USCIS and SEC Stakeholder Engagement: EB-5 Investments and Implications under Federal Securities Law


By Wassem M. Amin, Esq.

On April 3, 2013, USCIS and the SEC held a joint conference call to discuss what aspects of federal securities law are implicated by EB-5 Investments, as it relates to both the issuer and the investor.  As a disclaimer, I am an avid supporter of the EB-5 Investment Visa, and have discussed it 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.

In the early 1990s, USCIS implemented a pilot program, recently extended through September 2013, which allows the creation of a so-called “Regional Center.”  The purpose of the Regional Center is to structure, administer, and market a project primarily funded through the pooling of EB-5 investments.  In many cases, the Regional Center is also the project developer, but can be a third party as well.  Each EB-5 Regional Center must be individually approved by USCIS. For example, a project developer who is developing a ski resort could form a Regional Center to solicit EB-5 investors.  Typically, the investments are structured as a Limited Partnership interests, where the developer is the General Partner and the investors are Limited Partners.  Garnering little attention at first, primarily due to inconsistent administration by USCIS, the pilot program recently took off after a complete overhaul of how it is administered and, specifically, the creation of a separate division in USCIS solely for adjudication of EB-5 visas.

Overview of Stakeholder Conference Call

The joint USCIS/SEC conference was primarily concerned on how Regional Centers, as well as those who solicit investments, may by subject to SEC Regulations.  At the outset, the USCIS noted that the Director of the agency has been focused on enhancing regulation and cooperation with federal agencies in the EB-5 Program.  The SEC was represented by senior staff members from the following four departments: Division of Corporation Finance, Trading and Markets Division, Investment Management Division, and the Division of Enforcement.

Division of Corporation Finance

The SEC noted that the principle issue that may arise for EB-5 Regional Center is whether they trigger regulation under federal securities laws.  The answer will, in virtually all cases, be yes.  A threshold issue is whether the Regional Center is “transacting in securities.”  The definition of securities, as the SEC stressed, is very broad and includes any investment interest.  The second factor, offering or selling securities in interstate commerce, is also very easily triggered–particularly considering the target investor.

What happens if an issuer of securities is “transacting in securities”? That triggers the SEC’s federal registration requirements – a complex penumbra of laws that is most commonly known as “going public” or filing an IPO.  There are exemptions from registration which are used by Regional Centers–Private Placement exemption, Regulation D, and Regulation S.  Generally speaking, these various regulations are designed for relatively small offerings or offerings made overseas.

This allows most Regional Center exemption from registering with the SEC, but does not exempt them from regulation by the SEC.  This key point was reiterated several times throughout the conference call.  Therefore, Offerings of investments through Regional Centers are still subject to the anti-fraud provisions of federal securities laws.  Additionally, they are subject to the prohibition against general solicitation and advertising. That prohibitions is so broad that includes internet posts, local newspaper articles, and everything in between.  (NOTE: the JOBS ACT, enacted last year, changes the law to allow general solicitation and advertising for exempt issuers.  However, the SEC noted that, while they have drafted proposed rules, none have been implemented yet.)

Trading and Markets Division

The SEC’s Trading and Market Division is primarily responsible for administering the Securities Exchange Act of 1934 (the “34 Act”).  Within the context of EB-5 investments, it is focused on the status of individuals involved in the sale and offering of these investments, commonly known as Broker-Dealers.  The bottom line here is that, if someone is engaged in the activity of soliciting foreign investors, it is highly likely that they are engaging in brokerage activities, therefore triggering the requirements of Broker-Dealers.  The SEC noted that the commission has “approached registration on a territorial basis.”  Therefore, the seller or solicitor of investors will be subject to the 34 Act even if they exclusively solicit foreign investors.

What are the activities that trigger Broker-Dealer registration?  Two main tests: (1) if the person is directly soliciting the investment; or (2) if the person is indirectly advertising the investment.  The question in the latter situation focuses on the remuneration or compensation of the individual.  If that person’s compensation is tied to the number of investments, then that will be sufficient to trigger registration. The only exception here applies to natural persons (not an entity) associated with the issuer (which, in EB-5 context, is usually the developer).  Even then, that person may not solicit investments if they have been a broker-dealer in the recent past or are subject to various statutory disqualifications.

