Recent activity in the Securities & Exchange Commission (SEC) enforcement action against the Intercontinental Regional Center Trust of Chicago and its affiliated companies may have broad implications for the EB-5 Program. In a 22 page opinion, the Honorable Judge Amy St. Eves denied the motion of the Defendants Chicago Convention Center to dismiss for lack of jurisdiction and/or for failing to state a claim. The Defendants said that the securities were sold overseas (almost exclusively in China) and therefore SEC has no jurisdiction.
The Judge entertained analysis based on the Supreme Court decision in Morrison and Section 929P(b) of the Dodd-Frank Act. Ultimately, the Judge used three tests to come to her decision:
- The “conduct test”
- The “effect test” ; and
- The “transactional test.
The results of these tests were as follows:
- Using the prospect of gaining U.S. residency through the EB-5 program satisfied the “conduct test.”
- A minimum investment of $500,000 which creates or preserves 10 jobs for U.S. workers satisfied the “effects test.”
- The signing or accepting the subscription agreement in the U.S. satisfied the “transactional test.”
These three elements obviously apply to every Regional Center in the U.S. IIUSA continues to study this option with the assistance of its securities law expert members and we will publish a more detailed analysis in due cours. In the interim, this development deserves to be on your radar screens.