Important Considerations in Developing an EB-5 Immigrant Investor Regional Center

By Wassem Amin, Esq., M.B.A.

Over the past couple of years, the use of EB-5 Regional Centers by project developers to raise capital has been increasing in popularity.  A designation as a Regional Center by United States Citizenship and Immigration Services (“USCIS”) allows a project developer, or an entity on behalf of a project developer, to raise capital from foreign investors seeking an EB-5 Immigrant Investor Visa.

The increased interest in EB-5 investments has been attributed to a combination of factors including: (1) the overhaul of the program by USCIS and the creation of a dedicated EB-5 adjudication department; (2) the decrease in domestic investment capital after the 2008 recession; and (3) the increased political instability in foreign countries leading many high-net worth immigrants to relocate to the United States.

Utilizing Regional Centers as a source of funding for project developments is an attractive option due to the typically low cost of capital to the developer as well as the ability to generate a profitable revenue stream from administrative fees charged to the immigrant investors.  In addition, administrative fees generated from a Regional Center typically offset the up-front costs involved.

Investing through a Regional Center is attractive for foreign investors because the investment is usually held in an irrevocable escrow account pending the approval of their initial application with USCIS (Form I-526).  Upon the approval of the I-526 Application, the funds are released to the developer and the investor is issued conditional permanent residency.  This ensures that, in the unlikely event the foreign investor is denied by USCIS, they are refunded their investment.  As an additional layer of protection, a comprehensive questionnaire is typically used to qualify the foreign investor and determine their eligibility beforehand.  That way, the Regional Center would be able to suggest alternative investments to potential foreign investors who may not be approved by USCIS.

What are Regional Centers?

USCIS defines a Regional Center as “any economic entity, public or private, which is involved in the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment.”  A Regional Center could be independent of the actual project or created in connection with a specific development.  Regional Centers are set up to act as intermediaries between foreign investors and EB-5 eligible projects in the United States.  To apply for Regional Center designation, a Form I-924 is submitted to USCIS, and processing times are between 4-8 months.

A range of different real estate projects have qualified for regional center status, including shopping malls, hotels, mixed use developments, warehouse distribution centers, manufacturing facilities, and business incubators. Because the key thrust of the Regional Centers is to create jobs, many regional centers are sponsored by or work extensively with local governments in a form of public-private partnership, but this is not a requirement.

In order to obtain approval from USCIS for designation as a Regional Center, the entity has to submit a proposal which must:

  1. Clearly describe how the center focuses on a geographic regions of the United states and how it will promote economic growth through improved regional productivity, job creation, and increased domestic capital investment;
  2. Provide in verifiable detail how jobs will be created indirectly;
  3. Provide a detailed statement regarding the amount and source of capital which has been committed to the Regional Center, as well as a description of the promotional efforts taken and planned by the sponsors of the Regional Center;
  4. Contain a detailed analysis regarding the manner in which the center will have a positive impact on the regional or national economy in general, as reflected by such factors as increased household earnings, greater demand for business services, utilities, maintenance and repair, and construction both within and without the Regional Center; and
  5. Be supported by economically or statistically valid forecasting tools, including, but not limited to, feasibility studies, analyses of foreign and domestic market for the goods or services to be exported, and/or multiplier tables.

The Job Creation Requirement

The EB-5 visa has two different minimum investment requirements, depending on whether the geographic location of the investment is a Targeted Employment Area (“TEA”).  A TEA is an area that is in a rural location (as determined by each specific state) or an area with an unemployment rate of at least 150% of the national average.  If the investment is in a TEA, the minimum amount per each immigrant investor is $500,000.00.  If it is not in a TEA, then the minimum amount is $1,000,000.00.

Each foreign investor must demonstrate that their investment has created (or will create within two years) a minimum of 10 full-time jobs for U.S. persons  (a permanent resident or a citizen).  This requirement is the same whether the investment is within or outside of a TEA—i.e., whether the investment is $500,000 or $1,000,000.  However, if the investment is through a Regional Center, indirect (and induced) jobs may be counted.