Investment Management Division

The SEC’s Investment Management Division regulates two main federal statutory laws: the Investment Advisers Act, and the Investment Company Act.  Whether an EB-5 Investment triggers either Act depends on how the investment is structured.  Most critically, these two acts usually work as a residual catch-all for federal regulation.  In other words, if an entity or natural person is not a Broker-Dealer, they will most likely be an investment adviser or an investment company.

Investment companies are those commonly known as mutual funds — they pool securities and sell ownership interests in the pool to investors.  Investment advisers are just what they sound like – anyone who is in the business of providing investment advice for compensation, unless they are a Broker-Dealer.

This comprehensive regulatory scheme virtually guarantees that an EB-5 investment will be triggered by one or more of the various federal securities laws.  A Regional Center, for example, may be considered an Investment Company if they meet this definition: An Issuer that holds, invests, or trades in securities.  If the EB-5 investment is structured in a way where multiple investors hold a share in the investment pool of funds, which is then used to finance an underlying project that the Regional Center also owns a share in, then they are an Investment Company.  Triggering the provisions of either, the Investment Company Act or the Investment Advisors Act, requires that the adviser or company register with the SEC.  There is a fiduciary duty owed by the investment advisor – i.e., they must disclose conflicts of interests, any self interest in the project, and avoid self dealing.

As you might have guessed, there are limited exclusions from registration with SEC, but not from regulation by the SEC. The major exclusionary category is the so-called Professional Exclusion.  This exclusion covers most attorneys, accountants, and teachers – if the advise provided is incidental to the services provided.  This is a very important, but limited, exception that applies to many EB-5 providers of ancillary services, such as legal advice.

Division of Enforcement

The final part of the SEC’s presentation was from the SEC’s Division of Enforcement – who I like to call the “muscle” of the SEC.  Fresh off the heels of its first major EB-5 related enforcement action, the Division’s message could be summed up as this: if you run afoul of any of the first three divisions, you will deal with this, and we are usually not a fun time.  The SEC staff member summarized the facts, allegations, and potential consequences (trial is still ongoing) of their Enforcement Action against a formerly Chicago-based Regional Center; which was basically a ponzi scheme that run out of fresh investors. (More details in this previous post).


The EB-5 Investor Visa program, particularly investments through Regional Centers, has skyrocketed in the past couple of years.  In prior years, out of the 10,000 annual visas allotted by USCIS to the program, no more than usually 3-4,000 were used.  However, in FY ’12, it is predicted that well over 9,000 will be utilized, perhaps even meeting the cap for the first time!

As the popularity of these investments increases, so will the potential for abuse by fraudulent individuals, which, in turn, will draw increasing regulatory scrutiny to all parties involved.  Although, for a developer, use of a Regional Center to raise EB-5 funds might be very tempting, it is critical to consult with an experienced Securities Lawyer, in addition to an Immigration Lawyer.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site 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.

Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA.  Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years.  Wassem currently focuses his practice on Corporate Law, Immigration Law, and International Business Transactions.  For more information, please visit the About Us page or 

Record Growth Forecasted for Islamic Finance but Risks Remain

By: Wassem Amin

A new report published by Ernst & Young is forecasting a 17% annual growth in Islamic banking assets by the end of 2013, reaching nearly $1.8 trillion.  This confirms the recent trend of migrating from conventional finance to Shari’a compliant finance by many Middle Eastern markets.  In the beginning of January 2013, for example, the regulatory authority for Dubai’s financial markets published a proposed set of uniform standards for the securitization of sukuk (Islamic bonds) assets.  Sukuk represent, by far, the largest growing Islamic financial product globally.

