EB-5 Practice after SEC Proposed Rules to JOBS Act

0 people likes this

Regional Centers[1] lawfully raise capital within the EB-5 Program[2] pursuant to one or more exemptions from registration set forth in the United States securities laws. The most commonly utilized exemptions in EB-5 offerings are Regulation D (the Private Placement exemption) and Regulation S (the Offshore Offering exemption) each promulgated under the Securities Act of 1933, as amended. Without a valid exemption, companies raising money under the U.S. securities laws must register with the Securities and Exchange Commission (“SEC”) and disclose substantially similar information as a company “going public.” Failure to comply with Regulation D, Regulation S or the onerous disclosures required by registration will subject an issuer to penalties and fines by the SEC which can be equal to or greater than the amount raised by the regional center in its non-compliant offering. Furthermore, the regional center’s own investors can sue to recover the full amount of their investment.

On August 29, 2012 the SEC proposed rules (referred to in this article as “proposed rules”) to the most relevant section of the JOBS Act to Regulation D: to repeal the prohibition on general solicitation and general advertising rules for private placement offerings conducted pursuant to Rule 506 of Regulation D, provided that all purchasers are accredited investors. The criteria for being an accredited investor are discussed later in the attached article. In addition, the proposed rules would require that issuers who use general solicitation or general advertising take reasonable steps to verify that the purchasers are accredited investors. Finally, the proposed rules would amend the SEC’s notice requirement for issuers utilizing Regulation D (filed on Form D) to add a check box to indicate whether an offering is being conducted using general solicitation or general advertising.

The attached article focuses on the impact the proposed rules, if adopted by the SEC, could have on the use of Regulation D and Regulation S within the EB-5 practice.

[1] This article refers to the regional center and the issuer of the securities (such as a limited partnership formed by the regional center) generally as the “regional center.”

[2] See Generally, Section 203(b)(5) of the Immigration and Nationality Act, as amended, the Departments of Commerce, Justice and State, the Judiciary, and Related Agencies Appropriations Act of 1993, Pub. L. No. 102-395, section 610, as amended, and all applicable regulations promulgated thereunder.

0 people likes this

Documents