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.