The Government
Gaveth;
Did It Just
Taketh Away?
The SEC’s Final and Proposed Rules Applicable
to EB-5 Securities Offerings Post-Jobs Act
by Michael Homeier and Genna Garver
On July 10, 2013, the U.S. Securities and Exchange
Commission (“SEC”) adopted final rule amendments that eliminate the 80-year-old prohibition
on general solicitation and general advertising in
offerings under Rule 506 of Regulation D under
the U.S. Securities Act of 1933, as amended (the
“Securities Act”). Rule 506 offerings are widely
used by sponsors of EB-5 securities offerings. The
adoption of the amendments, which go into effect on September 23, 2013, implements Section
201(a) of the Jumpstart Our Business Startups
Act (“JOBS Act”).
The SEC was under no legal obligation to do anything beyond eliminating the prohibition as directed by the JOBS Act,
but it did. In connection with adopting the final rules, the SEC
also voted to issue rule proposals (the “proposed rules”) that, if
adopted, will require significant, additional investor protections
to lessen the additional risks posed by the final rules and to
better enable the SEC to monitor the market.
Final Rules
Regulation D generally provides a non-exclusive safe harbor
from registration and prospectus delivery requirements under
the Securities Act for offerings relying on Section 4(a)(2),
which exempts transactions not involving any public offering.
Historically, Rule 506(b)’s safe harbor has been available to
issuers that do not engage in general solicitation and that raise
unlimited capital from an unlimited number of “accredited investors” (generally, an individual with a net worth of $1 million
or more, excluding the value of their primary residence, or with
an annual income of $200,000 or $300,000 together with their
spouse) and up to 35 non-accredited investors (never included
in EB-5 transactions).
Under the new Rule 506(c), an issuer may engage in general
solicitation, provided that all purchasers are accredited investors
and the issuer takes “reasonable steps” to verify that the purchasers are, in fact, accredited. Once the new rules go into effect,
EB-5 issuers relying on new Rule 506(c) will be permitted to
solicit investors through newspapers, magazines, television,
radio, seminars, websites, and email, so long as the EB-5 issuers
take reasonable steps to verify that all purchasers are accredited
investors and meet the other requirements discussed below.
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E B 5 I n v e s to r s M ag a z i n e