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, following the Great Crash of the Stock Market in 1929.
The Securities Act of 1934 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.
The main purposes of these laws can be reduced to two common-sense notions:
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.
Joseph Kennedy the first Chairman of the SEC.
Monitoring the securities industry requires a highly coordinated effort. The Securities and Exchange Commission was established to enforce the newly-passed securities laws, to promote stability in the markets and, most importantly, to protect investors.
President Franklin Delano Roosevelt appointed Joseph P. Kennedy, President John F. Kennedy’s father, to serve as the first Chairman of the SEC.
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.
Mona Shah & Associates’ securities attorneys are well versed in EB-5 related securities issues such as:
Regulation D Rule 506;
Regulation S and the accredited investors verification of the Securities Act of 1933;
The broker-dealer relationship requirement under the Exchange Act of 1934;
The disclosure requirement under the anti-fraud provision of Rule 10(b)(5).
At Mona Shah & Associates, 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.
Mona Shah & Associates 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.
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.
Current Interest: 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 the USCIS have been closely coordinating on EB-5 program issues and specific investigations for at least two years. They share a particular interest in making sure that the EB-5 program is free from fraud. Indeed, both of the EB-5 enforcement actions that the SEC brought this year involved fraud. Cohen noted that one of the disclosure hot topics from the SEC’s perspective is any suggestion that USCIS has approved investments in a particular project.
The SEC and USCIS also are collaborating on programs to educate stakeholders about the EB-5 program, including a joint teleconference held last spring at which subject matter experts from the SEC’s Divisions of Corporation Finance, Trading and Markets, Investment Management, and Enforcement discussed securities law compliance in the context of EB-5 Regional Centers and investments. In addition, the agencies recently issued a joint alert to warn investors about fraudulent investment scams that exploit the EB-5 program, and issued a joint press release to announce a more recent securities fraud case brought in Texas.
Impact on Companies: 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 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.