an “accredited investor” as defined in U.S. securities law. This will likely require purchasers of securities to obtain third-party certifications of their status as an accredited investor.
- Bad Actors. Many EB-5 offerings take advantage of Rule 506 of Regulation D. Pursuant to the JOBS Act, individuals who are executive officers of an issuer or officers of the issuer who are participating in the offering, among others, are now prohibited from using Rule 506 of Regulation D if they have previously been convicted of certain crimes relating to the purchase or sale of securities, convicted of certain felonies, subject to certain actions by the SEC or received a suspension or expulsion from a self-regulatory organization.
This is not a comprehensive or complete listing of the various regulatory rule changes as a result of the JOBS Act. Furthermore, the information provided above is not a complete accounting of all the impacts, conditions, and exceptions of the JOBS Act. Those individuals in the EB-5 market who wish to take advantage of the general solicitation rules should be prepared to undertake additional compliance measures and seek professional guidance prior to engaging in general solicitation.