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Why is a PPM still needed for a two-tiered loan structure?

A private placement memorandum is for a sale of securities, not to receive loan proceeds, which a standard business plan can do. So why is a PPM needed if an EB-5 deal will be structured as a two tiered loan?

Answers

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    Fredrick W Voigtmann

    Immigration Attorney
    Answered on

    Only equity investments qualify for EB-5 classification. Debt arrangements with the investor do not qualify. A PPM usually is needed because the EB-5 investor is making an equity investment in the new commercial enterprise (NCE). The fact that the business of the NCE is making a loan or loans to job creating entities (JCE) does not remove the requirement for a PPM.

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    Ed Beshara

    Immigration Attorney
    Answered on

    In a two-tiered loan model, the securities offering (which needs a PPM) is made by the new commercial enterprise, which receives the personal investment funds, and then the new commercial enterprise loans the funds to the job creating entity.

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    John J Downey

    Immigration Attorney
    Answered on

    Many times it depends on whether the investment is part of a regional center or a direct investment. Check with your EB-5 attorney.

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    James Wolf

    Immigration Attorney
    Answered on

    Why do you need a PPM? Because a PPM is for your own protection. A PPM is needed when making a private offering of any "security." A security generally includes any situation in which A asks B for money and A representing to B that B will get the money back with some return. I am not sure what you mean by a "two-tiered loan" but it sounds like some type of note. A "note" is a security. See: https://www.sec.gov/about/laws/sa33.pdf. Therefore the offering of a "note" is subject to US securities laws. Securities laws allow a disgruntled investor to rescind the transaction (get a refund plus penalties) if fraud can be shown. The PPM is prepared to protect the issuer, broker and related parties from the accusation of fraud. For example, the main parts of the PPM are the business plan and an extremely long list of risks of the investment. These are provided so that a disgruntled investor cannot later say "I lost money because the issuer did not disclose all the risks" and then sue to rescind the transaction.

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    Salvatore Picataggio

    Immigration Attorney
    Answered on

    How is the investor investing into the new commercial enterprise? Are they purchasing an interest into an LLC or LP? That is the securities sale you are concerned with in the PPM. How the new commercial enterprise funds the project (the loan or loans) is separate.

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    Julia Roussinova

    Immigration Attorney
    Answered on

    If interests of limited partners or interests of LLC members are being offered to EB-5 investors for purchase in exchange for their investment (capital contribution) which interests are securities, a PPM would generally be necessary.

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