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Why are EB-5 investments regulated by the Securities and Exchange Commission (SEC)?

Why is it that EB-5 investments are regulated by the United States Securities and Exchange Commission (SEC)? Is there any possibility that the investments are not subject to such regulation?

Answers

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    Mona Shah

    Immigration Attorney
    Answered on

    The SEC regulates EB5 as it is a public offering where a PPM is drawn up and given to prospective investors.

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    Shahzad Q Qadri

    RC Creator
    Answered on

    The investments are not regulated - they are in fact exempt from SEC registration. The SEC has promulgated laws for these exempt securities to ensure that any fraud is minimized and investors are protected.

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    Julia Roussinova

    Immigration Attorney
    Answered on

    The Securities Act of 1933 as amended (Securities Act) requires that all securities sold must be registered with US Securities and Exchange Commission (SEC) unless an exemption applies. Securities Act has a broad definition what "security" means. SEC has determined that limited partnership interests and limited liability company interests are securities. An offer and sale of a limited partnership interest or limited liability company interest (or unit) to EB-5 investors is the sale of securities and must either be done through registration with SEC or be exempted from registration. Regulations are adopted for the protection of the investing public. Two common exemptions from registration requirement are Regulation D for private (non-public) offerings of securities or Regulation S for offerings of securities to non-US persons. Offerings to EB-5 investors are governed by the same US securities laws for the protection of the investing public. The way not to be subject to the regulations is to find an applicable exemption as above (which is what generally happens) or structure the investment in a way that it does not involve an offer and sale of securities.

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    Igor Serbinin

    Immigration Attorney
    Answered on

    It is only regulated if you invest in a public company issuing stock that is traded on stock exchanges. Private companies are not subject to SEC unless: Congress recently enacted a change to the Securities and Exchange Act of 1934 that increases the number of investors at which a company must register its securities with the SEC from 500 persons to either 2,000 persons or 500 persons who are not accredited investors. 15 U.S.C. 78l(g).

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    Clem Turner

    Securities Attorney
    Answered on

    EB-5 Offerings are generally structured as the sale of interests in a limited partnership or limited liability company. According to Section 2(a)(1) of the Securities Act of 1933: - The term "security" means any note, stock, bond, investment contract-certificate of interest or participation in any profit-sharing agreement or, in general, any interest or instrument commonly known as a ''security'' Broadly speaking, an ?investment contract? is made when four principal characteristics are met: - Individual invests money; - In a common enterprise (such as your LP or LLC); - With an expectation of a profit (or other benefit); and - Success is dependent on management by others (not the Investor). Thus, the sale of interests in a limited partnership or limited liability company is a sale of a security. Any sale of securities is governed by the Securities Act and consequently the Securities and Exchange Commission.

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    Ed Beshara

    Immigration Attorney
    Answered on

    The EB5 Regional Center EB5 project usually involves an offering of ownership in a new commercial enterprise based on the foreign nationals investment in the new commercial enterprise. Hence this type of transaction is controlled by SEC regulations,to ensure the representations being made by the EB5 Regional Center Project to the investors are true and correct. In the context of an investor in a direct EB5 investment in which the investor is investing their funds in their own US business,then under these circumstances the SEC regulations may not apply.

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    Lei Jiang

    Immigration Attorney
    Answered on

    This is securities. The interest you purchase in a Regional Center is just like stocks. It has same risk and you must do your homework.

