Author Archives: Prevail Administrator

Issuers and Promoters of EB-5 Securities Offerings – Multiple EB5 Offerings

Issuers and Promoters of EB-5 Securities Offerings

The increasing popularity and expansive growth of the foreign investor EB-5 Visa Program has significantly enhanced the possibilities in which EB-5 capital may be utilized. Along with this growth factor, Issuers should be alerted to certain matters affecting its Partners, Directors, Officers and employees in the sale of EB-5 securities.

Issuers and Promoters that benefit from the sales of securities to raise EB-5 capital may have placed reliance rely upon an exemption from being registered as a Broker namely the so-called Issuer Exemption Rule 3a4-1 to raise EB-5 funds.

This is an exemption only and is limited in its use and application, in particular as to frequency of offering and compensation as discussed below.

Rule 3a4-1 is a “non-exclusive safe-harbor” under which an “associated person” of an Issuer that performs limited securities sales for the Issuer as prescribed by the rule would not be deemed or required to register as a Broker, so long as certain conditions are met:

Restriction on Frequency of Offerings

One of the most relevant of which, for Issuer’s of EB5 projects, is the limitation on frequency that securities can be offered and sold by the Issuer.

§17 CFR 240.3a4-1 (a)(4)(ii)(C)

“The Associated person does not participate in selling an offering of securities for any issuer more than once every 12 months other than in reliance on paragraph (a)(4)(i) or (iii) of this section, except that for securities issued pursuant to rule 415 under the Securities Act of 1933, the 12 months shall begin with the last sale of any security included within one rule 415 registration.

The ‘Associated Person‘ is a fundamental element in the application of the above regulation; SEC’s definition of an ‘associated person’.

No Compensation/Commissions or Remuneration on Sale of Securities

§17 CFR 240.3a4-117 CFR 240.3a4-1 (a)

An associated person of an issuer of securities shall not be deemed to be a broker solely by reason of his participation in the sale of the securities of such issuer if the Associated person:

§17 CFR 240.3a4-117 CFR 240.3a4-1 (a)(2)

Is not compensated in connection with his participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities;

Ongoing Issuer Compliance

Compliance can be broadly split into 2 categories, documents compliance and the act of placement (offer and sale). Although a sponsor may be able to create a compliant documents package, they may have far less control over the EB-5 investor placement process and the reliance on exemptions from registration, representations being made or materials precluded.

Employing an EB-5 broker dealer will enable an issuer to contemplate EB-5 offerings in compliance with federal regulations.

View our EB-5 Private Placement ServicesContact Us

IMPORTANT NOTICE AND DISCLAIMER

FINRA Issues Guidance for Broker-Dealers on EB-5 Projects and Marketing Private Placements with EB-5 Securities

FINRA Issues Guidance for Broker-Dealers on EB-5 Projects and Marketing Private Placements with EB-5 Securities

In September 2013, FINRA released an interpretive letter giving guidance to broker dealers who are involved in securities transactions in connection with the EB-5 Program.

FINRA’s guidance has had far-reaching implications for broker-dealers engaged in the marketing of EB-5 offerings. FINRA member broker-dealers who recommend EB-5 investments are now required to perform heightened due diligence with respect to immigration matters, and to both understand and advise prospective foreign investors regarding an EB-5 offering’s compliance.

In order to engage in EB-5 Securities transactions, Prevail applied for a modification of it’s Continuing Membership Agreement (CMA), an application process which lasted approximately 12 months.

Antifraud Provisions

Antifraud Provisions

Securities Exchange Act of 1934 (Exchange Act)

The Exchange Act protects investors by making sure information is available, but also protects investors by prohibiting fraud and establishing severe penalties for those who defraud investors, as well as those who engage in some trading practices that take advantage of information most investors do not have.  When federal securities laws are violated by market participants, the SEC can bring a civil enforcement action and can also bring criminal actions for some violations.  The Exchange Act is also more generous than the Securities Act in providing investors with a right to bring a private suit against market participants who have defrauded them:

Brief Overview:

  • Section 10b and Rule 10b-5: These are the principal statutory weapons against fraud. Section 10b is the antifraud provision of the Exchange Act, while Rule 10b-5 is the rule the SEC promulgated under that section. Rule 10b-5 prohibits the use of any “device, scheme, or artifice to defraud,” and creates liability for any misstatement or omission of a material fact, or one that investors would think was important to their decision to buy or sell the stock.  Courts held early on that investors can sue, and the scope of liability is broad – potentially, a wide range of participants, from brokers to issuers to company employees may be liable, provided that the fraud was “in connection with” a securities purchase or sale. The Exchange Act antifraud provision has been used against all kinds of behavior, from misleading statements in company filings and documents used to sell the securities, to insider trading (where corporate insiders use information unavailable to investors to trade profitably) to market manipulation cases in which companies bought and sold their own stock so as to affect the market price of the company’s stock.  The breadth of Section 10(b) and Rule 10b-5, combined with the fact that individual investors have a cause of action, make 10b-5 suits very common.  Plaintiffs can recover the excess of what they paid over the actual price of the security.

Prevail Capital granted approval to engage in EB-5 Investment Securities transactions

Prevail Capital granted approval to engage in EB-5 Investment Securities transactions

Prevail Capital LLC (Prevail), a FINRA registered broker-dealer, announces that, on August 15, 2014, the company was granted approval to engage in EB-5 Investment Securities Transactions.

Naples, Florida September 06, 2014

The EB-5 Immigrant Investor Program administered by the U.S. Citizenship and Immigration Service (USCIS) offers visas allowing residence in the United States to qualified immigrants who make an investment of at least $1,000,000 (or at least $500,000 for investments made in a “Targeted Employment Area”) in a new commercial enterprise that each will create not less than ten full-time jobs, or maintain the existing number of employees in a “troubled business.”

Because capital contributed by foreign nationals under the EB-5 Program typically takes the form of an investment in a limited partnership, the SEC has advised that EB-5 investment offerings are subject to U.S. securities laws, even though EB-5 investments may be mostly offered outside the United States to non-US Residents. As such, the EB-5 Industry is under increasing scrutiny.

In September 2013, FINRA released an interpretive letter giving guidance to broker dealers who are involved in securities transactions in connection with the EB-5 Program. FINRA’s guidance has had far-reaching implications for broker-dealers engaged in the marketing of EB-5 offerings. FINRA member broker-dealers who recommend EB-5 investments are now required to perform heightened due diligence with respect to immigration matters, and to both understand and advise prospective foreign investors regarding an EB-5 offering’s compliance.

As a result of FINRA’s guidance, and in order to engage in EB-5 Securities transactions, Prevail applied to FINRA for a modification of their Continuing Membership Agreement (CMA), an application process which lasted approximately 12 months. Importantly, correspondence with FINRA, throughout the application process, has provided Prevail with a comprehensive understanding of its capabilities and insight into where it stands in the regulatory space. As such, Prevail believes that the same rules likely apply industry-wide and that other broker-dealers will need to submit updated CMAs over the coming years, if they intend to be involved in and compliant with EB-5 securities business.

About Prevail Capital LLC:

Prevail Capital, LLC, member FINRA/SIPC, is a privately held financial services firm providing investment banking, mergers & acquisitions, management consulting, private placements of securities and EB-5 securities transactions to clients throughout the United States, Asia, Europe and the Middle East.