What are the SEC rules regarding non-accredited EB-5 investors?

It depends, and we work closely with securities law attorneys for this type of matter. Speaking as an immigration attorney who helps set up EB-5 projects and regional centers, the accredited investor status is very common, but not a required, element of an EB-5 project. It comes down to the number of investors to be involved in the project.

It is risky, even for non-accredited investors. USCIS does not like the idea of someone investing everything they have in a project. Check the SEC website for the latest definition of an accredited investor.

An experienced EB-5 immigration attorney and securities attorney will be able to advise you of when an EB-5 project can accept an unaccredited investor. Possibly when an offering is made under Reg. S in an overseas market to an investor who is unaccredited is acceptable.

SEC refers an accredited investor as an individual who earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person''s primary residence). As such, the potential investor whose personal asset falls short of $1 million and if he did not earn the required income for the past two years may not meet the definition of an accredited investor.

Depending on the type of offering, you may be allowed to accept non-accredited investors. However, you need to be very careful when you are doing that, as it may open you up to liability.

Your question is vague, insofar as it is unclear as to whether the $800,000 represents all of the investor''s net worth or liquid assets, or only just a portion. Any acceptance of a non-accredited investor is dependent upon the offering exemption claimed by the fund vehicle, and each exemption has specific inclusive and exclusive language. Taking such a person in without verification of their total net worth and annual income can act to void the fund''s registration exemption.

An individual accredited investor is defined in Rule 501(a) of Regulation D in pertinent part, as follows: (5) Any natural person whose individual net worth, or joint net worth with that person''s spouse, exceeds $1,000,000. (i) Except as provided in paragraph (a)(5)(ii) of this section, for purposes of calculating net worth under this paragraph (a)(5): (A) The person''s primary residence shall not be included as an asset; (B) Indebtedness that is secured by the person''s primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability); and (C) Indebtedness that is secured by the person''s primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities shall be included as a liability; (6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person''s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. Cash on hand is not a component of the net income test and is only one component of the asset side of the net worth test, so it is certainly possible for a natural person with less than $1 milliion cash on hand to invest, to be accredited. The investee that will engage in the activity intended to receive the requisite job-creation credit will need to receive a base amount of $500,000 per investor if the job creating activity credit occurs in a Troubled Economic Area (TEA). If not in a TEA, then the base amount required from the investor is $1 million. The investee does not have to be a regional center or affiliate (RC). If not, it will only receive credit for qualified jobs directly created by the investee and its wholly-owned subsidiaries. If it is an RC, in addition to credit for such "direct" jobs, it can also receive credit for so-called "indirect" and "induced" jobs.

Usually, an accredited investor has annual income greater than $200,000 or a net worth of $1 million (not including the principal residence). So, $800,000 is your annual income or net worth? Usually, a regional center wants a "credited investor" by providing you a questionnaire for you to answer that question.

An accredited investor is defined by the SEC and is more expansive than just an asset test. For example, an accredited investor is also any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person''s spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year.