USCIS Holds EB-5 Stakeholder Engagement With SEC on Securities Law Compliance

July 15th, 2013 by SRW Lawyers

U.S. Citizenship and Immigration Services held an EB-5-related stakeholder engagement with the Securities and Exchange Commission (SEC) on April 3, 2013, to discuss the EB-5 program. Subject matter experts discussed securities law compliance in the context of EB-5 regional centers and investments.

During the call, the SEC provided an overview of registration requirements under federal securities laws. The SEC noted that these include, for example, an obligation under certain circumstances to register the securities for offer or sale under the Securities Act of 1933 (Securities Act); the broker registration of persons effecting transactions in securities under the Securities Exchange Act of 1934 (Securities Exchange Act); the registration of persons or entities offering investment advice under the Investment Advisers Act of 1940 (Investment Advisers Act); and the registration of persons or entities that offer investment products to the public under the Investment Company Act of 1940 (Investment Company Act).

Throughout the engagement, the SEC indicated that it largely focuses on the anti-fraud provisions within the law. The SEC stated that the definition of a “security” is broad and that EB-5 investments likely include the offering of securities that would require either registration or exemption from the registration requirements under the Securities Act. The SEC stressed that, while registration exemptions may be available to the EB-5 community, all anti-fraud provisions still apply to exempt offerings.

The SEC provided guidance on the definition of a broker-dealer, as well as the types of activities that trigger the broker-dealer registration requirements (including soliciting or advertising investments and receipt of transaction-based compensation). The SEC highlighted the serious consequences of failure to register as a broker-dealer, including civil and criminal liability, bars on future involvement in the securities industry, and possible rescission of the securities sold through the unregistered broker.

EB-5 regional centers and associated entities, as well as their respective principals, may be subject to the requirements of the Investment Advisers Act and Investment Company Act, the SEC noted. The agency said that some individuals or entities may not have to register as either an Investment Adviser or as an Investment Company under these acts if they qualify for certain limited exemptions.

The SEC’s Division of Enforcement emphasized that an EB-5 project may likely include securities offerings that are subject to the various securities laws. As an example of its enforcement action, the SEC referenced a complaint it filed in U.S. District Court in the Northern District of Illinois in February 2013 alleging that an individual and companies participating in the EB-5 program engaged in fraud. USCIS worked closely with the SEC in its investigation of that case.

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