To establish that 10 or more indirect or direct jobs will be created by the business, USCIS rules provide that indirect methodologies may be used, which may include multiplier tables, feasibility studies, analyses of foreign and domestic markets for the goods or services to be exported, and other economically or statistically valid forecasting devices which indicate the likelihood that the business will result in increased employment.

For example, if a multitenant shopping center is designated as a regional center, the full-time jobs created by the ownership and management of the shopping center are directly created jobs.  The jobs created by the tenants of the shopping center are indirect jobs. There may be 5 or 10 full-time positions created by operating a property management office, but the jobs created by the tenants of the shopping center could be over 100, and those jobs would all be counted to satisfy the job creation requirement. For these reasons, in a regional center, it is much easier for the investor to meet the employment requirements. Further, if more jobs are counted in the business, more EB-5 investors can participate in the project, resulting in more funding for the developer.

Structuring the Regional Center: Investment Models and Exit Strategies

The creation and management of a Regional Center will require expertise in the following areas: (1) EB-5 process; (2) immigration law; (3) equity fund structuring; (4) transaction due diligence and structuring; (5) economic analysis; and (6) marketing.  Dhar Law LLP is able to assist with all of the above—except the marketing.  In addition, while the economic analysis will be conducted under our supervision, it will be primarily done by an economist within our network who specializes in EB-5 Regional Centers.  An additional requirement is having access to pipeline of foreign investors sufficient to meet the capital requirements of the project.

As for the investment models, EB-5 investments are generally one of two high-level models: an Equity Model or a Debt Model.  In the Equity Model, the investor acquires an ownership interest in the development project, entering as limited partner.  This is a well-established model with a track record of USCIS approvals and is currently the primary strategy for EB-5 investments.  At the end of the specified term (generally five years, but could be less), the EB-5 investor’s interest in the project is sold to other interested parties.  The proceeds from the sale are returned to the investor.  Complications could arise in the sale of the equity, so the return of investments is not guaranteed.

In the Debt Model, the investor also joins as a limited partner, but provides a low-interest term loan to the project developer rather than acquiring a stake in the project.  Repayment of the principal is made either through sale of the project or refinancing of the EB-5 loan at the end of the term (also generally five years).  This model, while it has received approvals from USCIS, is still fairly new and may undergo greater scrutiny.  The issue is whether Debt Model projects guarantee repayment to the investor—which is not allowed under EB-5 regulations because the invested capital must be “at risk.”

For example, if a new commercial enterprise’s limited partnership (LP) agreement contains a buy-back agreement (i.e. a redemption clause guaranteeing the return of the investor’s capital investment), then the investor’s capital investment will not be a qualifying “at-risk” investment for EB-5 purposes. Likewise, if the LP agreement requires the payment of fees from the investor’s capital investment to the extent that the investment will be eroded below the qualifying level, preventing the full infusion of the capital into the job creating enterprise, then the investor’s capital investment will not meet the required EB-5 level of investment.

