When a US-based project approaches an investor to invest in an EB-5 project, the project is engaged in the offer and sale of securities. Such activities are regulated by the Securities and Exchange Commission (SEC) and the relevant state securities authority.
The Securities Exchange Commission or SEC was founded by the Securities Exchange Act of 1934.
The Securities Act of 1933 together with the Securities Exchange Act of 1934, was designed to restore investor confidence in the US’s capital markets by providing investors and the markets with more reliable information and clear rules of honest dealing.
Companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing. People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors’ interests first.
The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisers, and mutual funds. Here the SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.
Crucial to the SEC’s effectiveness in each of these areas is its enforcement authority. Each year the SEC brings hundreds of civil enforcement actions against individuals and companies for violation of the securities laws. Typical infractions include insider trading, accounting fraud, and providing false or misleading information about securities and the companies that issue them.
As participation in the U.S. Citizen and Immigration Services (USCIS) Immigrant Investor Program or “EB-5 program” grows, regulatory interest increases.
On November 20, 2013, the Associate Director Stephen Cohen of the SEC’s Division of Enforcement spoke to a meeting sponsored by the Federal Bar Association about the securities law issues implicated by the EB-5 program, and about the SEC’s efforts and interest in the area. Cohen’s principal message was that sales of interests through the EB-5 program could involve securities, and he indicated that this occasionally surprised people involved in the program. Therefore, participants should pay attention to the requirements of federal securities laws. Cohen said that the SEC is very involved in considering EB-5 activity, including two recent enforcement actions.
The SEC and USCIS have been closely coordinating on EB-5 program issues and specific investigations since then. They share a particular interest in making sure that the EB-5 program is free from fraud. The new director of USCIS, i.e. Director L. Francis Cissna, stated in both the hearing on “Citizenship for Sale: Oversight of the EB-5 Investor Visa Program” before the Senate Committee on the Judiciary on June 19, 2018 and the meeting with IIUSA, the largest trade association in the EB-5 industry that integrity shall be USCIS’ focus moving forward.
The most obvious impact of the securities laws on offerings through the EB-5 program involves how the offerings are structured. Securities lawyers are in the best position to inform a company if the fundraising activities of a Regional Center or a developer constitute the sale of securities. Notably, “an investment is a security if an investor’s money is put at risk in a project whose success depends on the efforts of others.” The fact that the security is privately offered and does not fit the classic definition of an exchange-traded security does not mean that it is not a security.
MSA’s securities attorneys are well versed in EB-5 related securities issues including:
At MSA, we stay abreast of the latest changes in the securities law regarding EB-5 private offerings, such as: Title II of the Jumpstart Our Business Startups Act (JOBS Act); The Dodd-Frank Act; SEC implementation rules regarding general solicitation; Financial Industry Regulatory Authority (FINRA) Guidance for Broker-Dealer on EB-5 Projects; North American Securities Administrators Association (NASAA) Enforcement Report on EB-5 projects.
MSA also submitted public comments to the SEC regarding Title II of the JOBS Act.
Our EB-5 and SEC articles have been published in major trade publications, such as LexisNexis, ILW, American Immigration Lawyers Association (AILA), EB5info.com, eb5investors.com, etc. (Please see Publications)
Our EB-5 and securities law topics include: crowdfunding and EB-5 financing, SEC enforcement action in small violations in broker/dealer cases, conducting general solicitation in EB-5, SEC enforcement action in EB-5 securities fraud cases, JOBS Act and EB-5, SEC due diligence requirement and EB-5.