Securities in the EB-5 context
Regional centers have come up with several models of forming the investment mechanisms for their investors. However,
because of the broad scope of the Securities and Exchange Act
of 1933 (hereinafter the “Securities Act”), practically all of these
models and their offerings fall into a definition of a security.
The Securities Act defines “security” as any note, stock, bond,
“investment contract” or, in general, any interest or instrument
commonly known as a “security.” An “investment contract”
is made when a person (i)invests money, (ii)in a common
enterprise, (iii)with an expectation of profit, (iv)to be earned
solely from the effort of others. The SEC has determined that
interests in a limited partnership are an investment contract, and
therefore, a security. After some debate, the SEC has considered
limited liability company interests to be securities, as well, especially if a limited liability company offers unregistered interests
in a limited liability company to a large number of investors.
Given that the investor’s main objective in making an EB-5
investment is U.S. permanent residency, and not profit derivation, one may argue that investments for EB-5 purposes are
not securities. However, the definition of security still applies to
Therefore, regardless of whether a regional center forms a
limited partnership or a limited liability company—in which
the EB-5 investor would become a limited partner or member,
respectively—the regional center offers an EB-5 investor a
“security” as defined in the Securities Act. As such, a regional
center must comply with federal and state laws in conducting
the offering of securities.
Interestingly, many regional centers are not aware of serious
implications of failure to comply with securities laws. Others try
to qualify for exemptions to avoid the filing with the SEC. In
our practice, we have seen cases where regional centers initially
made an effort to qualify for exemptions; however, they ignored
all the rules when a non-accredited investor approached them
with his ready-to-invest funds. Investors themselves rarely think
they are being offered or sold a security and fail to inquire about
their rights and protections.
Even though regional centers get their designations from
USCIS, most of the projects, and investment vehicles offered
by them, are not registered with the SEC or any state regulator.
However, only such registration triggers the stringent disclosure
requirements of a wide range of key information about the company’s finances, management, products, and services. Therefore,
investors are advised to request additional information about the
project, to help ensure that the investment opportunity is viable,
and so expect this type of inquiry from interested investors.
(17 CFR § 230.501 et seq.)
An accredited investor is a person whose: (i) individual net worth, or joint
net worth including that person’s spouse, at the time of the purchase of the securities, exceeds $1 million; (ii) individual income exceeded $200,000 in each
of the two most recent years, and who expects to reach that income level in
the current year; or (iii) joint income, including that of the investor’s spouse,