However, interestingly, the E&Y report is forecasting that the majority of the growth in the Islamic finance to come from countries other than those in the Arabian Gulf and South East Asian region.  That indicates that conventional financial institutions are beginning to offer Shari’a-compliant financial products in an attempt to capture a share of the rapidly-expanding market.  China, in particular, has been noted as a strong prospect for future expansion of Islamic banking.  Numbering over 150 million, Chinese Muslims account for nearly 10.3% of the country’s population.

To support this growth, the report highlighted the need for reform in three areas: Regulatory reform, Risk reform, and Retail banking reform.  Regulatory oversight of Islamic banking institutions remains fragmented and lacks integrated compliance and capital optimization.  Shari’a governance, in particular, represents an important, yet widely unacknowledged risk.  As discussed in in my comparative analysis of Saudi Arabian and Malaysian markets, there are relatively few Shari’a scholars who specialize in Islamic banking.  That results in significant conflicts of interests when the same scholar sits on the board of several, if not dozens, of Islamic banks.

In order to support the future infrastructure of Islamic finance, universities in the Middle East and globally need to develop degrees focused on educating the future generation of Shari’a scholars that are well-versed in global finance.  Islamic finance is unlike conventional finance in that its identity its tightly woven with religious principles.  Islamic finance scholars need, in essence, to study two concurrent areas: Islamic law & theology and banking & finance.  There are relatively few universities that teach courses on Islamic finance and even fewer ones that offer degrees specializing in that area.

Demystifying the Saudi Arabian Market: Key Features of Various Business Entities (Part 3)

By: Wassem M. Amin, Esq.

In Part 2, the various business entities that may be used in Saudi Arabia were discussed.  This post outlines, in greater detail, the key features of the most popular entities used by foreign investors.

Limited Liability Companies (LLCs)

100% Foreign Management and Ownership – Unlike many other business entities, Saudi law does not require a minimum level of Saudi participation nor does it require that any manager be a Saudi national or a member of the LLC. Foreign management is only allowed if the LLC has a foreign capital investment license from SAGIA.

Board Members; Number of LLC Members – Under Saudi law, LLCs must have at least 2, but not more than 50, members.  The law provides for automatic dissolution if the number of members falls below 2.  The LLC may have either a manager or a board of managers.  However, if the LLC has more than 20 members, it must have a separate advisory board to oversee and advise management.

Limited Liability – The personal liability is generally limited to the individual member’s contribution to the company’s capital.  However, liability may extend to the shareholders, individually, in the event that the company’s losses exceed 50% of capital and no action has been taken to rectify losses.

Preemptive Rights – There are no shares issues in an LLC.  Investors hold a proportion of the uniform nominal value.  Further, equity transfers of a member’s ownership are permitted, but subject to the preemptive rights of other LLC members.  That means, a member wishing to dispose of his ownership must offer it to the other members first.

Minimum Capital Requirement – Minimum capital for an LLC with only foreign investors is 500,000 Saudi Riyals (SR).  There is no minimum capital requirement for LLCs wholly owned by members from the Gulf Cooperative Council countries.  Further, the Saudi Arabian General Investment Authority has the discretion to increase or decrease the capital requirement for an LLC.

Joint Stock Company (JSC)

A JSC is most analogous in structure to that of a C Corporation in the United States.  A JSC is often used when the company anticipates a public offering of shares on the Saudi Stock Exchange (Tadawul).

100% Foreign Ownership – As with an LLC, foreign ownership of all issued shares are allowed.

Board Members and Shareholders – The minimum number of shareholders allowed is 5.  The minimum number of directors required is three, including a chairman and a managing director.  Directors of the corporation are required to own shares in the corporation with a nominal value of at least SR10,000.

Preemptive Rights – Unlike LLCs, shares in a JSC are freely transferable.  Preemptive rights must be expressly added in the JSC’s organizational documents to be enforceable.

Minimum Capital – JSCs must have a minimum capital of SR2 Million.  In the event the JSC decides to issue public shares, the minimum capital requirement is SR10 Million.  Regulation of public offerings is under the auspices of the Capital Market Authority.

US Citizenship Through Islamic Finance Compliant Investments: The EB-5 Investor Visa Program

By: Wassem M. Amin, Esq.

