By Hermione Krumm, Esq. and Christina Dilbone
On March 14, 2019, Economic & Policy Resources, in conjunction with the EB-5 Investment Coalition and Invest in the USA (IIUSA), released the most comprehensive report on the economic and employment impacts of the EB-5 Program up to date. The report, entitled Assessment of the Economic Value and Job Creation Impacts of Project Capital Investment Activity under the EB-5 Program, found a total of $10.98 billion of capital investment in EB-5 projects through Regional Centers made between FY2014 and FY2015 alone throughout the U.S. supported more than 355,200 U.S. jobs, roughly 6 percent of all job gains over the two-year period. These particular years were chosen as subject studies because the years represent a time prior to the visa count inadequacy and a constant program sunset that causes rush filings that might taint the verifiable and hard project data obtained from the mandatory annual I-924A Regional Center registration shared by USCIS pursuant to a Freedom of Information Act request.
The almost $11 billion in capital investments represented approximately 2% of all foreign direct investments (FDI) into the U.S. economy during FY2014-2015. The amount does not include investments made into direct projects or direct-pooled projects, nor does it include the ongoing operations of any project, tenant ongoing businesses or the substantial economic activities conducted by the EB-5 investors themselves when they settle in the U.S., due to unavailability to secure and verify such information. However, we can justifiably assume that the $11 billion figure presented by this report is relatively low compared to the actual FDI resulting from the EB-5 Program. Taking into account the excluded jobs, the real job creation between FY2014-2015 through the Program most likely also well exceeds the conservatively reported 355,200.
In terms of regional impact, whilst critics always claim that the Program has been taken advantage of by deep-pocket New-York-City developers on glitzy projects, it is important to note that the Midwest experienced high rates of job growth through the Program via interconnected supply chains and resultant consumer spending. A project built in downtown Miami does not mean all job creation will be allocated there, as the steel and other construction materials are not fabricated there, but rather in the Midwest. In fact, nearly nine out of ten indirect jobs created in the Midwest are a result of projects located in the Northeast, West or South. The increase in the economic output of these regions due to EB-5 investment can be seen below:
As expected, the report found that real estate development continued to be the preferred method of EB-5 investment, with two-thirds of EB-5 funds utilized by the construction sector. However, the Program also supported a wide variety of other industries, including wholesale trade, healthcare, manufacturing, educational services, and arts, entertainment and recreation.
The Program has suffered significantly from misunderstanding and misinformation on its contribution to the U.S. economy through media emphasis on the few fraud cases against thousands of viable projects. Senator Grassley on multiple occasions has called for the program to be terminated altogether, without respect to the potential detriment to the investors, projects, FDI or U.S. jobs. It is time to raise the general awareness on Capitol Hill of the economic impact of the EB-5 program and for the latter to take speedy action on a true and workable reform to ensure better and sustainable development of EB-5.
For more information and a detailed discussion on the report, please see the link below for access to the EB-5 Investment Voice podcast episode wherein Mona Shah, Esq., Principal Attorney of Mona Shah and Associates Global, invited Jeff Carr, President and Senior Economist of Economic & Policy Resources, to provide insight on the issue and what an economic report means to a project: THE ECONOMIC IMPACT OF THE EB-5 REGIONAL CENTER PROGRAM WITH JEFF CARR. The full report is accessible here.
About the Author:
Hermione Krumm, Esq. is an associate attorney with Mona Shah and Associates Global. Hermione’s practice focuses on corporate and securities matters for issuers and developers seeking financing under the EB-5 program. She writes and comments frequently on current business and immigration issues. Her articles have been published by LexisNexis, ILW, EB-5info, EB-5 Supermarket, etc. Hermione received her LL.B. (Hons) from the University of Manchester School of Law (UK), and obtained her LL.M. from Cornell Law School. Hermione speaks fluent English, Mandarin and Cantonese.
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.