Register Today: Los Angeles County Bar Association 2016 EB-5 Conference (February 13, Los Angeles, CA)


    On Saturday February 13th, the Los Angeles County Bar Association (LACBA) will host its 2016 EB-5 seminar titled, “Reboot-New Rules, New Players, New Opportunities“.

    Among the many distinguished speakers at this event are IIUSA members Ira Kurzban (Kurzban Kurzban Weinger Tetzeli and Pratt P.A), Ronald Klasko (Klasko Immigration Law Partners, LLP), Bernie Wolfsdorf (Wolfsdorf Rosenthal, LLP) Linda Lau (Global Law Group), Angelo Paparelli (Seyfarth Shaw, LLP)David Hirson (Law Offices of David Hirson & Partners, LLP) Cletus Weber (Peng & Weber, PLLC) Elizabeth Peng (Peng & Weber, PLLC) Mark Ivener (Ivener & Fullmer, LLP) Robert Loughran (Foster LLP) Kenneth White (White & Associates) Martin J. Lawler (Lawler & Lawler) Taiyyeba Skomra (Stone Grzegorek & Gonzalez LLP) Benjamin Brueggemann (Darren Silver & Associates) and Gregory White (Seyfarth Shaw LLP).

    The seminar will consist of 10 panels covering the following hot topics:

    • The review process of the IPO and the new USCIS office handling all EB-5 matters;
    • Country-specific issues related to proof of source of funds  (we will continue to focus primarily on China, while adding various fast-growing markets to the discussion);
    • Helping your client transition from E-2 or L-1A to an EB-5 application;
    • Effectively dealing with poorly or wrongly issued decisions and appeals, including but not limited to resorting to Federal Court litigation;
    • Maintaining strong ethics and limiting liability in dealing with U.S. business project partners, investors, and migration agents;
    • How to prepare effective I-526 and I-829 petitions while dealing with difficult clients and their business partners; and
    • Spotting issues and problems, such as “material change” and addressing them before it’s too late.
    • Understanding pre-immigration tax planning and wealth management concerns
    • Recent SEC Enforcement Developments against Attorneys, Regional Centers and Project Principals
    • Best Securities Law practices to keep immigration lawyers out of hot water
    • Forecasting securities law provisions of future EB-5 integrity legislation

    Registration is still open. To learn more and register, click here.


    RCBJ Retrospective: What We Learn From SEC Investigation

    What we Learn From SEC Investigation (Vol. 4, Issue 3, January 2016) 



    The Securities Exchange Commission (“SEC”) has clearly increased its degree of scrutiny in investigations with respect to the EB 5 Program since the end of 2012, especially after the Chicago Convention Center case that was filed by the SEC in February of 2013, where the SEC took a very active role in protecting the return of investor capital based upon the existence of obvious fraud and misrepresentation in the offering documents. Since that point in time, the credibility of the EB-5 industry (including industry best practices, heightened due diligence from regional centers and agents and heightened investigation by the SEC) has elevated the degree of scrutiny and protection for the EB-5 program. One must be mindful of the fact that the SEC will take an active role in stopping any projects involving fraud and misrepresentation and will bring actions for fines, sanctions and injunctions related thereto. This overall heightened role of the SEC, as well as the industry in general, has significantly improved the awareness of issues that were apparent in the Chicago Convention Center case and, in general, has avoided repeats of that type of situation.


    Fraud in Offering Documents. Pursuant to the Securities Act of 1933 (the “1933 Act”), the SEC is actively enforcing any violation of Rule 10-b(5) under the 1933 Act. As noted above, any potential violation will result in an action for injunctive relief and civil sanctions, as well as possible criminal action. The SEC does not in and of itself bring criminal proceedings. It would need to refer any criminal action to the Justice Department.

    Escrow Violations. The SEC has also taken a very heightened interest in potential discrepancies and misrepresentations related to escrow arrangements. Investors believe in most cases that they have some form of protection by having funds placed in escrow and certain pre-conditions being satisfied. In some certain situations, the escrow is really a fiction or does not exist at all and funds are directly distributed to the project company for use in the project without having necessary pre-conditions, such as at least an I-526 filing for the applicable investor or a minimum number of subscribers having subscribed to purchase units in the project, thus ensuring that at least the minimum amount of EB-5 funding has been satisfied.