ImageThe United States is one of the largest recipients of foreign direct investment from the Middle East, particularly from Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates.  Despite the economic recession, investors from these countries continue to diversify within the U.S. financial and real estate markets.

Unbeknownst to many foreign investors, however, is that a collateral, or perhaps primary, benefit of investing in the United States may be the ability to obtain permanent residency and eventual citizenship.  A foreign investor who makes a qualifying investment can apply to obtain a green card (permanent resident card) and, eventually, United States citizenship if they meet all the criteria of the EB-5 immigrant visa program.

However, a challenge for many Middle Eastern investors is the ability to procure an EB-5 qualifying investment that will also adhere to the principles of Islamic Finance.  There are several methods to structure an EB-5 investment to be Islamic-finance compliant, one of which is discussed in this post.

The EB-5 Program

The United States Congress created the employment-based EB-5 immigrant visa category in 1990 for immigrants who invest in and manage U.S. commercial enterprises that benefit the economy.  To qualify, investments must create at least 10 full time jobs for U.S. workers.  The minimum investment required is $1 million, although that amount is reduced to $500,000 if the investment is made in a high unemployment area or a qualifying rural area.  Immigrant investors who successfully qualify would obtain a permanent resident card with the opportunity to apply for citizenship after 2 years.

In 1992, to stimulate interest, Congress enacted the EB-5 Regional Center Pilot Program.  The program allowed public and private entities to apply to the United States Citizenship and Immigration Services (“USCIS”) to be designated as a regional center.  The regional center would, in turn, develop qualifying investments for foreign investors under the EB-5 program.  Regional centers provide a structure for focusing foreign investment in a specific U.S. geographic area and for promoting economic growth in such area through increased export sales, creation of new jobs, and increased domestic capital investment.  For an immigrant investor, the benefits of investing through a regional center are numerous.  Typically, a regional center investment has already been evaluated for feasibility.  Similarly to a real estate developer who is raising capital, a regional center would already have prepared business plans, private placement memorandums, feasibility studies, and other offering documents.  In the case of an EB-5 investment, the regional center would have also completed economic impact studies to demonstrate to USCIS that it meets the job-creation criterion. In addition, most regional centers hold an immigrant investor’s funds in an escrow account pending USCIS approval of the investor’s EB-5 application.   Therefore, if the application is denied for any reason, the investor recovers his or her principal investment.

Most Regional Center investments are in large real estate development projects.  For example, a recent example of a regional center I have advised was structured as a partnership to invest in the expansion of an established ski resort in the state of New Hampshire.  The partnership was structured as a limited partnership, with the foreign investors designated as the limited partners and the real estate developer as the general partner.  Such a partnership can also comply with Islamic finance principles, subject to the requirements discussed below.

Structuring the Investment to be Islamic Finance (Shari’a) Compliant

Islamic Finance products and instruments set out to achieve the same business goals as conventional finance products and instruments, but within the constraints of Islamic rulings.  Islamic-compliant financial solutions range from profit-and-loss sharing mechanisms, consumer finance, trade finance, working capital finance, and project finance.  Broadly speaking, Islamic finance prohibits excessive risk or speculative investments and the payment or receipt of interest.  In addition, risks in any transaction must be shared between the parties, so that the provider of capital (investor) and the entrepreneur share the business risk in return for a share in the profits.

A Regional Center may qualify as an Islamic-finance compliant investment by structuring the entity as a partnership.  A permissible method of Islamic financing is a musharaka, which, in Arabic, literally means “sharing.”  A musharaka is a joint enterprise formed for a business purpose in which all partners share profits according to a predetermined ratio.  However, the key difference is that losses must be divided exactly in accordance with the pro rata share of capital invested by each partner.  In the context of real estate and project financing, the foreign investor, as a limited partner, would contribute capital while the real estate developer, as the general partner, would contribute either real estate assets or additional capital.

To ensure compliance with Islamic finance principles, the agreement between the partners would need to describe the capital contributions and the allocation of profits and losses, as well as the management responsibilities (which would normally be undertaken by the real estate developer as general partner).  The real estate developer would then undertake the project using the capital and other contributed assets in the construction and operation of the project.

