EB5 Investors Magazine Volume 2 Issue 1 | Page 66

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 64 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