    Improper Use of Funds. Certain SEC investigations focus on the actual use of proceeds and whether they were applied in accordance with the offering documents and the business plan utilized in connection with the EB 5 program. It is apparent that budgets always vary to some degree and that is acceptable. However, if funds are slated for one project and then utilized for another project or applied for other purposes that were not otherwise disclosed in the offering documents, that would constitute a breach of the disclosures set forth in the offering documents and again result in a potential action by the SEC. The SEC has no tolerance for these situations, especially if they are material in nature.

    Broker-Dealer Issues. Probably the most active area of SEC scrutiny, investigation and action involves alleged broker-dealer violations. This is in part due to the complaints from the broker-dealer industry and FINRA related to parties that are apparently receiving inappropriate commissions in connection with transaction-based compensation in the EB 5 program. In connection therewith, the SEC will undertake very detailed investigations to determine if the instrumentality of United States commerce was utilized in any manner in effectuating the sale of the EB-5 security and whether commissions were improperly paid. As part of this process, the SEC will seek discovery of all emails, written correspondence, documents, telephone records, bank accounts and the like to determine exactly what happened in connection with investor solicitation, as well as the flow of funds and the payment of compensation to all parties involved in the transaction. This will not only involve business information, but personal information as well, such as personal telephone records, personal emails and personal bank accounts.

    Investment Advisor Issues. Pursuant to the Investment Advisors’ Act of 1940, the SEC will investigate whether unlicensed parties are providing investment advice in connection with the sale of securities. This would apply to parties that recommend various EB-5 offerings to investors, since by providing multiple choices of projects to invest in, this could be deemed the rendering of investment advice as opposed to just acting as a broker-dealer for a specific transaction.

    Investment Company Act of 1940 (the “IC Act”). A lesser known concern is the SEC’s overview of the IC Act and potential violations for not registering under such Act or obtaining an exemption. I am not aware of any formal action undertaken by the SEC with respect to the EB 5 program related to the IC Act, although the SEC has, on several occasions, taken the verbal position that the creation of an new commercial enterprise (“NCE”) to receive investor funds and make a loan to a project is deemed to be trading in securities under the IC Act. Many practitioners believe that this position is not properly supported under the facts and circumstances of the EB-5 program, since arguably there is no trading in securities, only the sale of a security in order to make a loan to a specific project company (referred to as the “job creating entity” or “JCE”). Notwithstanding this potential defense, it is always advisable to comply with a verbal position of the SEC in order to avoid becoming a test case in the future. Based upon our several calls with staff attorneys at the SEC, who have acknowledged their doubt whether the IC Act applies, the SEC’s Division of Investment Management will enforce the provisions of the IC Act as if they apply.

    In connection with the 1940 Act, the following should be noted:

    1. There is a so-called C(1) exemption for offerings involving no more than 100 subscribers.
    2. If the offering involves more than 100 subscribers, then the so called C(5) exemption could apply, which involves the investment in mortgage-backed collateral. However, even though many transactions do involve mortgage-backed collateral, some transactions have so-called mezzanine pledges, since the senior lender will not otherwise permit a second mortgage on the project. The SEC has taken the position that one can otherwise comply with the C(5) exemption by otherwise meeting the requirements of the 2007 Capital Trust No Action Letter (“Capital Trust”). The six criteria set forth in Capital Trust are as follows: “(1) a Tier 1 mezzanine loan is a subordinated loan made specifically and exclusively for the financing of real estate; (2) both second mortgages and Tier 1 mezzanine loans are underwritten based on the same considerations and after the lender performs a hands-on analysis of the property being financed; (3) the Company as Tier 1 mezzanine lender exercises ongoing control rights over the management of the underlying property; (4) the Company as Tier 1 mezzanine lender has the right to readily cure defaults or purchase the mortgage loan in the event of a default on the mortgage loan; (5) the true measure of the collateral securing the Tier 1 mezzanine loan is the property being financed and any incidental assets related to the ownership of the property; and (6) the Company as Tier 1 mezzanine lender has the right to foreclose on the collateral and through its ownership of the property-owning entity become the owner of the underlying property.”

    Based upon the above, the SEC has taken the position that only a first lien pledge of an interest in the borrower entity or its parent company would provide for the exemption and not a second tier pledge. There is no necessary support for this interpretation based upon Capital Trust, but again, this is an issue that has yet to be tested both administratively and in the courts.

    As a result of the above, it is advisable for all transactions involving more than 100 investors to focus carefully on the C(5) exemption, the Capital Trust guidelines, as noted above, and the necessity of trying to accomplish a first lien pledge of the membership interest in the JCE or a parent company of the JCE.