Initial Evidence and Documents Required by USCIS

  1. Location of Regional Center: The Regional Center must focus on a specific geographical area.  This area must be contiguous and clearly identified in the application by providing a detailed map of the proposed geographic area of the Regional Center.
  2. Creation of Jobs:  Each Regional Center must fully explain how at least 10 new full-time jobs will be created by each individual alien investor within the Regional Center either directly or indirectly.  The applicant must provide an economic analysis that relies on statistically valid forecasting tools that shows and describes how jobs will be created for each industrial category of economic activity. The job creation analysis for each economic activity must be supported by a copy of a business plan for an actual or exemplar capital investment project for that category.
  3. Business Plan: A business plan provided in support of a regional center application should contain sufficient detail to provide valid and reasoned inputs into the economic forecasting tools and must demonstrate that the proposed project is feasible under current market and economic conditions.  The form of the EB-5 investment from the commercial enterprise into the job-creating project (equity, debt, etc.) should be identified.  The business plan should also identify any and all fees, profits, surcharges, or other similar remittances that will be paid to the regional center or any of its principals or agents through EB-5 capital investment activities.
  4. Infusion of Capital: The application must be supported by a statement from the principal of the Regional Center that explains the methodologies that the Regional Center will use to track the infusion of each EB-5 alien investor’s capital into the job-creating enterprise, and to allocate the jobs created through the EB-5 investments in the job creating enterprise to each associated alien investor.  The anticipated minimum capital investment threshold (either $1,000,000 or $500,000) for each investor must also be identified.
  5. Operational Plan: The application must be supported by a detailed description of the past, present and future promotional activities for the Regional Center.  It must include a description of the budget for this activity, along with evidence of funds committed to the Regional Center for promotional activities.  The plan of operation must also address how investors will be recruited and how the Regional Center will conduct its due diligence to ensure that all immigrant investor funds affiliated with its capital investment projects will be obtained from lawful sources.
  6. Prospective Economic Impact: The application must be supported by a general prediction of the prospective impact of the capital investment projects sponsored by the Regional Center, regionally or nationally, with respect to increases in household earnings, greater demand for business services, utilities, maintenance and repair; and construction both within and outside the Regional Center.
  7. Organizational Structure: The application must fully describe and document the organizational structure of the regional center.  In addition, it should be accompanied by the capital investment offering documents, business structure, and operating agreements of the proposed commercial enterprise that will be affiliated with the Regional Center is compliant with EB-5 statutory and regulatory requirements, as well as binding EB-5 precedent.  A common business structure is summarized in the chart below.EB
  8. Investment Offering Documents: Documentation of the capital investment offering documents must include, at a minimum, the following:
    • A description and documentation of the business structure of both the regional center and the commercial enterprises that are or will be affiliated with the regional center, such as Articles of Incorporation, Certificate of Incorporation, or legal creation as a partnership or limited liability company (LLC), partnership or LLC agreements, etc.;
    • Draft subscription agreements for investment into the commercial enterprise;
    • Draft escrow agreements and instructions, if any;
    • List of the proposed financial institutions that will serve as the Escrow Agent, if any;
    • Draft of the offering letter, memorandum, private placement memorandum, or similar offering to be made in writing to an immigrant investor offering capital investments through the Regional Center; and
    • Draft memorandum of understanding, interagency agreement, letter of intent, or similar agreement to be entered into with any other party, agency or organization to engage in activities on behalf of the Regional Center.

Regional Center Costs

A properly planned and managed Regional Center with a sustained project and investor pipeline can be completely self-funded, and may even generate a profitable revenue stream, using the fees charged to foreign investors.  These fees, typically labeled “administrative fees” are in addition to the principal investment and may range from $35,000 to $65,000 per foreign investor.  However, the majority of Regional Centers charge $40-45,000.

The costs associated with the set-up and management of a Regional Center vary depending primarily on the scope of the proposed project and the extent to which the Regional Center chooses to market.  In addition to start-up costs listed below, first-year sales, operations, and marketing fees should be accounted for.  However, in the case of Real Estate Investment and Development Firm, a lot of these costs could be defrayed by integrating Regional Center operations with the current Firm operations.

Start-up costs and expenses for developing a Regional Center are typically as follows:

  • Economist Fees for: (1) construction and analysis of the econometric model; (2) development and drafting of the EB-5 Business Plan; and (3) development and drafting of the Regional Center Five Year Operating Plan and Budget—$25-55,000.00.
  • Legal and Consulting Fees for: (1) transaction due diligence; (2) equity fund structuring; (3) EB-5 immigration law qualification; (4) securities law diligence and compliance; (5) representation before USCIS for project submission and approval; (6) individual investor preliminary qualification;  (7) drafting application and transactional documents including (i) memorandum of terms, (ii) private placement memorandum, (iii) subscription agreement, (iv) partnership agreement, (v) escrow agreement; and (8) supervision and review of economic impact analysis, operational plan, and business plan to ensure USCIS compliance—$75,000 – $200,000.
  • USCIS Governmental Filing Fees—$6,500.00.

