How will the JOBS Act Impact EB-5 Regional Centers and Immigrant Investors?

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

Although the EB-5 Immigrant Investor Visa has been around for almost 2 decades, it has only started gaining traction over the last few years.  Discussed in detail in previous posts, in summary, the EB-5 Investor Visa allows foreign investors to obtain permanent residency in the United States if they invest a minimum of $1,000,000 (or $500,000 in a high unemployment or rural area).  The permanent residency is conditioned on the success of the investment after two years and, in particular, whether the investment creates a minimum of 10 full-time jobs for American workers.

A United States Citizenship and Immigration Services (“USCIS”) Pilot Program allows the creation of so-called “Regional Centers” for the sole purpose of structuring, administering, and marketing typically medium to large scale projects funded through the pooling of EB-5 investments.  After receiving approval from USCIS, a Regional Center could then solicit foreign investors for capital.  The benefit to the foreign investor is, of course, the ability to gain permanent residence in the United States.  Likewise, the benefit to the Regional Center is the low cost of capital in comparison to conventional financing methods.

The increased popularity of Regional Centers has also increased the Securities and Exchange Commission’s scrutiny of how the investments are solicited and marketed.  In a recent joint conference call with USCIS, the SEC made it clear that virtually all Regional Center investment solicitation will trigger regulation under federal securities laws.  Regional Centers are considered “issuers” of securities because they are transacting in investment interests.  Although Regional Centers are usually exempt from registering with the SEC, they are not exempt from regulation by the SEC.

Offerings of securities by Regional Centers are still subject to anti-fraud provisions which prohibit general solicitation and advertising, among other restrictions.  That prohibition is so broad that it includes internet posts, local newspapers, and everything in between.

Changes Under the JOBS Act

On April 5, 2012, the President signed the Jumpstart Our Business Startups (“JOBS”) Act.  The main purpose of the Act is to stimulate the growth of small to medium sized companies through facilitated access to capital and reduced regulatory reporting requirements.  Although not yet implemented, the SEC’s proposed rules under the JOBS Act will positively impact EB-5 investment offerings.  Regional Centers will have significantly more latitude with respect to general solicitations and general advertisements.  In combination with the proposed immigration reform bill, the opportunities for Regional Centers to raise capital will significantly increase.

The Securities Act of 1933 requires that all offerings of securities be registered unless there is an applicable exemption from registration.  Regulation D is an exemption used for small private offerings with, among others, limits the size of the offering and the number of investors.  Title II of the JOBS Act requires the SEC to eliminate its ban on general solicitation and advertising in offerings that are exempt from registration under Rule 506 of Regulation D if all investors are accredited or under Rule 144A so long as all investors are qualified institutional buyers. However, proof of “reasonable steps” must be taken and documented to verify accredited investor status before a Regional Center can claim the exemption.

What Does This Mean to a Regional Center?

EB-5 Issuers such as Regional Centers, will now be able to advertise via website advertisements, newspapers, radio, internet posts, and even email.  However, to take advantage of the relaxed rules, Regional Centers must now take “reasonable steps” to verify that the purchasers are in fact accredited investors.  It will no longer be sufficient for an issuer to rely on a questionnaire to establish whether an investor qualifies as an accredited investor.

The extent of “reasonable steps” a Regional Center will depend on: (i) the type of accredited investor the investor claims to be; (ii) the type of information the Regional Center has about the investor; (iii) the manner in which the investor was solicited; and (iv) the size of the offering and minimum investment amount.  For example, if the EB-5 foreign investors are solicited through a publicly accessible website, a mass email, or a Facebook page, the Regional Center will be obligated to take greater measures to verify accredited investor status.  Conversely, if the minimum amount of investment is high (for example, $1million instead of $500,000), the SEC indicated that it may be reasonable for the issuer (the Regional Center) to take fewer steps to verify accredited investor status.