Disclaimer: This article is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended. This article does not constitute investment advice or counsel or solicitation for investment in any security.  These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site 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.

Demystifying the Saudi Arabian Market: Investment Options and Establishing a Presence (Part 2)

doing-business-in-saudi-arabia_mainBy: Wassem M. Amin

Saudi Arabia’s Foreign Investment Regulations give foreign investors a variety of options in determining how to conduct business operations in the Kingdom.  However, regardless of the option chosen, if a physical commercial presence is established, foreign investors must first obtain a foreign capital investment license from the Saudi Arabian General Investment Authority (SAGIA).

Establishing a Physical Presence

Investments in Saudi Arabia may be through the formation of a new business entity or through the acquisition of assets or equity in an existing company.  Commercial enterprises by foreign companies may be structured as any of the following: (1) joint ventures, (2) wholly owned subsidiaries, (3) local branches of a foreign company; or (4) representative or agent offices.

The principal body of law governing commercial enterprises in Saudi Arabia is the Companies Regulation, which is enforced and regulated by the Ministry of Commerce and Industry.  In some circumstances, an enterprise may be subject to the rules and regulations of additional regulatory bodies such as the Saudi Arabian Stock Exchange (Tadawul), the Saudi Arabian Monetary Agency (SAMA), or the Capital Market Authority (CMA).

In terms of the legal type of entity established, foreign investors have several options to consider–depending largely on the scope and type of the proposed enterprise as well as the investor’s exit strategy.  The types of entities are: (1)  Joint Stock Company; (2) Limited Liability Company; (3) Joint Venture; (4) Branches of foreign companies; and (5) Technical and Scientific offices of foreign companies.

Joint Stock Company (JSC): JSCs are the most analogous entity to a C-Corporation in the United States.  They may be wholly foreign owned and are typically established with the intent towards a future public offering and listing on the Saudi Stock Exchange (Tadawul).  A minimum of 5 shareholders and 3 directors on the board of directors is required.  The minimum initial capitalization required is 2 Million Saudi Riyals (SR), which rises up to SR10 Million if the JSC will issue publicly traded shares.

Limited Liability Company (LLC): As with JSCs, Saudi law permits an LLC to be wholly foreign owned and managed.  LLCs must have at least 2, but not more than 50, member-investors. Each member owns a pro-rata equity share equal to the uniform nominal value.  Liability of individual members, under most circumstances, is limited to the member’s paid-in capital.  Minimum initial capitalization for an LLC with any foreign members is typically SR500,000.  However, for certain industries, such as agricultural or industrial projects, the minimum capital may be much higher.  Unlike JSCs, LLCs do not issue shares and cannot be publicly traded on the Saudi Arabian Stock Exchange.

Joint Ventures – LLCs and JSCs may both be wholly owned or established with a Saudi business partner.  The decision to establish a Saudi partner may be mandatory in some fields, such as establishing a branch of international law firm.  However, in other cases, a foreign investor may benefit from a Saudi partner’s expertise and familiarity of the local market, customs, and traditions.  The risks and benefits of doing so must be carefully analyzed after thorough due diligence is conducted.

Branches of Foreign Companies – Branch offices are set up to represent foreign companies in Saudi Arabia.  Similarly to JSCs or LLCs, branch offices are allowed to engage in direct business activities.  However, their scope of business is limited to that of the parent company.

Technical and Scientific Offices (TSOs) – TSOs are easily set up in Saudi Arabia and are usually established when a foreign company enters into long-term distribution or agency arrangements with local companies.  However, their scope of allowed commercial activity is limited to providing technical support and assistance to local distributors, agents, and consumers.  TSOs are prohibited from engaging in any direct business activities.

Other Commercial Arrangements – Distribution arrangements may be done through a joint venture with a Saudi partner or by appointing a local distributor or agent on your behalf.  Other options, such as franchising or a direct international sale, may also be available, depending on the type of service or product the foreign company offers.