Home > Blogs > Oz and Eb 5 Investments > Compliance For Proposed EB-5 Legislation - NES Financial Webinar

Compliance For Proposed EB-5 Legislation - NES Financial Webinar

Posted: July 29, 2015

On July 28, 2015, NES Financial held a highly attended webinar, “Preparing Today for Tomorrow’s Success – Meeting EB-5 Compliance Requirements.” It dealt with the compliance issues related to new proposed Senate legislation that is pending in Congress. The webinar attempted to make the audience more aware of the requirements and issues related to the new compliance proposals and how to address same. It did not address the technical immigration issues but did address the obligations of the regional center, the issuer, and those parties associated with the issuer, together with the various related securities law implications. The panel members included Ron Klasko, Esq., Reid Thomas of NES, as the moderator, Mike Xenick of InvestAmerica and me.

The highlights can be summarized as follows:

  1. It is quite obvious that the industry itself and Congress will support new compliance regulations to create more transparency, due diligence, and certification by regional centers to comply with immigration and securities law issues.
  2. It is apparent that the obligations of regional centers will be heightened substantially and that the regional centers will no longer be able to absolve themselves of responsibilities by disclaiming obligations to undertake due diligence, maintain records and the like that they may otherwise subcontract to third parties. Under the new legislation, the regional center will be held responsible for offerings as the sponsor. This would result in regional centers either having to retain more professional staff to monitor all of the reporting and certification requirements or contract with capable parties to accomplish same, with checks and balances in place. This heightened responsibility will otherwise increase the cost and expenses of running a regional center, not to mention the proposed $20,000 annual fee.
  3. From a securities standpoint, it is apparent that there will be a heightened diligence and disclosure factor for all parties involved in the offering, including specific disclosures to be contained in the offering materials, such as a much more detailed disclosure related to the names and amounts of all and compensation payable to the parties included in the transaction. The complicated part of the proposed legislation is the fact that when the offering is completed and is ready to go to market, the issuer may not even know the exact arrangement with agents and the compensation issues related thereto, let alone being able to identify the agents who are receiving compensation. New legislation will need to deal with these ambiguities and clean up the apparent inconsistencies.
  4. From a securities jurisdiction standpoint, it was noted that the proposed legislation seems to imply that the Securities and Exchange Commission will have jurisdiction over all aspects of the EB-5 transaction. One could interpret that proposal to mean that all sales are deemed to be U.S. sales for purposes of compliance. If that was the case, that would, in effect, negate the Reg S exemption under the 1933 Securities Act and also have serious implications on the broker-dealer registration requirements under the 1934 Act to the extent that offshore sales could be deemed subject to U.S. jurisdiction.
  5. It was my position at the conference that the real intention of the proposed legislation was to address the Chicago Convention case, whereby there were clear violations of the 1933 Securities Act, resulting in U.S. venue jurisdiction due to the sale of a U.S. security. There is a big distinction between actions under the 1933 Act and, in particular, the 10b-5 action, as opposed to claiming jurisdiction over foreign migration agents broker-dealer activities or investment advisor activities undertaken solely offshore, which traditionally have been exempt under the broker-dealer regulations promulgated by the SEC in 2008 based upon the foreign broker exemption.
  6. The panel discussed the fact that there is a possibility that if and when the new legislation is extended, which is more than likely, there may be some initial clean-up measures that will be included in the extension. This could include the TEA minimum increase to $800,000 and the addition of detailed compliance requirements, both of which seem to be non-controversial.

For more information about the webinar, including video, please click here.