Catch-22: the Regulation S Exemption

Many Regional Centers also rely on the SEC’s Regulation S to exempt them from registration. However, Regulation S, known as the “offshore exemption”, prohibits any “directed selling efforts” within the United States.  Any general solicitation, particularly using the Internet, may be deemed to be directed selling efforts.  In the case of a Regional Center, this may include information on the offering that is on its website.

Therefore, for example, if the website is accessible to people in the United States, a Regional Center will not be in compliance with Regulation S–even though it might be in compliance with the revised Rule 506 of Regulation D.  In other words, taking advantage of the opportunity to conduct general advertisements and solicitations under the proposed rules of Regulation D may eliminate a Regional Center’s ability to rely on Regulation S.

In the process of developing an operational and marketing plan, a Regional Center must consult with an experienced securities attorney to assist it with navigating the complex federal securities regime.  With the increased popularity of the EB-5 program, the SEC has been significantly stepping up its oversight and scrutiny – even leading to a notorious enforcement action against a Regional Center in Chicago.

Finally, it is important to note that the new Regulation D rules under the JOBS Act have not been enacted by the SEC yet.  Until that happens, the ban on general solicitation and advertisement is still in effect.  _________________________________________________

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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Details and Impact of Key Provisions of the 2013 Senate Immigration Reform Bill

wassem amin

By Wassem M. Amin, Esq.

Officially titled “Border Security, Economic Opportunity, and Immigration Modernization Act of 2013,” the bipartisan immigration reform bill (the “Bill”) introduced to the Senate on April 17, 2013 substantially reforms immigration laws in the United States.  The legislation still has a long way to go, with a series of hearings in the Senate Judiciary Committee, the amendment process, and floor debate–before even any vote.  In addition, the House also needs to pass corresponding legislation before the Bill actually becomes law.  Having said that, however, the Bill is a substantial step in the right direction and contains several provisions that address much-needed shortfalls in current immigration law.

This Article briefly summarizes several key provisions in the 800+ pages of the Bill that will impact a wide and diverse range of immigrants and nonimmigrants as well as potentially having a substantial positive impact on the U.S. economy.

Undocumented Aliens

The Bill extends “Deferred Action for Childhood Arrivals” (“DACA”) to aliens who were present in the United States before December 31, 2011 and expands eligibility by removing the age restriction that DACA imposed.  Under the Bill’s provisions, illegal aliens may qualify for a new lawful status called “Provisional Immigrant” status if the alien was: (1) physically present on the date of the application; (2) physically present in the United States on or before December 31, 2011; and (3) such presence was continuous except for brief and innocuous absence.  The spouse or child of such an alien will also be eligible for Provisional Immigrant status if they were present in the United States on  or before December 31, 2012.

However, the Bill limits this “window of opportunity” for illegal aliens’ ability to apply for Provisional Immigrant status to one year after its enactment, with the possibility for an extension of an additional 18-month period.

The initial period for Provisional Immigrant status is 6 years, renewable for another 6 years if the alien maintains his lawful status and meets certain employment criteria, as outlined in the Bill.  Specifically, the Provisional Immigrant must establish that he or she was regularly employed throughout the duration of status and is not likely to become a public charge; or is able to show that their income throughout that period has not been under the Federal poverty level.

For aliens who were previously granted DACA status, the Bill allows them to petition for Provisional Immigrant status as well.

A [Long and Tough] Pathway to Citizenship

A key provision in the Bill is that it enables so-called Provisional Immigrants to apply for an adjustment of status and obtain permanent residency (i.e., the green card) if they maintain that status throughout, meet minimum employment and education requirements, and have not been absent from the United States for more than 180 days in any calendar year.

However–the Bill also includes a provision literally titled “Back of the Line.”  Perhaps as a way to ‘punish’ illegal aliens, this provision requires illegal aliens who became Provisional Immigrants to wait until immigrant visas have become available for all approved petitions of lawful immigrants in other visa categories.  If, and only if, there are immigrant visas remaining in the annual quotas, would a Provisional Immigrant be able to obtain permanent residency.  In practice, this will make the road to citizenship for Provisional Immigrants a long and arduous one, which may take several years.