    Subpoena Process. If the SEC suspects there is a potential violation of securities laws, it will typically commence a private investigation pursuant to an investigatory order. Subpoenas will be issued to target parties and possibly other parties requesting documentation related to the applicable transaction. A copy of a formatted subpoena is attached to this article.

    As part of the investigatory process, if the SEC determines that other parties are involved in the transaction, it will usually issue subpoenas to those other non-target parties with respect to the transaction and possibly other transactions. This may lead to a mushrooming effect, since one investigation can lead to multiple investigations based upon discovery that indicates that a particular party may have been paid improper compensation in other transactions as well. Therefore, a non-target party can become a target party once facts are discovered that implicate the initial non-target party. A perfect example would be a regional center paying improper broker-dealer commissions to third parties. As part of the initial investigation, the SEC would determine what other parties are receiving improper compensation, and then investigate those parties. As a result of that investigation, there may be other parties paying or receiving improper compensation that would generate further investigations as well.

    Discovery Process. The discovery process is quite thorough and detailed and generally requires the production of all e-mails, correspondences, telephone records, bank records and documentation related to the transaction being investigated. This applies both from a corporate and personal standpoint. The SEC may perform separate interviews during the discovery process, including contacting investors or other parties and obtaining information as to the nature of selling activities and the materials provided to the investors. In addition, the SEC will look at websites and other published information to determine if there are any inconsistencies between the offering documents and what is otherwise published.

    Deposition Stage. The SEC will typically conduct a deposition of the targeted parties to determine exactly what happened. It is our experience that the SEC is becoming more sophisticated with the EB-5 industry. Investigations are performed at the regional office where the target party is located or otherwise where the project is located. All investigations are apparently supervised by the main office in Washington, D.C. The deposition can be as short as a few hours, or extend for a few days. The SEC will generally ask for additional discovery material to further verify positions taken by deposed parties.

    It is critical that any party receiving a subpoena or being deposed have qualified counsel to represent them at the discovery and deposition stages in order to ensure that this process is properly monitored. In certain situations, there are justifications for compensation paid, which do not amount to improper transactional-based compensation. In certain circumstances, it may even be advisable to have a criminal law attorney in attendance where the potential violations could be criminal in nature and not just civil. It is very important that counsel actively interview the deponent well in advance in order to gain access to all information and have a strategy with respect to the discovery process.

    Negotiation and Settlement Stage. If the SEC determines that a violation is apparent, it is advisable to enter into negotiations in order to potentially obtain a settlement that may be a lot more favorable than actually having a formal legal action taken against the targeted party. The SEC has the ability to devote substantial resources to any litigation in this regard and the cost of defense is very substantial. Furthermore, the publicity of a formal lawsuit will be detrimental to all targeted parties. The most difficult part of the negotiation and settlement process is not just the monetary fine that may be imposed (which typically includes disgorgement of profits and interest), but also the negative publicity of any settlement that is otherwise published as part of an order and is made available to the public in general.

    There are many situations where third parties are somewhat innocent in the process, but because they have received transaction-based compensation without being registered, they may have unknowingly violated broker-dealer registration laws. Many of these parties were not aware of the existence of the broker-dealer registration laws and relied upon agreements provided by regional centers or other parties at the time.

    If attorneys are involved as targets, they often obtain conflict of interest waiver letters from clients so that there is full disclosure that they are receiving other compensation along with fees for representing the investor. This may satisfy ethical requirements, but does not otherwise mitigate the potential violation of the U.S. broker-dealer laws. As part of this process, it is very important to distinguish between a payment for transactional-based compensation compared to a payment for legal services rendered in connection with the applicable transaction. In certain situations, there is a real question whether a regional center or developer can compensate an attorney for providing legal advice to a client who was otherwise recommended to invest in the program by the attorney. Same may be deemed to be transaction-based compensation as opposed to a payment of legal fees incurred by the investor for the advice given by the attorney.


    Marketing Activities by Targeted Parties. As noted above, the first inquiry will be a discovery request of all materials to determine whether the instrumentality of United States commerce was utilized. The best defense in the process would be to show that there was no marketing activities to investors through the instrumentality of United States commerce, and that all marketing activities were done offshore, and that sales were made by foreign exempt migration agents or marketing agents. It is important to demonstrate that a party that is a target of an investigation may not actually have been involved in dealing with investors at all, but merely assisted developers and regional centers to gain access to migration agents or brokers who otherwise find investors, even though transaction-based compensation is paid.

