EB5 Investors Magazine "Top 25 Awards Edition" Volume 8 Issue 1 - Page 97

• Arranging and participating in meetings with the issuer and investor. A Tier II finder would need to satisfy disclosure and recordkeeping requirements, and the arrangement would be required to be documented in an agreement. The finder would not be permitted to: • Be involved in structuring the transaction or negotiating the terms of the investment. • Handle funds or securities or have the power to bind the issuer or investor. • Participate in the preparation of any sales materials. • Perform any independent analysis of the sale. • Engage in any due diligence activities. • Assist or provide financing. • Provide advice as to the valuation or financial advisability of the investment. WHAT’S INCLUDED IN THE FINDER’S EXEMPTION FOR EB-5? of the 1934 Act, all in support of objectives to facilitate capital formation. The SEC’s proposal would create two types of finders, both of which appear to be of limited use in the context of EB-5 offerings: Tier I finders would be limited to providing the contact information of potential investors in connection with a single transaction by a single issuer within a 12-month period and may not solicit investors on behalf of an issuer. This proposal is not a sea change to current practice, as it essentially codifies the SEC’s often criticized guidance in its much- maligned Paul Anka No-Action Letter, 1991 SEC No-Act. LEXIS 925 (July 24, 1991). This is more or less a safe- harbor for mailing lists providers to the EB-5 industry. Tier II finders would be allowed to solicit investors, but their activities would be restricted to: Issuers eligible to hire a finder would be those, among others, those engaged in an exempt offering not involving general solicitation under Rule 506(c). The proposed exemption would apply only to natural persons, and not to entities. The utility of this proposed exemption initially appears quite useful, but a closer look tells a different story. There does not appear to be any safe harbor under this proposal to address the nuances of Regulation S transactions. Immigration agents and other intermediaries outside of the United States could arguably be prohibited from handling “funds,” which could arguably include administrative fees. Such individuals in practice also would tend to discuss their views of the actual offering with investors, which would render this exemption useless. This proposed exemption also must be viewed in the context of the prohibition of sales materials preparation. Would the prohibition on due diligence preclude a finder from obtaining a prepared report or analysis? Equally important would be the willingness of individuals who are finders to submit to potential SEC scrutiny without the protection of a corporate veil while subject to OFAC and other foreign currency transfer controls. "Tier I finders would be limited to providing the contact information of potential investors in connection with a single transaction by a single issuer" • Identifying, screening and contacting prospective investors. • Distributing offering materials. • Discussing the contents of offering materials without advising on valuation or attractiveness of the investment. THE CHALLENGES WITH SEC’S PROPOSED REVISIONS The lack of clarity of these proposals is evident. Their complexity vis-à-vis state securities laws makes their adoption even more problematic. For example, under Section 201(a) of the Massachusetts Uniform Securities Act, it is illegal for anyone to transact business in Massachusetts as a broker- dealer or agent unless the person is registered under the EB5INVESTORS.COM 97