Investors seeking EB-5 status in the United States often turn to an attorney specializing in Immigration Law to draft the necessary petitions and disclosure documents. However, it is very important that the attorney also have an understanding of applicable securities laws. The EB-5 program allows eligible foreign investors and their immediate families to obtain U.S. green cards by making qualifying investments in new commercial enterprises that create jobs for U.S. workers. Without considering U.S. securities laws, the applicant(s) heighten the risk of opening themselves up to civil or criminal lawsuits and large fines. Naturally, the word Visa inclines many to automatically assume that the appropriate attorney would be one that specializes in Immigration Law. Here are several reasons why investors petitioning USCIS for an EB-5 investor visa should either be sure their Immigration Attorney is familiar with applicable securities laws or their immigration attorney has an attorney on their team that specializes in securities laws.
Offering and Sale of Securities. EB-5 projects typically involve the offering and sale of securities, such as shares in a new commercial enterprise, or limited partnership interests. This triggers compliance requirements with federal and state securities laws. In some cases, the commercial activity may be exempt from registration, but still may be required to file an acknowledgment of such exemption with the proper regulatory body. Even if a company registers beyond the date on which it was required to register, the applicable regulatory body may still fine the entity for missing the deadline to register.
Disclosure Requirements: If the investor’s project involves the offering and sale of securities, disclosure documents must be drafted to describe terms that are material to the investment opportunity, such as the risks involved and the offering’s capital structure. This is typically done through a document called a Private Placement Memorandum (PPM).
Accredited Investors: Depending on the investment project, the securities subject to the investment may only be offered to accredited investors, who meet certain income or net worth thresholds. The term accredited investor is defined by Rule 501 of Regulation D and, where applicable, failure to verify whether prospective investors qualify as accredited investors will result in the loss of particular registration exemptions.
Broker-Dealer Regulations: Unless they qualify for an exemption, individuals or entities that solicit or sell securities may need to register as a broker-dealer or as an affiliate with a registered broker-dealer. In 2015, the U.S. Securities and Exchange Commission brought enforcement actions against lawyers across the United States for offering EB-5 investments while not registered to act as brokers. Lawyers were allegedly receiving commissions for selling, recommending, and facilitating EB-5 investments, in violation of Section 15(a)(1) of the Securities Exchange Act of 1934.
Due Diligence: The attorney involved in the investment project should conduct due diligence to verify whether job creation will be viable and whether the information provided to investors is accurate. An attorney that is not familiar with securities laws will have a harder time performing a comprehensive investigation of the applicable elements.
Investor Education: Applications for immigration benefits already possess risks, but immigratory relief that is also related to investment contains added risks that investors should be educated about. All investments involve some degree of risk, but added to this risk of loss is the potential for delays in the immigration process.
State Blue Sky Laws: Not only are there federal securities laws to be mindful of, but there are also state “blue sky” laws that also regulate the offer and sale of securities at the state level.
It’s crucial for both investors and issuers to work with experienced legal counsel who are familiar with immigration laws and securities laws applicable to your investment project, to navigate these complexities, and to avoid liability.