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What securities laws apply to EB-5 investors recruiting other applicants?

My husband and I plan to apply for an EB-5 investor visa and at the same time attract other EB-5 investors for a real estate project. We have one project in Seattle and another in Portland. Are EB-5 investors allowed to recruit other EB-5 investors for a direct EB-5 project? Will we have to follow the same securities laws that apply to EB-5 regional centers?

Answers

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    Ed Beshara

    Immigration Attorney
    Answered on

    Each EB-5 offering may require compliant securities offering documents and the sources also have to comply with the immigration and securities laws.

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    Salvatore Picataggio

    Immigration Attorney
    Answered on

    Other than simply referring names to the regional center or referring the name of the investment to a friend, I would be very wary of getting involved in recruiting other investors. Regulation S and Regulation D are the main SEC regulations of concern.

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    Michael G Homeier

    Securities Attorney
    Answered on

    In a sense, the immediate answer is: all securities laws apply, because as the SEC likes to remind everyone, there are no special rules for EB-5 (that is, everything that applies outside EB-5, also applies equally inside EB-5). So, since all securities laws need to be examined for compliance issues in other situations, they should all be considered and either ruled out, or else complied with, in EB-5 situations (whether a direct or indirect project). In a narrower (and hopefully more helpful) sense, by "recruiting" your situation seems to describe one where a person essentially "sells" another person on making an investment decision, so this could be viewed as a potential "broker" issue ("brokers" are essentially salespeople for issuers). However, if the selling is done without any formal connection to the issuer, and without compensation from the issuer, the limited facts presented suggest activity outside the broker realm. However, other potential issues could arise and should be considered: for example, if the recruitment is conducted publicly (through broad advertising or the like), there could be a threat to the Regulation D exemption; if potential foreign investors are physically located in the USA, there could be a question as to the Regulation S exemption; and so on. The answer to whether these questions actually pose securities law issues is always highly fact specific, so as unlikely as it would appear that your activities would involve violations of those laws, it would be smart to check in with the issuer (more likely to have securities counsel that yourself) and see if the specific contemplated activities might pose any real danger - and to do this before the action is conducted, rather than after.

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    John J Downey

    Immigration Attorney
    Answered on

    It depends what you mean by "recruit." If you receive compensation from the project for recruiting, then you are acting as a dealer/broker and you are not licensed. If you offer guarantees, etc. again you are acting as a dealer/broker and the SEC may go after you.

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    Steffanie J Lewis

    Immigration Attorney
    Answered on

    I understand that you and your husband are non-U.S. persons who plan to invest in a new enterprise under the standard EB-5 program. Assuming that you are not living in the United States, it is unlikely that the U.S. Securities and Exchange Commission would have jurisdiction over your convincing other non-U.S. persons to make a similar investment where your transactions with other non-U.S. persons occur outside the United States. However, if you own the new enterprise in Seattle and Portland, as owners of the U.S. new enterprise, your project would be issuing some form of security to investors. Therefore your projects would be required to meet all the securities laws and regulations applicable to an issuer of securities. Securities laws, regulations and rules vary but are not distinguished as between a regional center project and a standard EB-5 project.

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    Robert Cornish

    Securities Attorney
    Answered on

    Be careful and consult securities counsel before you engage in any such efforts. You could be deemed to be a "finder" or "promoter" of a securities offering, which subjects you to both state and federal securities laws. This means you generally need a securities license to engage in such efforts. One would surmise that you are not seeking to do this out of the kindness of your heart, but rather to further the success of your own investment or to receive a fee. That is generally enough for you to fall within the purview of the securities laws. This scenario changes, however, if you are designated as officers of the company whose securities are being sold. But even here, the requirements change from place to place. In short, speak with a securities attorney to guide you on the best path.

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    Vaughan de Kirby

    Immigration Attorney
    Answered on

    The key question is whether you would make these referrals for the purpose of being compensated on a transactional basis. You cannot be compensated unless you hold the required securities license.

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    Robert Lee

    Immigration Attorney
    Answered on

    If it is a direct EB-5 petition then security laws do not apply. You can absolutely help recruit investors. Good luck.

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