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How can we ensure a project subscriber is an accredited investor?

A student has subscribed to an EB-5 project, and has indicated in the subscription agreement that they are an "Accredited Investor." What documentation would be recommended beyond the Qualified Investor Questionnaire to ensure this student (under 25 years of age), is truly an accredited investor? Should this subscriber be declined if they cannot provide a net worth of $1 million+ nor $200,000+ annual income, but simply had a $550,000 gift from their parents?

Answers

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    Fredrick W Voigtmann

    Immigration Attorney
    Answered on

    Tax returns, bank statements, personal financial statements, could be used to document the accredited investor status. Such status is not required for EB-5; it is purely for SEC compliance purposes to avoid the usual requirement to register the sale/offering of securities.

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    J Bruce Weinman

    Immigration Attorney
    Answered on

    It should not be a problem as long as the parent is an accredited investor. But not all offerings require that investors be accredited. An EB-5 securities attorney will be able to make sure that you are compliant with the appropriate regulations.

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    Oliver Huiyue Qiu

    Immigration Attorney
    Answered on

    Your instinct is correct. If the student is in the U.S., the Regional Center has to verify his/her Accredited Investor status or risk violating SEC rules. Under Rule 501 of Regulation D, an "accredited investor" includes a natural person who: (1) has earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the two previous years, and reasonably expects to earn a comparable amount for the current year (income-based verification); or (2) has a net worth that exceeds $1 million (as interpreted by the SEC), either alone or together with a spouse (net worth-based verification). Please note there are third-party accreditation service providers.

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    Ian E Scott

    Immigration Attorney
    Answered on

    There are questionnaires that you can give to an investor that can ascertain whether or not they are accredited investors. They are regularly used for offerings and you can get them from any lawyer that does offerings.

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    Jinhee Wilde

    Immigration Attorney
    Answered on

    You do not need to decline this investor. Although the student may not be an accredited investor outright, if the parents qualify - since it is their source of funds that must be tracked in order to give the gift to their child - then it will be fine. Make sure that the investor works with an experienced EB-5 attorney who has a great track record in documenting source of funds.

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    Ed Beshara

    Immigration Attorney
    Answered on

    An EB-5 experienced immigration attorney can offer immigration due diligence, while the securities attorney can offer guidance as to when or under what circumstances the investor can be unaccredited. If the investor needs to be accredited, then the investor may need to show proof of the accreditation, if the USCIS issues an RFE (request for evidence).

  • Avatar

    Bernard P Wolfsdorf

    Immigration Attorney
    Answered on

    This is a bit of a grey area; in almost every case involving a gift, the actual investor does not meet the definition, yet countless EB-5 applications are filed for minors.

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    Osvaldo F Torres

    RC Creator
    Answered on

    Students may present an issue precisely because of whether they meet the accredited investor qualification requirement. You may also have a securities exemption issue if the offering relied solely on Reg S (and not also Reg D or Reg D alone) and the student is in the United States and is signing the documents in the United States (which may not be done in a Reg S offering). Clearly, if the only asset the student has is the parent gift of $550,000, the student would not meet the necessary Reg D accredited investor status. While it is not unusual to rely on a signed Questionnaire in a Reg D offering, in this type of case it would be prudent to require some other proof of net worth (like a bank statement or verified financial statement). This assumes, of course, that the student does not otherwise meet the yearly income requirement.

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    Lynne Feldman

    Immigration Attorney
    Answered on

    That would be a proper EB-5 case if gifted from the parents.

  • Avatar

    Salvatore Picataggio

    Immigration Attorney
    Answered on

    As the project/offeror, you may be able to request some documentation to prove their status, but as they will be signing a document attesting to their answers in the questionnaire, fraud in providing such answers would result in a cancellation or rejection of their subscription (often without refund). This is primarily a securities law issue, but from an immigration standpoint, the source and transfer of funds are authenticated.

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    James Cai

    Immigration Attorney
    Answered on

    No. A gift from parent should be good, if we can prove legal source of her parents' income.

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