The DREAM Act

The Bill attempts to enact the long-applauded “Dream Act” which grants permanent resident status to certain aliens who came to the United States as children—without going through the lengthy process of “regular” Provisional Immigrants.  Specifically, it will allow such aliens to be immediately eligible to adjust their status to that of a permanent resident is they meet the following criteria:

  1. The alien has been a registered Provisional Immigrant for at least 5 years;
  2. The alien was younger than 16 years old on the date they initially entered the United States;
  3. The alien obtained a GED or high school diploma from the United States; and
  4. The alien has completed, at least, 2 years in an accredited bachelor’s degree program or higher in the United States OR has served in the U.S. Military for at least 4 years.

Amendments to Employment H-1B Visas

The Bill increases the number of allotted annual visas in the H-1B category subject to the cap from the current limit of 65,000 annual visas to a 110,000 visas.  This will be undoubtedly welcomed by the many employers and employees who were denied H-1B visas due to the annual cap.  In fiscal year 2013, the cap was reached in just 5 days after April 1, 2012–the date USCIS starts accepting H-1B petitions.

An additional significant amendment is that the Bill proposes that spouses of H-1B employees be automatically granted work permits.  Immigration reform activists have long criticized the fact that spouses were not allowed to work under the H-1B visa.

New “Retiree” Nonimmigrant Visa

A new provision in the Bill grants aliens above the age of 55 the ability to retire in the United States and stay indefinitely if they purchase a residential property in the United States for at least $500,000 and are physically present a minimum of 6 months out of each calendar year.  However, a key restriction in this category is that prevents those who qualify from being able to obtain employment authorization (unless the work is related to managing their residential property).

New “W” Nonimmigrant Visa Category

Although the details on this new category are still unclear, it basically creates a whole new nonimmigrant employment visa specifically targeted to certain “shortage occupations.”  The Bill imposes strict qualification and reporting requirements for both employers and employees under this category.  However, its effect will be to allow more visas to be available under other categories, such as the H-1B.  The number of visas allotted to the W-Employment category in the first year of enactment is 20,000.  This number will be gradually increased to 75,000 visas by the fourth year.

New Category – “INVEST” Immigrant and Non-Immigrant Visas

An acronym for “Investing in New Venture, Entrepreneurial Startups, and Technologies,” the INVEST visa allows certain alien entrepreneurs the opportunity to receive an immigrant or nonimmigrant visa–depending on the size of their new venture or business.

To qualify for a nonimmigrant INVEST visa, the entrepreneur and/or the venture must meet the following minimum criteria:

  • They receive a minimum investment from a “qualified angel investor” or a “qualified venture capitalist” (as these terms are defined by the Bill) of at least $100,000; OR
  • The entrepreneur’s business generates a minimum of $250,000 in revenue for the 3 years preceding the visa petition and creates a minimum of 3 jobs for U.S. citizens or permanent residents.
  • The nonimmigrant INVEST visa is granted for an initial period of 3 years, with the ability to renew it twice for 1 year periods (i.e., maximum 5 years).

To qualify for the immigrant INVEST visa, the entrepreneur and/or the venture must meet the following minimum criteria:

  • They receive a minimum investment from a “super angel investor”, a “super venture capitalist”  (this what they are called in the Bill!) or governmental grant of at least $500,000; OR
  • The entrepreneur’s business generates a minimum of $750,000 in revenue for the 3 years preceding the visa petition and creates a minimum of 5 jobs for U.S. citizens or permanent residents.
  • If the entrepreneur has an advanced STEM degree, then the job requirement is lowered to 4 instead of 5.

Additionally, under the EB-5 visa, the Bill proposes to permanently authorize the EB-5 Regional Center Program as well as increasing the number of visas allotted per year.

As mentioned, these amendments have not been, and may not ever be, enacted into law.  However, strong bipartisan support for this Bill has many observers predicting that it withstands a significant chance of passing.

The full, 800+ pages of the Bill can be viewed here.

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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.