of states that have sought to impose fiduciary duties on broker-dealers generally , one can safely surmise that Regulation BI serves as the bearing by which those duties will be evaluated .
Mutual indemnity for Regulation BI violations makes no sense to an EB-5 project or regional center
fact a “ retail investor ” for purposes of Regulation BI . Remember , however , that Regulation BI addresses the compliance obligations of broker-dealers specifically . And luckily ( or intentionally ), the definition of “ broker-dealer ” under Regulation BI appears to relate back to those definitions within the 1934 Act ( including Section 15 in which Regulation BI resides ) that require that entity to be registered as a broker-dealer . So those who are exempt from the “ broker-dealer ” definition would appear not to have Regulation BI obligations . Suffice it to say that those looking to punish an unregistered broker-dealer violating its registration regulations have plenty of other tools at their disposal to impose liability .
Ensuring Transparency In EB-5 Investments Under Regulation BI
Thus , what Regulation BI does mean for the EB-5 industry is that
those projects that utilize a broker-dealer for distribution need to ascertain whether ( a ) that broker-dealer has a robust Regulation BI compliance program in place and ( b ) whether it wants to accede to the transparency that Regulation BI would appear to require of issuers . That is , the information a broker-dealer is going to require of an EB-5 issuer at not only the point of sale but thereafter as to the likelihood of repayment and satisfaction of requirements under the immigration laws of the United States , assuming of course that the broker-dealer communicates with the EB-5 investor as Regulation BI intends .
Another looming issue is that selling agreements often have indemnity clauses that are triggered in the event of a lawsuit . Mutual indemnity for Regulation BI violations makes no sense to an EB-5 project or regional center . Theoretically , the standards of care imposed upon broker-dealers are so high under Regulation BI that even those placing EB-5 investments that ultimately meet their repayment and immigration goals could be subject to liability for failure to provide a less costly alternative . Should the financial burden for legal liability then be borne by the issuer ? There are other equally imposing , yet circular deficiencies that one broker-dealer can create with a shoddy compliance program that could trigger liability for violating the standards of care imposed by Regulation BI . And for the small number
Regulation BI Improves Protection of EB-5 Investors
While there has always been a healthy debate about the use of
broker-dealers in the EB-5 industry , those working with broker-dealers not only need to review Regulation BI policies and procedures in place , but also selling and placement agent agreements as well to specifically address indemnity for Regulation BI obligations . From an issuer ’ s standpoint , if subscription agreements specifically address the use of broker-dealers , disclosures regarding their obligations under Regulation BI may be worth considering .
What is clear is that the SEC is emphasizing compliance with Regulation BI to protect the investing public from abusive recommendations and uses of illiquid , privately placed securities . Those in the EB-5 industry who rely on FINRA-member broker-dealers for placement of their products must realize that Regulation BI also protects immigrant investors as well .
Regulation BI also protects immigrant investors
ROBERT " BOB " CORNISH , JR .
Bob Cornish is the managing shareholder of the Law Offices of Robert V . Cornish Jr .. With over 25 years of experience in securities and litigation , he works with EB-5 investors and regional centers on various securities and commercial issues in U . S . courts and arbitration . Cornish holds a FINRA Series 24 General Securities Principal license and is licensed to practice in New York , Tennessee , Arkansas , Wyoming , and Washington , D . C . He has litigated in Florida and California and serves as an expert witness in EB-5 matters .
→ 22 EB5INVESTORS . COM EB5 INVESTORS MAGAZINE