An EB-5 funding model, if carefully planned and structured, could be an excellent and low-cost method of raising capital.  The range of capital raised through EB-5 Regional Centers has individually varied anywhere from $5 Million, on the low end, to $300 Million, on high end.  There has been increased awareness and interest by foreign investors in the EB-5 program, and it is forecasted that a record number of foreign investors will be issued EB-5 visas this year.

Although this is an overview of the process behind setting up a Regional Center, it is important to determine the exact scope of the proposed project to properly assess feasibility.   The first step is to evaluate the underlying project or projects to ensure that they will not only be profitable, but will also meet USCIS requirements of the EB-5 program.  Proper planning and careful due diligence by all parties involved is essential.

_________________________________________________________________________________________

Wassem M. Amin, Esq., MBA is an Attorney at Dhar Law, LLP in Boston, MA. Wassem has extensive experience as a business advisor and consultant, domestically and abroad (in the Middle East region), having worked as a consultant for over 9 years. Wassem currently focuses his practice on Corporate Law, Business Immigration Law, and International Business Transactions; where he works with Firm Partners Vilas S. Dhar and Vikas Dhar to advise Regional Centers and individual investors on EB-5 Visa matters. For more information, please visit http://www.dharlawllp.com and email Wassem at wassem@dharlawllp.com.

Disclaimer: These materials have been prepared by Dhar Law, LLP for informational purposes only and do not constitute legal advice. This article is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel. This material may be considered advertising according to the rules of the Supreme Judicial Court in the Commonwealth of Massachusetts. Reproduction or distribution without prior consent of the author is prohibited.

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The EB-5 Immigrant Investor Visa

EB-5 Dhar Law LLP

An Attorney and Service Provider’s Overview of Requirements for Eligibility and Implications under Different Areas of the Law

By: Wassem Amin, Esq., M.B.A.[1]

[NOTE: The following is a preview of a forthcoming Article on the same topic.] Updated with link below.

Click Here for the Full Article in PDF Format.

In 1990, the United States Congress created the employment-based fifth preference (“EB-5”) immigrant visa category for immigrants who invest in and manage U.S. commercial enterprises that benefit the U.S. economy and create jobs. Allotted 10,000 immigrant visas annually, the EB-5 immigrant visa was designed to attract foreign direct investment into projects that would directly impact the economy (i.e., not merely passive investments).

Immigrant investors can apply for an EB-5 visa through two primary routes. The first route is through a direct investment into a qualifying “new commercial enterprise.” The second is through the Regional Center Pilot Program. Created by Congress in 1992, and recently extended by President Obama in the fall of 2012 an additional three years, the Pilot Program allows the United States Citizenship and Immigration Service (“USCIS”) to designate so-called Regional Centers to function as conduits or administrators of large or medium scale projects funded, at least in part, by EB-5 investors.

However, due to inconsistent administration by USCIS primarily caused by lack of proper training for its adjudicators, the Regional Center Pilot Program—as well as the EB-5 visa overall—was relatively under-utilized by practitioners, investors, and developers. For example, in Fiscal Year 2007, USCIS approved only 11 Regional Centers and issued 473 EB-5 Visas—out of the 10,000 available under the quota. In the following years, however, EB-5 visa issuances and Regional Center approvals exponentially increased in number. In FY 2012, EB-5 visas are projected to reach the visa cap for the first time in the program’s history.[2] Furthermore, Regional Center approvals in the same period spiked to an all-time high of 209. The increased interest in EB-5 investments has been attributed to a combination of factors including: (1) the overhaul of the program by USCIS and the creation of a dedicated EB-5 adjudication department; (2) the decrease in domestic investment capital after the 2008 recession; and (3) the increased political instability in foreign countries leading many high-net worth immigrants to relocate to the United States.