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    Michael G Homeier

    Securities Attorney
    Answered on

    The kind of investment in which all EB-5 investors participate fits squarely within the definition of a ''security.'' That definition basically (though not exclusively) defines a passive investment whose results are dependent upon the management of persons other than the investor, as a security. (Note, many active investments may and are also considered securities.) Obviously passive investors in particular are at the mercy of the skills, and intentions, of the managing persons. For the protection of the investing public (including overseas persons investing in US businesses), the US adopted an extensive set of securities laws that (again) basically require that investors be given extensive information so their investment decision can be an informed one. These laws apply generally to all issuances of securities by US businesses to anyone, as well as many issuances of securities of foreign issuers into the USA. Hence the classic EB-5 structure of an offering of Limited Partner interests in a Limited Partnership, or Membership Interests in a Limited Liability Company (LLC), to overseas investors is the offer of a security in the USA, and so governed by the US securities laws. Those laws basically require that those securities be ''registered'' with the US Securities and Exchange Commission (SEC), an expensive and time-consuming process, or else issued without registration pursuant to some available exemption - the two primary exemptions used are Regulation D (for ''limited'' or ''private'' offerings) and Regulation S (for offerings exclusively to non-US persons), either one or the other separately, or in an offering structured to secure exemption under both. Since there is no exception for EB-5 offerings, all of the securities laws apply exactly as they do to non-EB-5 securities offerings. In order to protect investors, the US securities laws are rigorously applied by the SEC, and enforced by federal Assistant Attorneys General throughout the country, both to EB-5 and non-EB-5 offerings. All of these investment offerings are governed by the same set of US securities laws.

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    Jinhee Wilde

    Immigration Attorney
    Answered on

    The Securities Act of 1933 defines ''security'' quite broadly. It includes any note, stock, bond, ''investment contract'' or, in general, any interest or instrument commonly known as a ''security.'' An ''investment contract'' is made when a person (i) invests money, (ii) in a common enterprise, (iii) with an expectation of profit, (iv) to be earned solely from the effort of others. SEC has determined that interests in a limited partnership are an investment contract, and therefore, a security. Therefore, when a regional center forms a limited partnership or limited liability company in which the EB-5 investor would become a limited partner (or member, in the case of a limited liability company), the regional center is offering an EB-5 investor a security and must comply with federal and state laws regarding offering of securities. If you choose to own and operate your own business in which you invested, then you will not be subject to the SEC regulations.

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    Larry J Behar, Esq

    Immigration Attorney
    Answered on

    While EB 5 investments are NOT regulated by the SEC, they are being keenly monitored by the agency to prevent fraud or misrepresentation to the investor. Many developers use a combination hybrid of exemptions to prevent SEC filing in the US.

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    Anthony Ravani

    Immigration Attorney
    Answered on

    It is regulated by SEC because it is an ''investment.'' All investments whether into a public company or private company are regulated by SEC. Much more with public companies.

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    Steven Anapoell

    Securities Attorney
    Answered on

    EB-5 Investors purchase limited partnership interests or limited liability company interests as part of the process. Those interests are securities.

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    Mark Urbanski

    Immigration Attorney
    Answered on

    EB-5 investments are regulated by the SEC because all companies that sell securities fall within the Securities Act of 1933. There are exemptions for SEC filing requirements under Regulation D, for which most EB-5 investments have successfully qualified until the present time. This issue is controversial and may present further complications in the future for EB-5 investors and promoters.

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    Neville M Leslie

    Immigration Attorney
    Answered on

    Because they are considered securities. That will not change.

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    Marjan Kasra

    Immigration Attorney
    Answered on

    Because any kind of investment may be considered a security and subject to SEC laws.

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    Edward Litwin

    Immigration Attorney
    Answered on

    It is the regional centers that are regulated, not individual million dollar investment enterprises.

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    Philip H Teplen

    Immigration Attorney
    Answered on

    Not all EB-5 investments are subject to SEC filing. The issue is the size of the investment pool and number of investors; whereupon the financing of the project becomes a qualifying security under SEC and sometimes State securities law. We need to address each project individually to determine filing requirements.

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    Julie Daniel

    Immigration Attorney
    Answered on

    They are considered a securities transaction.

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    Jor Law

    RC Creator
    Answered on

    The investments are regulated by the SEC because they involve ''securities''. Only way to not be subject to the regulation is to structure the investment in a manner that does not involve securities or find an exemption to the regulation (which is what most people do).

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