By Wassem M. Amin, Esq. MBA
On July 10, 2013, the Securities and Exchange Commission (“SEC”) adopted a new rule that lifts the ban on general solicitation of private offerings. The rule was adopted as a part of the commission’s decision to implement Section 201(a) of the Jumpstart Our Business Startups Act (the JOBS ACT”). Prior to July 10, Companies who wanted raise capital through a private offering had two options: (1) Register the securities offering with the SEC; or (2) rely on an exemption from registration. In a separate release, in order to implement Section 926 of the Dodd-Frank Act, the SEC adopted amendments to Rule 506 which disqualified issuers from utilizing Rule 506 if “felons and other bad actors” are participating in the offering.
While the SEC lifted the ban on advertising, they issued a rule proposal for Regulation D that requires issuers to provide a greater amount of information regarding the offerings in order to allow the SEC to regulate the market. The proposal is aimed to protect victims from fraudsters trying to solicit stocks to inexperienced investors. The proposed rule would require one who wishes to solicit a private offering to file a Form D before they engage in the advertising.
General Solicitation will Increase Demand for EB-5 Investments
Lifting the ban on general solicitation will allow startups, venture captilists, EB-5 Regional Centers, the EB-5 Program and hedge funds to openly advertise that they are raising money in private offerings. That should make it significantly easier for companies to raise financing and/or expand operations — the Rule still limits solicitation from accredited investors (for now, until the remaining part of the JOBS Act is implemented)
EB-5 Regional Centers Can Advertise in Publications That Are Read By Potential Investors
Regional Centers now have the ability to advertise in national and international newspapers and media. In fact, an EB-5 Regional Center from Florida recently placed an Ad in the Wall Street Journal. The Wall Street Journal and similar publications target the demographic EB-5 Regional Centers are seeking.
EB-5 Regional Centers Can Target the International Student Demographic in the U.S.
There are millions of international students in the United States – many of whom are very wealthy and are looking for options to stay in the country post-graduation. Advertising to these students through targeted marketing can be very profitable.
The Lift on the Ban Will Create New Service Providers
The lift on the Ban will undoubtedly create a significantly new and large pool of investors. Additionally, I predict that there will be a new industry which caters specifically to connecting investors with companies looking for capital, a type of investor match-maker of sorts.
Investment is still limited to a requirement that all purchasers in the offering are “accredited investors”. An “accredited investor” is defined as:
- An individual with net worth (or joint net worth with a spouse) that exceeds $1million at the time of the purchase, excluding the value (and any related indebtedness) of a primary residence; or
- An individual with an annual income that exceeded $200,000 in each of the two most recent years or a joint annual income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year.
Moreover, EB-5 Regional Centers engaging in general solicitation activities will be required to verify through “reasonable steps” that EB-5 investors are accredited. The SEC has not yet issued guidance on the steps necessary to satisfy the reasonableness requirement, however EB-5 Regional Centers engaging in general solicitation activities should be prepared to obtain guarantees of income requirements for all investors.
ncluding a requirement that all purchasers in the offering are “accredited investors”. An “accredited investor” is defined as:
– See more at: http://connect.wolfsdorf.com/?p=1638#sthash.PJRkxOgN.dpuf
To help the SEC collect data on how investment will change, fundraisers have to file a Form D with the SEC at least 15 days before they begin general solicitation, and amend that Form D to state that they’re done soliciting within 30 days of finishing.
I have previously authored an Article predicting the impact of the JOBS Act on the EB-5 Program, here.
For more information, including access to the Final Rule and Proposal, please visit the SEC’s website which can be found here.
Wassem M. Amin, Esq., MBA is an Attorney at Dhar Law, LLP in Boston, MA and is the Vice Chairman of the Middle East Division as well as the Islamic Finance Committee of the American Bar Association’s International Law Section.. 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 firstname.lastname@example.org.
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.