Why does an EB-5 Issuer need a Broker-Dealer for EB-5 Securities Transactions?
Investments in EB-5 projects under the The EB-5 Immigrant Investor Program administered by the U.S. Citizenship and Immigration Service (USCIS) have recently become a significant source of capital for various real estate and other development projects throughout the United States.
Capital contributed by foreign nationals under the EB-5 Program typically takes the form of a private placement, the Securities and Exchange Commission (SEC) has advised that EB-5 private placements are subject to U.S. securities laws, even though EB-5 investments are generally offered outside the United States to non-US residents.
EB-5 Issuers may require a Broker-Dealer for the following reasons
- Marketing and Solicitation – Principals and managers of EB-5 Projects responsible for funding, managing and controlling investment funds must consider employing a Broker-Dealer to conduct the marketing and solicitation of EB-5 investors, unless they can rely upon the Issuer Exemption.
- Multiple EB-5 Projects in a 12 month period – A notable factor, and of significant concern to Issuers of EB-5 Securities, particularly Issuers of multiple EB-5 offerings is likely to be compliance under rule 3a4-1 for issuers who conduct or plan to conduct multiple offerings in any 12 month period.
- Investor Protection – Because an issuer are relies upon an exemption from registration under any of the applicable Acts, it does not exempt the issuer from the Anti-fraud Provisions of the U.S. securities laws that apply to ALL issuers of securities. Managers of EB-5 investment funds should be mindful of potential fraud claims.
Benefits of an EB-5 Broker-Dealer
- EB-5 Investor Confidence & Protection – Private placements that form EB-5 investments are subject to U.S. securities laws. The SEC has brought several actions against EB-5 regional center operators in cases of investor fraud. Due diligence required to be performed by a Broker-Dealer may identify presence of red flags that should be further investigated.
- Project Compliance and Accountability – When acting as a Private Placement Agent, Prevail Capital can provide a reviewing, supervising and approving role in all EB-5 related Offerings in compliance with standards required by regulatory authorities.
- Offer Multiple EB-5 Projects in a 12 month period – The associated persons of the issuer have a limitation on participation to no more than one offering every 12 months. See ‘Associated Persons’ definition. A Broker-Dealer may conduct multiple offerings, Restriction on Frequency of Offerings