    Tracing the Money/Who Gets Paid. The SEC will carefully trace all funds that may have been paid to the targeted party. If a lawyer is a target, then it is very important to distinguish payment for legal fees as opposed to attorney transaction-based compensation. As discussed above, there is a fine distinction between the two.

    Investor Contacts. The SEC will focus in detail on what contacts are made with investors. The best case scenario is the targeted party having absolutely no contact with investors whatsoever. If an immigration attorney represents an investor, that obviously negates that potential argument unless the investor already invested in the program prior to the immigration attorney becoming involved in representing the investor.

    Review of Offering Documents. As noted above, the SEC will carefully review the offering documents in addition to all marketing materials, emails and the like during the discovery process to determine if there are discrepancies, inconsistencies or marketing activities that would violate securities laws.

    Review of Loan Documents. The SEC will now actually seek discovery of loan documents to determine if the applicable loan transaction was carried out in accordance with the offering documents. When funds are disbursed to the JCE pursuant to a loan, it is essential that loan documents would have been executed either prior to or simultaneously with the loan proceeds being advanced.


    In any discovery or deposition, the attorney-client privilege is very important and is respected by the SEC. In this regard, to the extent that confidential information is provided by a client to an attorney, the privilege can be asserted. Generally, the SEC will ask for a description of the types of information for which a privilege is claimed. A perfect example would be personal information contained in an investor’s I 526 petition filing. Other types of privileged information would include legal advice provided by an attorney to a regional center in connection with securities or immigration matters.


    Expansion of Investigation. As noted above, the SEC has been extending investigations based upon information discovered in one matter that leads to additional claims being made against other parties. For example, a regional center may receive a subpoena as a fact witness and not a target party. However, if the documentation produced shows that the regional center may have paid improper compensation in the applicable transaction, then the SEC would otherwise seek additional information from the regional center to determine if this had occurred in other transactions.

    Interview of Investors and Other Parties Affiliated with Offering and Transaction. The SEC has now taken a more active investigatory role in this regard. The mere fact of an active investigation may create disclosure issues in offering documents. Furthermore, the contacting of investors directly will generally have a chilling effect on the applicable EB-5 project.

    Minor Technical Violations Compared to More Significant and Repetitive Violations. There is a practical distinction between minor technical violations compared to more significant and repetitive violations. The SEC is far more inclined to seek enforcement action where violations are repetitive and extensive in nature compared to possibly a one-time violation.

    Investor Protection Concerns. The SEC has definitely heightened its activities to protect investors. Generally, the SEC works off tips received from either disgruntled investors or other parties or professionals and then conducts an investigation to determine if there is merit to the allegations made.

    Offshore Marketing Activities and Ability of Offshore Agents to Avoid SEC Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”). It is very important that offshore agents who are active in marketing EB 5 programs ensure that they are not conducting any marketing activities in the United States or utilizing the instrumentality of United States commerce. In connection therewith, it is always advisable that offshore agents do not directly have United States-based offices, since there could be a concern that these offices may be engaged in marketing activities. On the other hand, it is less of a concern if offshore agents have unaffiliated agents who source deals for the offshore migration agents and have offices in the United States since sourcing deals and providing due diligence investigation and loan administration services should be appropriate. It is also noteworthy that it is acceptable in order to preserve the Regulation S exemption as well as avoiding broker-dealer registration to have investors visit a project in the United States for due diligence purposes. It is appropriate to provide due diligence information on the project as long as no marketing activities take place in the United States. This is a very delicate issue and important that all parties involved in the EB 5 process understand the distinction between providing due diligence information compared to providing any form of marketing services or conducting marketing activities.


    It is apparent from our SEC investigatory experiences, as well as our regular communications with various departments of the SEC, that there are many pitfalls in EB 5 transactions that need to be carefully evaluated in order to mitigate against a potential SEC investigation and/or action being commenced.


    IIUSA’s Q4 Issue of The Regional Center Business Journal Available Now!


    IIUSA’s most recent edition of the Regional Center Business Journal (“the RCBJ”) is now available on IIUSA.org and headed to the mailboxes of members, strategic partners as well as to Congressional offices and federal, state and local government stakeholders.

    The 2015 Q4  issue of the RCBJ (review digital version here) takes a look back at the busy year that was for all stakeholders involved in putting Foreign Direct Investment to work creating American jobs through the EB-5 Regional Center Program. In 2015, the EB-5 Regional Center industry matured into a source of more than $1 billion in foreign direct investment (FDI) per quarter for the U.S. economy. And, since 2008, the Program has delivered over $13 billion in FDI to the U.S. economy with over $9 billion awaiting federal government approval today. The Program has finally come of age, becoming a potent economic development tool for diverse communities and industries across the country.