Forecasts for FY 2013 estimate that EB-5 capital will account for over $2 Billion in foreign direct investment. Since 2005, the program has injected over $6 billion in capital to the U.S. economy and added over 95,000 U.S. jobs. There have been many EB-5 and Regional Center success stories.

A particularly notable example is the Vermont EB-5 Regional Center. The Vermont EB-5 Regional Center is the only USCIS-designated Regional Center in the United States that is owned, controlled, and supervised directly by a state government. In fact, as Brent Raymond—who is the Director of the Regional Center as well as International Trade and Foreign Investment for the state—noted, the Vermont Regional Center has had a 100% success rate with immigration filings for affiliated alien investors and with investment returns on individual projects.

Advocacy groups have also had a strong positive impact in promoting the EB-5 Visa. The Association to Invest in the USA (“IIUSA”) is non-profit trade association that lobbies on behalf of Regional Centers nationwide. Led by Director Peter Joseph, it was founded in 2005 and represents over 80 Regional Centers, accounting for approximately 95% of all EB-5 capital.

Unfortunately, due to the growing popularity of the program, unscrupulous individuals and entities in the United States, as well as so-called “visa consultants” abroad, have attempted to use the EB-5 visa to defraud foreign investors. Foreign investors need to be diligent in their research and vetting process of such projects. Not surprisingly, counsel for the foreign investor or a Regional Center usually plays an integral role in this process. Unlike a traditional private offering, however, an attorney advising on an EB-5 visa, whether on behalf of the alien investor or the investment soliciting funds, needs to be well-versed in, not only also immigration law, but also corporate law, securities laws and regulations, tax law, international law, real estate law, and estate-planning—in addition to a fundamental understanding of business and economic forecasting models. It is a unique intersection of several areas of the law–each with their own complex regulatory and statutory regime.

Click Here for the Full Article in PDF Format.


[1] Wassem M. Amin, Esq., MBA is an Attorney at Dhar Law, LLP in Boston, MA. Wassem has extensive experience as a business advisor and consultant, domestically and abroad (in the Middle East region), having worked as a consultant for over 9 years. Wassem currently focuses his practice on Corporate Law, Business Immigration Law, and International Business Transactions; where he works with Firm Partners Vilas S. Dhar and Vikas Dhar to advise Regional Centers and individual investors on EB-5 Visa matters. For more information, please visit http://www.dharlawllp.com and email Wassem at wassem@dharlawllp.com.

Disclaimer: These materials have been prepared by Dhar Law, LLP for informational purposes only and do not constitute legal advice. This article is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel. This material may be considered advertising according to the rules of the Supreme Judicial Court in the Commonwealth of Massachusetts. Reproduction or distribution without prior consent of the author is prohibited.

First Ever SEC Enforcement Action Against an EB-5 Immigrant Investor Regional Center

imagesBy: Wassem M. Amin

Overview of the EB-5 Program

Recently extended by President Obama, the Eb-5 Immigrant Investor Pilot Program provides a pathway to U.S. citizenship for foreign nationals by investing in domestic projects that will create or preserve a minimum number of jobs for U.S. Workers.  The program is administered by the United States Citizenship and Immigration Services (“USCIS”) and provides that foreign nationals may qualify to obtain a green card if the individuals invest $1,000,000 (or at least $500,000 in a “Targeted Employment Area”-i.e., a high unemployment or rural area), creating or preserving at least 10 jobs for U.S. workers, excluding the investor and his or her immediate family.

Under the EB-5 Program, a project developer may apply to be designated as a “Regional Center” by the USCIS.  If approved, this allows the developer to raise capital from foreign nationals while at the same time enabling the foreign investors to obtain permanent residency.  The benefit to the developer, or Regional Center, is usually minimal cost of capital (ROI on these projects are usually negligible) and the ability to charge the investor an “administrative fee.”  Most Regional Center investments are structured as Limited Partnerships, where the investor is sold a limited partnership interest and the developer is the general partner.

