Given the important role intermediaries often play in marketing EB-5 investments, IIUSA members should take reasonable steps to ensure that such intermediaries with whom they engage are qualified. While the nature and scope of intermediaries’ capabilities and services to be provided can vary widely, which may render some of the recommendations herein more or less applicable, these steps should include:
- Ensure clear communication. When English is not an intermediary’s primary language, use a qualified interpreter for calls and meetings, and have key documents translated.
- Obtain the resumes of key intermediary personnel. Evaluate their qualifications to act as an intermediary, taking into account the scope of the proposed engagement.
- Conduct a formal background check on key principals and/or other key personnel affiliated with an intermediary. This may be especially true (a) with respect to non-U.S. intermediaries, (b) for members with limited resources available for conducting diligence, be it in a foreign or domestic market, and (c) for members that are new to the EB-5 marketing process.
- Consideration: IIUSA can help members identify vendors that can conduct both domestic and foreign background checks.
- Meet prospective intermediaries in person (while mindful of the Securities and Exchange Commission (the “SEC”) territorial interpretation of broker-dealer laws described in Section III.2. below). Tour their office(s). Verify that they are who they say they are.
- Seek independent verification of the intermediary’s competence and integrity. Check references. Talk with current and/or former clients of the intermediary.
- Obtain competent, independent legal advice regarding licensing and other legal requirements governing the services an intermediary will provide in each applicable jurisdiction, whether it be the United States or any foreign country. Require proof that the intermediary has obtained all required licenses, if any, and/or is otherwise capable of providing services in compliance with applicable law, domestic and foreign.
- Consideration: A given foreign jurisdiction’s licensing or other requirements with respect to marketing securities or products related to immigration are not always obvious or easily determined. IIUSA staff can help connect members with attorneys and other resources to address these questions. Members should not hesitate to contact IIUSA to ask questions about these important legal requirements.
- Confirm the intermediary’s financial and organizational capacity to perform its obligations pursuant to the applicable written agreement.
- Consideration: This best practice may be more or less important depending on various factors, such as the nature and scope of the relationship between the IIUSA member or the project developer and the intermediary, the duties of each parties under their agreement, and the jurisdiction(s) in which each will operate.>/li>
- Document due diligence performed on intermediaries. Create written notes or memoranda of any key conversations, such as reference checks. Retain such records and other documents in hard copy and/or electronic files. Take reasonable steps to back up such records.
- Consideration: Depending on the legal structure of the Regional Center, project developer, and/or its affiliates (e.g., if any of them is an investment adviser or broker-dealer), if any, various U.S. laws, rules and regulations related to due diligence and recordkeeping may apply. In addition, depending on the jurisdictions in which the Regional Center, project developer, and/or the intermediary will operate, foreign laws, rules and regulations may also apply. Consult experienced legal counsel to determine the applicability of such laws, rules and regulations.
Reminder: The importance of compliance with securities laws
The offer and sale of securities, including to foreign nationals, is heavily regulated in the United States and other countries. The activities of intermediaries are often governed by U.S. (federal and state) laws requiring the registration of broker-dealers. U.S. registered broker-dealers are highly regulated by the SEC, state securities authorities and the Financial Industry Regulatory Authority (“FINRA”). Additionally, intermediaries may be considered agents of the issuer of the securities, and their activities may be attributed to the issuer of the securities for purposes of determining whether an exemption from laws requiring the registration (U.S. federal) or qualification (U.S. state) of securities is available. As discussed further below in Section III.2., false or misleading statements made by intermediaries to prospective investors may be attributed to the issuer of the securities and expose the issuer to SEC enforcement actions and claims by investors for rescission of their investments. Issuers and IIUSA members should always engage experienced U.S. securities counsel in connection with the engagement of intermediaries that introduce investors or assist in the marketing and sale of EB-5 securities.