    Featured Articles Include: 

    • Short Term EB-5 Extension Brings New Challenges and Opportunities in 2016 by Peter D. Joseph,IIUSA Executive Director
    • 2015 EB-5 Market Exchange Recap by Allen Wolff, IIUSA Associate Director of Marketing & Communications
    • EB-5 in the Media: A Look Back at 2015 by Molly Conoy, IIUSA Policy/Research Assistant
    • What we Learn from SEC Investigation by Ronald R. Fieldstone, Attorney at Law, Arnstein & Lehr, Member of IIUSA Compliance Committee and Jay M. Rosen, Partner, Arnstein & Lehr LLP
    • Six Data Points Show EB-5 Has Never Been Stronger by Lee Li, IIUSA Policy Analyst
    • RIMS II Regional Multipliers Updated for First Time Since 2002 by Michael Kester, Economist, Impact Datasource
    • Negative Assurance Letters in EB-5 Offerings by Douglas Hauer, Founder and Co-Chair EB-5 Financing Practice, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.; Laurence A. Schoen, Partner, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.; Adam Sisitsky, Partner, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
    • The Realities and Implications of Chinese EB-5 Investors’ Wait for Visa Numbers by Robert C. Divine, Baker Donelson Bearman, Caldwell & Berkowitz, PC
    • Regulatory Consideration Through the Investor Life Cycle by Gregory L. White, Partner, Seyfarth Shaw LLP
    • Emerging Market Spotlight: South Africa by Michael Harris, Attorney, Stone, Grzegorek & Gonzalez LLP and Jennifer Lin, Associate Attorney, Stone, Grzegorek & Gonzalez LLP
    • What Do Chinese Migration Agents Really Want? by Lili Wang, Managing Partner, New City Group, Chairman, IIUSA Investor Market Committee
    • Emerging Market Spotlight: Venezuela by McKenzie Penton, IIUSA Marketing Development Assistant

    Happy Chinese New Year from IIUSA!

    IIUSA would like to wish all of our members -and EB-5 stakeholders around the world – a happy Lunar New Year, prosperous Spring Festival season and best wishes in 2016!

    happy chinese new year


    IIUSA Statement in Advance of House Judiciary Committee Hearing on EB-5 Program on Thurs (2/11)

    Is the Investor Visa Program an Underperforming Asset?


    Full House Judiciary Committee

    Date: Thursday, February 11, 2016

    Time: 2:00 PM (EST)

    Location: 2141 Rayburn House Office Building

    Presiding: Chairman Goodlatte (R-VA)

    Link: Click Here

    The House Judiciary Committee announced today it will hold a hearing next Thursday February 11th to examine the EB-5 Regional Center Program (the “Program”). In a press release issued by the Committee, it was announced that “academic experts, participants in the investor visa program, and government officials” will testify on the need for statutory and regulatory reform to the Program.

    IIUSA believes in the EB-5 Program as an example of 21st century economic development policy that uses globalization to solve real policy objectives.  The program benefits a broad range of industries in diverse regions across the country and has broad, bipartisan support in Congress.

    The program has produced a dramatic increase in much-needed foreign direct investment in the US, growing from a few hundred million dollars per year in 2008 to over a billion dollars per quarter in 2015.  Exponential growth over 1,200 percent over the past eight years brings both opportunities and challenges. We supported reform efforts in 2015 to address those challenges and to provide increased stability, program integrity, and economic impact.  While we were disappointed that Congress was unable to pass the broadly supported efforts for reform and long term authorization of the EB-5 Regional Center Program, we were pleased that Congress chose to grant another short-term extension through September 30, 2016.

    With the new year comes new opportunity.  We are grateful for the continued bipartisan support for and interest in this critical economic development program and are committed to working with Congress and the industry to ensure the shared goals of reform and reauthorization. After more than a decade of experience and expertise as the leading nonprofit voice for the program, IIUSA looks forward to continuing to provide comprehensive public affairs representation, development of professional best practices, data-driven policy analysis, and top notch outside counsel that reflects and advocates for the strategic needs and perspective of our diverse industry.

    February 3rd USCIS EB-5 Stakeholder Engagement Recording Now Available!

