exemption by analyzing whether the number of investors
remains at no more than 100 people. The more difficult
analysis would involve an initial reliance on Section 3(c)
(5)(C) (the qualified real estate exemption) and whether an
investment in an Additional EB-5 project would continue to
be so qualified. If not so qualified, then the Section 3(c)(1)
exemption may be available but only if there are no more than
100 investors. Other 1940 Act exemptions may be available,
but if not structured into the initial investment, they may
prove difficult to satisfy.
Investment Adviser Considerations
A Redeployment also raises Advisers Act and state investment adviser law issues, an analysis of which depends upon
how the Redeployment is effectuated, as well as other factors
including the number of other clients being advised and the
value of the assets under management with respect thereto.
This is important because the Advisers Act exempts an adviser
from registration if it has fewer than 15 clients during the
preceding 12 months, and state adviser laws are also triggered
depending upon the number of clients under advisement and
the amount of assets under management.
For purposes of counting the number of clients, all types
of clients are counted without regard to accreditation and,
after the threshold of 15 clients is met, registration under the
Advisers Act or applicable state laws is required unless the
value of assets under management threshold is not met and
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the adviser does not hold itself out generally to the public
as an investment adviser. The SEC has provided some, but
not a significant amount of, guidance regarding whether the
general partner or managing member of a new commercial
enterprise is advising a single client (e.g. the LP or the LLC)
or multiple clients (e.g. the individual limited partners or
members). If multiple clients are deemed to be advised, then
all limited partners or LLC members must be counted as
clients for purposes of the Adviser Act. Rule 203(b)(3)-1 of
the Advisers Act provides that a new commercial enterprise
would likely be considered a single client if that entity receives
investment advice based on its investment objective or stated
purposes as opposed to the individual objective of its limited
partners or members. In addition, the SEC has provided
no-action letter relief where a general partner has offered
limited partners a choice between receiving a distribution in
kind or in cash where no recommendation between the two
alternatives was provided by the general partner.6 On the
other hand, no-action relief was not granted in a number of
situations where the general partner contracted with individual
limited partners with respect to investments (Six Pack, SEC
No-Action Letter (Nov. 13, 1998)); investment amounts (WR
Investment Partners Diversified Strategies Fund, LP SEC
No-Action Letter (Apr. 15, 1992)); and tax issues (Burr, Egan,
Deleage & Co., Inc. SEC No-Action Letter (Apr. 27, 1987)).
When applying this guidance to a Redeployment where EB-5
investors are asked to make a new investment decision, careful
consideration should be given during the structural analysis.
EB5 INVESTORS MAGAZINE