A Guide for
by Osvaldo F. Torres
Those looking to raise capital through the EB-5
Immigrant Investor Program must comply with
both state and federal securities regulations in
addition to the USCIS EB-5 regulations. This
requires the issuers of the securities (i.e., the
partnerships, limited liability companies, etc.)
to either: 1) register their offers with the appropriate governmental authority, or 2) satisfy an
exemption. In order to comply with the Securities Act of 1933, as amended (“Securities Act”),
most opt to satisfy the exemption requirements
of Rule 506 of Regulation D and/or Regulation
S. Each of these exemption mechanisms places
different restrictions on advertising, so it is important to consider the regulations before marketing a project to potential investors.
Rule 506 of Regulation D
Rule 506 does not itself provide the exemption, but it
provides the conditions that an issuer must satisfy to meet the
requirements of the underlying exemption of Section 4(a)(2) of
the Securities Act. Section 4(a)(2) is an exemption for “transactions by an issuer not involving any public offering.” Under Rule
506(b), the securities may be purchased by an unlimited number
of accredited investors, but only up to 35 non-accredited, yet
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sophisticated, investors. In addition, the use of general solicitation to market the securities is prohibited. “General solicitation”
includes advertisements through newspapers and magazines, social media, public websites, television, radio and seminars where
attendees have been invited by general advertising. A benefit to
relying on the Rule 506 exemption is that the rule preempts
state securities laws, so issuers that offer securities under the Rule
506 exemption are also exempted from registration under state
securities laws (except for notice filings and filing fees).
Even though registration is not required, all issuers must still
file a Form D within 15 days after the first sale of securities.
Form D is a notice to the Securities and Exchange Commission
(“SEC”) that includes the names and addresses of the company’s
owners and stock promoters, but contains little other information about the company.
If issuers want to rely on the safe harbor of Rule 506(b), they are
not able to offer their securities to the public through any means of
general solicitation, including magazines, unrestricted websites or
mass emails. The SEC warns that while the solicitation must be an
“offer” of securities, solicitations that condition the market for an
offering of securities may be considered offers. Therefore, all parties
involved in an EB-5 project are cautioned not to publicize details
about current offerings relying on Rule 506(b). However, issuers
and regional centers may list their prior, closed EB-5 projects in any
means of general solicitation.
E B 5 I n v e s to r s M ag a z i n e