I was talking with a friend of mine – a securities attorney – the other day about the dramatic surge of EB-5-pushing attorneys, a stark contrast to the reality only a year ago, when few immigration attorneys were actively pursuing the visa category. My friend, a partner with a major national law firm and former SEC attorney, said that it is only a matter of time before some of us in the visa business – and in the Regional Center business – get in trouble.
Here's why: the EB-5 Regional Center Visa is a "security" within the meaning of U.S. law, which includes any note, stock, bond, or “investment contract”. And as my distinguished colleague Angelo Paparelli and his co-writers explain in this excellent analysis re the relevance of securities laws to the EB-5 visa , an “investment contract” is made when a person:
"(i) invests money, (ii) in a common enterprise, (iii) with an expectation of profit, (iv) to be earned solely from the effort of others. The U.S. Securities and Exchange Commission ( “SEC”) has determined that interests in a limited partnership are an investment contract, and therefore, a security."
So, you see, an EB-5 Regional Center invest IS indeed a security…so how is it possible to market these investments except through, say, an investment broker? Paparelli, et al, explain the regs concisely in the aforementioned document:
"The Securities Act requires that all securities sold must be registered with the SEC, unless exempted by its rules. Rule 506 of Regulation D promulgated under the Securities Act provides the exemptions to the registration rules that regional centers typically use to avoid the burdensome and expensive process of registering the securities to be offered and sold to EB-5 investors.5 To meet the exemption provided by Regulation D, a regional center must comply with certain conditions set forth in Rule 502 of Regulation D,including:
1. Information requirements. If all of the investors are “accredited investors” then there are no informational requirements under Regulation D, though issuers6 are still subject to anti-fraud requirements under securities laws. An accredited investor is a person whose:
(i) individual net worth, or joint net worth including that person’s spouse, at the time of the purchase of the securities exceeds $1,000,000;
(ii) individual income exceeded $200,000 in each of the two most recent years and who expects to reach that income level in the current year; or
(iii) joint income including that person’s spouse exceeded $300,000 in each of the two most recent years and who expects to reach that income level in the current year."
So, you see, it is an EXCEPTION to SEC regulations under which EB-5 Regional Centers ordinarily operate, and why the seriousness and integrity of both the underlying investment AND those who structured it is the primary thing to consider…and why you, as a prospective investor, should steer wide and clear of any Regional Center whose website or marketing approach looks like a big, glossy, "AS SEEN ON TV" hype type presentation. Ultimately, it is the self-policing of SEC compliance by a Regional Center which will be determinative of whether or not they really are staying within the Rule 502/Reg D exceptions.
Until now, my quarrel with the hard sell of many of my colleagues has centered around ethics issues pertaining to bar rules; the more I learn, however, the more I see that in "serving both God and mammon", so to say, the attorney is playing with a far hotter fire than potential bar sanctions. One more excerpt from Angelo's super article, and serious food for thought for all of us in this business:
"General solicitation includes any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio and any seminar or meeting whose attendees have been invited by the foregoing methods. This applies whether conducted in the United States or abroad. In addition, sending mass e-mails, newsletters or other mailings is considered general solicitation.
Activities by any third party intermediary assisting the regional center, such as immigration brokers or finders, are included in the evaluation of whether a regional center has complied with Rule 502(c). If an immigration attorney assists a regional center and accepts fees from someone other than his or her own EB-5 investor client for services rendered to that client, then the immigration attorney would be acting as a third party intermediary and his or her activities should also be evaluated within the context of Rule 502(c)." [Highlighting supplied]
As bright as we might be on the subject of immigration law, we, as a group, are most definitely NOT "securities" experts. But that's increasingly hard to tell these days, given the proclivity of many immigration attorneys to push the EB-5 RC visa as the sole and definitive solution for a prospective client…even though better options exist.
A recent example: a young couple came to me after having been advised by no less than three immigration attorneys that their U.S. future depended upon an EB-5 visa. Armed with reams of offering papers and all kinds of documents, they told me that they were afraid to invest in what they'd been shown (as they SHOULD have been, given the particular Regional Centers thrust upon them) and had come to the conclusion that they were ready to invest $1+ million in their own EB-5 U.S. enterprise, since both were degreed professionals with entrepreneurial plans and a checking account that made those plans possible.
I kid you not: FIVE MINUTES into our conversation I learned that:
- Both have been employed for the past two years by dad's company back home which
- Has over 500 employees, 30+ years in business and is rock stable AND
- The business they want to do in the U.S. has to do with the foreign employer's already existing activity in the U.S.
Helllooooooooooooo? Can anyone say "L-1A" leading to EB-1?? It took me another 10 minutes to convince these folks that I was NOT the one who was nuts and that the three other attorneys, in their eagerness to shove an EB-5 Regional Center visa down their throats, had not even explored other visa categories! They are happily building their L-1 business today, with an investment which is a fraction of what they would have spent on an individual EB-5. And I know three immigration attorneys, one a very competent and experienced attorney, who should be slapped upside the head.
There is no reason to hard-sell an EB-5 Regional Center, and attorneys who do so are risking a great deal. Besides, except for the mass marketing of the Far East, I haven't met a single EB-5 RC prospect who could be "sold" via a hard sell…these people didn't make their money by being dumb. As a Regional Center friend of mine always says, there IS a way to do this legally and transparently, it's just that many of the programs out there are built on shortcuts.
The truth about selecting an EB-5 Regional Center is simply the Field of Dreams theory: if you build the smarter, more transparent, compliant Regional Center which makes the most sense…they will come…no hard sell required!
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