    On Wednesday February 3, the United States Citizenship and Immigration Services (USCIS) held a stakeholder engagement via teleconference as part of USCIS’ effort to enhance the dialogue between the agency and EB-5 stakeholders. To view the PDF invitation, click here.

    During the first part of the engagement, USCIS officials provided EB-5 Program and USCIS updates. The second part was a question-and-answer session. To view the questions submitted by IIUSA click here. 

    To listen to the recording click here (Members Only)

    Also this week, USCIS published a new list of approved regional centers which included a unique identification number for all regional centers. The comprehensive list enables EB-5 industry stakeholders to reference the 800+ USCIS approved Regional Centers with greater ease and precision Download the full list here. 


    IIUSA and EB-5 Program Growth in 2014 vs. 2015

    2015 was a year like no other in the history of IIUSA or the EB-5 Regional Center Program (the “Program”). We had hundreds of meetings and phone Logocalls with key leaders in Congress, offered detailed critiques of complex legislative reform proposals, responded to numerous oversight and critiques of the program from Congress, Government Accountability Office (“GAO”) and the media, avoided overly aggressive reforms that would have effectively killed the program, and survived two different sunset dates.

    Building off of the success of 2014 IIUSA was able to continue to illustrate record setting economic growth of the EB-5 Industry Regional Center Program, foster bipartisan support for the Program, strengthen interagency cooperation, and highlight the impact of the EB-5 Program on American communities.

    Read the 2015 End of Year Message

    Read the 2014 End of Year Message


    Side-By-Side Comparison: IIUSA & EB-5 Industry Growth in 2014 & 2015
    (To View the PDF Version with Clickable Links Click Here) 
    2014 Year in Review 2015 Year in Review 
    Membership Growth IIUSA Represents 249 Regional Centers Members. Up 45 percent from 135 in 2013, and boasts 211 Associate Members, up 12 percent from 185 last year.


    IIUSA Regional Center Membership grows to 290 while Associate Membership rose to 218. IIUSA members account for 95% of all EB-5 Capital raised and deployed…View our Member Directory (Members Only), to view membership benefits click here.
    EB-5 Petition Adjudication 10,928 I-526 investor petitions received with 5,511 approved and 12,453 pending as of October 2014. I-526 processing times reach an all-time high of 14.7 months on October 2014…Read More


    Pending I-526 approvals as of October 2015 reach a record high of 17,367 a 39% increase from 2014. I-526 processing times fall to 12.8 months as of October 2015; the 17th month average for processing times hits 13.5 months. IIUSA produced numerous data reports available to view in our Industry Data Library
    EB-5 FDI Contribution EB-5 accounts for $2.56 billion in Foreign Direct Investment


    EB-5 accounts for $4.38 billion in FDI representing the industry’s largest year ever and a 71% increase from 2014.
    EB-5 Legislative Proposals The 113th Congress considered the following EB-5 legislation (S. 744, H.R. 2131, H.R. 4178, and H.R. 4659)


    The 114th Congress considered the following EB-5 Legislation (H.R. 616, S. 1501, S. 2115 , S. 2122 , H.R. 3370 , S. 2415) ultimately extending the EB-5 Program one year until September 30, 2016
    Association Building & Industry Support IIUSA and the newly formed Association Building Committee (ABC) broadens outreach to educate important industry stakeholders. The ABC works closely with the National Association of Counties (NACo) in drafting its adopted resolution in support EB-5. IIUSA staff and ABC continue to foster relationships with the National Association of Counties (NaCo), the U.S. Conference of Mayors (USCOM) and the Council of Development Finance Authorities (CDFA) in addition to local, state and federal economic development organizations.
    IIUSA Conferences IIUSA’s 7th Annual EB-5 Regional Economic Development Conference in Washington, D.C. in May and the EB-5 Market Exchange in San Francisco in October both boasted record attendance, and educational panels featuring leading industry experts and government officials



    A record 550+ people attend the EB-5 Market Exchange in Dallas, TX. The event featured 53 exhibitors and 61 sponsors in addition to 20 panel discussions on topics ranging from SEC actions to market diversification and public-private-partnerships.

    Sign up for IIUSA’s EB-5 Advocacy Conference, April 20- 22, 2016 and help make the EB- 5 Program a permanent part of 21st Century U.S. economic policy!


    FINRA Includes Private Placements on 2016 Regulatory and Examination Priorities Letter

    The Financial Industry Regulatory Authority (FINRA) published its 2016 Regulatory and Examination Priorities Letter which identifies new areas of focus as well as areas of recurring concern that can arise across the breadth of the securities industry.