The SEC Enforcement Action

In the first-ever enforcement action against an EB-5 Regional Center, the SEC alleged that a Chicago-based Regional Center, through its owner, Anshoo Sethi, fraudulently sold over $145 million in securities and collected an additional $11 million in administrative fees from more than 250 investors.   However, according to the Complaint, the project, purportedly for a hotel development, was non-existent, and the investors (mostly from China) were duped on the basis of false and misleading information from Sethi.

To obtain USCIS approval for the Regional Center, Sethi made “materially false and misleading statements and provided falsified documents” to secure preliminary approval for the project and the investors’ provisional visas.  For example, Sethi forged a document to purport that the Qatar Investment Authority (“QIA”), a sovereign wealth fund, was guaranteeing the funding of the project in the amount of over $340 million–a claim that was denied by the QIA.

By the time the SEC caught up with Sethi, he had spent over 90% of the $11 million collected in administrative fees.  However, the SEC was able to obtain an emergency order freezing all remaining funds.   The foreign investors, of course, never received a visa, and most likely will not be able to recover the administrative fees misappropriated by Sethi.

Having personally worked with several Regional Centers on behalf of foreign investors, most are legitimate and very reputable developers.

Implications

The Association to Invest in the USA (“IIUSA”), a trade group which advocates on the behalf of Regional Centers nationwide, lauded the SEC’s enforcement action.  As the use of EB-5 investment capital continues to rise, the need for oversight is greatly enhanced.  Current FY ’13 forecasts estimate that EB-5 foreign direct investment will account for over $2 Billion.  Since  2005, the program has raised over $6 billion in capital and added over 95,000 U.S. jobs.

It is likely that, due to the growing recognition of the program, dishonest individuals, such as Sethi, will attempt to use it to defraud foreign investors.  Foreign investors need to be diligent in their research and vetting process of such projects.  Not surprisingly, counsel for the foreign investors usually plays an integral role in this process.  However, unlike a traditional private offering, an attorney evaluating a Regional Center’s offering documents needs to be well-versed in, not only business and securities laws and regulations, but Immigration law as well.  It is a unique intersection of two areas of the law–both with their own complex regulatory and statutory regime.

Below is an outline of the USCIS requirements for a foreign investor to qualify for an EB-5 visa, followed by a list of typical offering documents which I have seen from Regional Centers.

EB-5 Eligibility (Qualification of Foreign Investor)

The EB-5 employment-based immigrant visa is designated for foreign investors in new commercial enterprises.  There are 10,000 annual visas in this category (this quota has never been met).  This category covers two major types of investors: (1) those who invest in targeted employment areas ; and (2) those who invest anywhere else .  A targeted employment area is defined as (1) a rural area; or (2) any area experiencing high unemployment of at least 150% of the national average rate.

Criteria for Qualification:

    1. Investment of at least $500,000 (if in a targeted employment area) or $1,000,000 if any other area;
    1. Required capital must be placed “at risk” for the purpose of generating a return on the capital (Actual commitment of the capital is required);
    2. The enterprise must create full time employment for not less than 10 U.S. workers (includes citizens and permanent residents, but not immediate family members of the investor);
    1. Investment must be in a “new commercial enterprise,” defined as: (1) creating an original business; (2) by buying and reorganizing an existing business; OR (3) investing in an existing “troubled business”, created after November 29, 1990, if the capital infusion will result in, at least 40% increase in net worth or number of employees;
    2. Capital must be obtained through lawful means; and
    3. Investor must be engaged in the management of the enterprise, through either day to day management or policy formulation (inapplicable if through a Regional Center).

