As participation in the U.S. Citizen and Immigration Services (USCIS) Immigrant Investor Program or “EB-5 program” grows, regulatory interest is showing a commensurate uptick. On November 20, 2013, 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.
According to Cohen, 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, Cohen stated. Securities lawyers are in the best position to inform a company if the fundraising activities of a Regional Center constitute the sale of securities. Cohen walked through the legal definition of security, but also provided the short-hand definition: 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.
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