    One of FINRA’s priories in 2016 will be a focus on private placements and addressing concerns with respect to suitability, disclosure and due diligence. These concerns are relevant regardless of the underlying industry of the issuer or the type of investment (e.g., notes offerings, preinitial public offering investment funds, real estate programs, EB-5 investment funds or start-up companies).

    In this regard the priorities letter states:

    “FINRA’s focus will reflect recent regulatory developments, including the ability to conduct general solicitations under SEC Rule 506(c) of Regulation D and the crowdfunding rules which will become effective in 2016. FINRA notes that some communications used by firms concerning private placements have not reflected significant risks of loss of principal and lack of liquidity associated with these investments.

    Where a communication addresses a specific investment benefit associated with a private placement offering, a firm must ensure that the key risks associated with such benefit are disclosed. FINRA will continue to evaluate firms’ compliance with respect to their communications, including general solicitation advertisements and materials posted on the Internet.” 



    IIUSA Statement in Advance of Senate Judiciary Committee Hearing on EB-5 Program

    Full Senate Judiciary Committee: The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed? 
    Date: Tuesday, February 2, 2016
    Time: 10:00 AM (EST)
    Location: Dirksen Senate Office Building 226
    Presiding: Chairman Grassley (R-IA)
    Link: Click Here
    Mr. Nicholas Colucci
    Chief, Citizenship and Immigration Services

    Washington, DC

    Mr. Stephen L. Cohen
    Associate Director Division of Enforcement
    U.S. Securities and Exchange Commission
    Washington, DC

    IIUSA believes in the EB-5 Program as an example of 21st century economic development policy that uses globalization to solve real policy objectives.  The program benefits a broad range of industries in diverse regions across the country and has broad, bipartisan support in Congress.

    The program has produced a dramatic increase in much-needed foreign direct investment in the US, growing from a few hundred million dollars per year in 2008 to over a billion dollars per quarter in 2015.  Exponential growth over 1,200 percent over the past eight years brings both opportunities and challenges. We supported reform efforts in 2015 to address those challenges and to provide increased stability, program integrity, and economic impact.  While we were disappointed that Congress was unable to pass the broadly supported efforts for reform and long term authorization of the EB-5 Regional Center Program, we were pleased that Congress chose to grant another short-term extension through September 30, 2016.

    With the new year comes new opportunity.  We are grateful for the continued bipartisan support for and interest in this critical economic development program and are committed to working with Congress and the industry to ensure the shared goals of reform and reauthorization. After more than a decade of experience and expertise as the leading nonprofit voice for the program, IIUSA looks forward to continuing to provide comprehensive public affairs representation, development of professional best practices, data-driven policy analysis, and top notch outside counsel that reflects and advocates for the strategic needs and perspective of our diverse industry.

    RCBJ Retrospective: Negative Assurance Letters in EB-5 Offerings

    Negative Assurance Letters in EB-5 Offerings (Vol. 4, Issue 3, January 2016)

    Negatove Assurances

    With increased scrutiny of the EB-5 program by lawmakers and more action with the Securities and Exchange Commission (SEC) stretching into 2016, we expect ongoing attention drawn to securities compliance and litigation risk mitigation throughout the EB-5 industry. It is foreseeable that issuers may be asked to provide disclosure or negative assurance letters (also known as 10b-5 letters) to parties in an EB-5 deal, such as broker-dealers, placement agents and state-owned regional centers that affiliate with projects. With the SEC striking issuers and EB-5 market participants with allegations of securities fraud, issuers and other parties involved in deals will be more concerned with reducing exposure in deals.

    Brief overview of Rule 10b-5

    Rule 10b-5 is a key anti-fraud provision under the Securities and Exchange Act of 1934 (Exchange Act). When you see a case of securities fraud prosecuted by the SEC, 10b-5 is most certainly among the allegations. 10b-5 liability can be broad, reaching issuers and other market participants in deals including broker-dealers, regional centers and placement agents, among others who participate in selling a deal. Negative assurance letters may provide participants in a deal such as broker-dealers or placement agents with a due diligence defense to 10b-5 and fraud allegations based on the issuer’s failure to disclose material facts in offering documents.