Immigration Filing Requirements:

Amount of Capital Invested – To show that the petitioner is in the process of investing $1million or $500,000 (targeted area), petition must be accompanied with:

    1. Bank Statements showing amounts deposited in the United States business accounts for the enterprise (or held in an irrevocable escrow account);
    2. Evidence of all the assets purchased in the United States;
    1. Evidence of all property transferred from abroad for use in the US enterprise, including applicable commercial entry documents and fair market valuations; or
    1. Evidence of Monies transferred to the new commercial enterprise in exchange for shares of stock (voting or nonvoting, common or preferred) or convertible debentures.

Lawful Means Evidence – to prove the investor’s funds are derived from a lawful source, the investor must show evidence such as:

    1. Foreign business registration records;
    1. Corporate, Partnership, and personal tax returns;
    1. Evidence identifying any other source of capital; OR
    1. Certified copies of judgments or evidence of all pending civil or criminal actions involving monetary judgments against the petitioner.

Job Creation Evidence Required – to show that the new commercial enterprise will create not less than 10 full time positions for qualifying employees, the petition must be accompanied by:

    1. Documentation consisting of photocopies of Form I-9, tax records, or other similar documents for 10 employees (if already hired); OR
    2. A Copy of a comprehensive business plan showing that, due to the nature and projected size of the new commercial enterprise, the need for not fewer than 10 employees will result, including approximate dates, within the next two years, when such employees will be hired.

Management – Evidence that a petitioner is or will be engaged in management (day to day or policy formulation), the petition must be accompanied by:

    1. A statement of the position title that the petitioner has or will have in the new enterprise, and a complete description of his duties;
    2. Evidence that the petitioner is a corporate officer or holds a seat on a corporate board of directors; OR
    3. If the new entity is a partnership, evidence that the petitioner is involved in management or policy-making.

Targeted Employment Area

    1. Evidence that the metropolitan statistical area, a specific county within such an area, or a county in which a city or town with a population of 20,000 or more is located, has experienced an average unemployment rate of 150% of the national average rate; or
    2. A letter from an authorized body of the government or political subdivision of the metro statistical area, or of the city or town with a population of 20,000 or more in which the enterprise is principally doing business, has been designated a high unemployment area.

Typical EB-5 Regional Center Offering Documents:

    1. Project Summary Sheet
    1. Memorandum of Terms (Term Sheet)
    1. Private Placement Memorandum
    1. Partnership Agreement
    1. Subscription Agreement
    1. Targeted Employment Area Designation
    1. Business Plan(s)
    1. Approved Economic Impact Report
    1. Escrow Agreements for Subscription Fees & Capital Contribution
    1. Completion or Performance Bond
    1. Payment Bonds
    1. USCIS Regional Center Approval Letter
    1. Investor Qualification Questionnaire
    1. Brochure(s) and other marketing material

 

Disclaimer: This article is for informational purposes only and it is not intended as legal advice.  Their are many other factors that may impact an applicant’s eligibility.  Consultation with a knowledgeable Immigration and Corporate Attorney is important.  For more information, please contact Wassem M. Amin.

SEC Proposes Revisions of Securities Offerings in Response to JOBS Act

The Jumpstart Our Business Startups Act (JOBS Act), passed on April 5, 2012, endeavored to ease restrictions on businesses seeking capital by amending existing regulations.[1] In accordance with the Jobs Act, the SEC has proposed a set of rules which allow (but does not mandate) the general solicitation in securities offered under Rule 506.[2] The SEC has also proposed rules in relation to 144A offerings.

Rule 506

Rule 506 (a non-exclusive safe harbor) exempts transactions by an issuer “not involving any public offering” from the registration requirements of Section 5 of the Securities Act of 1933.[3] In addition, Rule 506 allows an issuer to offer and sell securities to an unlimited number of “accredited investors” and up to 35 non-accredited investors (provided those investors meet the “sophistication” requirements). Issuers offering securities under Rule 506 were prohibited from “general solicitation” and “general advertising,” including published in newspapers and magazines or broadcasted over television or unrestricted websites.

