Impact on Solicitation Materials: Under the proposed
rules, issuers must (i) include the disclosure legend
requirements in all written general solicitation materials
used under 506(c), and (ii) at least for the next two years,
submit those materials to the SEC no later than the
date of first use. The SEC’s access to the materials could
expand the risk of regulatory inquiry or action.
Implement “Bad Actor” Due Diligence Process: To
verify that none of an issuer’s covered persons is subject
to disqualification, the issuer must identify those covered
persons, and undertake an active investigation as to disqualified status. If a covered person with a disqualifying
event participated in the offering, the issuer can avoid loss
of the exemption only if it can show that it did not know
and, in exercise of reasonable care, could not have known
of the disqualifying event. In drafting both its selling
agreements with its underwriters and placement agents,
and its employment agreements or D&O questionnaires
with directors, officers, managers, and significant owners,
an issuer should include mutual representations as to the
affirmative absence of a bad actor disqualification.
To verify that none of an issuer’s covered persons is subject
to disqualification, the issuer must identify those covered
persons, and undertake an active investigation as to disqualified status. If a covered person with a disqualifying
event participated in the offering, the issuer can avoid loss
of the exemption only if it can show that it did not know
and, in exercise of reasonable care, could not have known
of the disqualifying event. In drafting both its selling
agreements with its underwriters and placement agents,
and its employment agreements or D&O questionnaires
with directors, officers, managers, and significant owners,
an issuer should include mutual representations as to the
affirmative absence of a bad actor disqualification.
★
The authors would like to thank Shannon Thompson for her assistance with
this article.
In EB-5, Michael Homeier’s 30 years in practice includes representing regional
centers, developers, and other businesses, structuring projects and preparing securities offerings and business transaction documents, including PPMs, broker
contracts, loan agreements, RC sponsorships, plus corporate formations and regional center applications. A leading EB-5 securities law firm, Homeier & Law
PC has worked on over 130 regional center and securities offering cases. Michael
is an active EB-5 speaker, and an inspirational speaker about cancer survivorship.
Genna Garver serves as Co-Chair of GT’s Investment Regulation Group and is
a member of the EB-5 Corporate and Securities Group. She represents financial
institutions in a variety of transactional and regulatory matters with a focus on
investment advisers and private funds, including EB-5 Immigrant Investor programs. Genna advises on formation and o