    Because broker-dealers, placement agents and other market participants can be charged with fraud under 10b-5, issuers of EB-5 securities should be prepared to respond to requests for negative assurance letters. In the current climate of intense anti-fraud SEC litigation efforts, broker-dealers and placement agents may condition participation in a deal on issuance of a negative assurance letter. Negative assurance letters are not legal opinions, but they function as a defensive tool to confirm in future litigation that adequate due diligence was done as offering materials were prepared. At the same time, such letters do not provide comfort regarding the accuracy, fairness or completeness of offering materials, and they should not be used in a marketing process. Let’s briefly review what negative assurance letters are in a securities transaction, and then connect this concept to EB-5 practice.

    What is a negative assurance letter?

    In public offerings of securities, there is a customary practice of underwriters and initial institutional purchasers of securities to require that issuer’s counsel provide negative assurances regarding the disclosures in a registration statement. The reason is simple: underwriters and initial purchasers in registered offerings want to be reassured that offering documents do not contain false statements that can lead later to allegations of securities fraud or rescission claims. This practice of issuing a negative assurance letter has become more common in deals involving unregistered securities or private placements. Why is the term “negative” assurance used? As explained below, the focus in such a letter is on affirming that disclosures have not been improperly omitted, as well as ensuring that omissions are not misleading. In other words, a negative assurance letter is not an exercise to verify that facts are true in an offering, or to affirm the completeness of an offering. The focus is on disclosures, and more specifically on providing the recipient with a modicum of assurance that an issuer is not withholding material facts from investors, or misstating facts that belong to the relevant total mix of information about a transaction..

    In a negative assurance letter, usually the lead securities and transactional counsel for a deal will provide a statement that affirms their involvement in the preparation of a registration statement. For such a letter to have any value or meaning, counsel would need to be able to assert that they followed the development of the offering by being present as discussions occurred with an issuer, management, other counsel and experts from various areas. In their negative assurance letter, counsel would state that after reasonable investigation, no facts came to their attention that caused them to believe that the offering document was misleading. Counsel would also affirm that nothing had come to their attention that caused them to believe that the offering materials omitted any material fact necessary in order to make the statements in the offering materials, in light of the circumstances under which those statements were made, not misleading. The recipient of such a letter may have a potential due diligence defense in later litigation alleging fraud, if that party relied on the negative assurance letter to confirm that due diligence was performed before the securities in question were sold.

    How might negative assurance letters be relied on by market participants in an EB-5 deal?

    A broker-dealer or placement agent selling a deal to investors will likely want to be able to assert that due diligence was performed before any sales were made. Requesting a negative assurance letter is not common among broker-dealers and placement agents in the EB-5 industry right now. But this may change as the SEC continues to cast a broad enforcement net. After-the-fact, mechanical or static due diligence that is accomplished by a review of an offering, without ever participating in drafting of the offering documents, is not effective. Such efforts do not catch deficiencies in disclosures. More specifically, by being present when a deal is shaped, securities counsel is aware of facts that may not have made the final cut into disclosures. Such counsel also has expertise in materiality with respect to disclosures. Hence a prudent broker-dealer or placement agent will ask securities counsel for a negative assurance letter before selling a deal.

    Negative assurance is not an affirmation that statements in offering materials are true, or that disclosures are legally adequate. Rather, counsel affirms in a negative assurance letter that due diligence took place during the offering. State-owned regional centers that do not issue securities but that affiliate with EB-5 projects issuing securities would be prudent to require a negative assurance letter before accepting or affiliating with an EB-5 offering. It is noteworthy that in related-party EB-5 deals, where a regional center acts as an issuer and engages in selling a deal, a negative assurance letter would not be useful unless it were to be prepared for an unrelated third-party that had a legal claim to a due diligence defense in litigation. Due diligence certifications, attestations, or purported negative assurance letters that are provided to an issuer by counsel or a due diligence service may have no probative or evidentiary value in an investigation or litigation involving securities fraud.

    EB-5 transactions are becoming a more normative part of the private offering landscape

    As EB-5 financing becomes a permanent fixture in capital markets, the industry is going to adapt by integrating more normative practices that protect all parties in deals. The growth of the EB-5 industry is so compressed that we are seeing rapid developments on both the litigation and investigation fronts. This is taking place while there is a degree of uncertainty about what steps lawmakers or agencies may take in the near future to require EB-5 market participants to affirm compliance with securities laws.

    2015 was an unprecedented year for EB-5. The increase in SEC enforcement and litigation is a good indicator that EB-5 market makers, regional centers, placement agents and broker-dealers will have to refine and calibrate practices to bring them in step with securities laws. With the EB-5 industry moving in the direction of more due diligence in deals and overall tighter compliance, we expect to hear more about negative assurance letters and additional due diligence steps that issuers will need to adopt.