Section 201 (a)(1) of the JOBS Acts lifts that restriction against general solicitation, provided that the purchaser is an accredited investor and issuer has taken reasonable steps to verify that the purchasers are accredited investors. The purpose of the verification is to reduce the risk of a securities sale to investors who are not accredited. The reasonable steps are not specified; rather, it is an objective determination based on the facts and circumstances of each situation.

Some factors considered in that determination include:

  • The nature of the purchaser. Are they a natural person or an entity? Do they come within any of the eight enumerated categories under Rule 501(a)? Are they registered as an investment company or a broker/dealer?
  • The information the issuer has about the purchaser. This would include both public information, private information a purchaser is willing to disclose.
  • The nature of the offering

The Commission acknowledges the unique characteristics surrounding every offering and thus, refrained from mandating a uniform verification method. Rather, the Commission evaluates all factors together and in the context of the offering. In determining whether the issuer’s steps were reasonable, the “reasonable” standard still applies.

Form D

Form D is a notice filed with the SEC by each issuer claiming a regulation D exemption. A check box has not been added to indicate whether an offering is being conducted pursuant to the proposed amendment to Rule 506.

Rule 144A

Rule 144A involves the resale of securities to Qualified Institutional Buyers (QIB). The SEC has proposed rules allowing sellers to solicit potential investors, as long as the seller, or anybody action on behalf of the seller, reasonably believes is a QIB.

Conclusion

In 2011, the amount of capital raised under Rule 506 and 144A offerings exceeded $1 trillion dollars combined, exceeding the amount of capital raised in registered offerings ($984 billion). These two rules are vital to the flow of capital and small businesses in particular. The proposed rules and amendments should enhance that flow. Moreover, allowing solicitation in these circumstances allows investors to become aware of new investment opportunities they otherwise would have difficulty identifying.

The SEC is seeking public comments on these proposed rules.


[1] Pub. L. No. 112-06, 126 Stat. 306

[2] http://www.sec.gov/rules/proposed/2012/33-9354.pdf

[3] 15 U.S.C. 77d(a)(2)

No Tipping Policies under the Massachusetts Law

Massachusetts Tips Act does not bar employers from instituting a no-tipping policy Meshna v. Scrivanos, 2012 WL 414476 (Mass. Super. 2012).

Summary:  The Superior Court held that no statute prohibits employers from adopting and enforcing a policy that prohibits employees from accepting tips from customers.  Wait Staff employees of a Dunkin’ Donut brought this action against the franchisee-owner who instituted a policy that required employees to return any tips to the customers who left them.  One of the main issues was whether G.L. c. 149, §152A(b), also known as the Tips Act, prohibited employers from instituting a no-tip policy for their employees and patrons.  Court held that the language of the Tips Act does not explicitly prohibit employers from adopting such policies and there was no valid reason to adopt a broader interpretation of the statute.

Discussion:The language of the statute forbids employers from requiring or accepting payment from the tips collected by its employees but it does not specifically state that employers are forbidden from instituting a no-tipping policy.  Although the Court indicated that a broader interpretation prohibiting such a policy may be proper when customers of the establishment have a reasonable expectation that their tips would go to the employees, there was nothing in the statute or its legislative history suggesting that employers are prohibited from enacting a “policy that is clearly and conspicuously announced, so as to preclude any such reasonable expectation.”  The Court further recognized that employers may have a legitimate interest in adopting a no-tipping policy, such as preventing undue favoritism or unfair pressures.  The Court noted that employers may also decide that tipping is inconsistent with the desired atmosphere of the establishment or that accounting for the tips may cause undue administrative burden.  Finally, the Court emphasized that even if such interests do not conflict with the Tips Act, a no-tipping policy must be “clearly and effectively announced to defendant’s customers, such that they could not reasonably believe that money left as tips would benefit employees.”

Implications: This case is the first to directly address the issue of no-tipping policies.  The employer bears the responsibility of effectively communicating this policy to its customers.  Although this case law applies generally to private sector service employees, it does not apply to public employees, as G.L. c. 248A prohibits them from accepting any gratuities.