EB5 Investors Magazine - Page 13

Role of the regional center A regional center that sponsors an EB-5 offering, which enables the sponsor company to utilize not only direct jobs, but also indirect and induced jobs, plays a key role in the EB-5 program and it is extremely important to clarify the role of the regional center in a particular transaction. Generally, a regional center can play the following three roles in any EB-5 transaction, among others: 1. Sponsoring the project. At a bare minimum, the regional center must sponsor the project and take responsibility for ensuring that the offering and procedures related thereto at least meet the minimum guidelines required under the EB-5 program as part of the minimum due diligence responsibilities of the regional center. In connection therewith, the regional center is paid compensation for services rendered, which should be adequately disclosed in the offering documents. 2. Serving as manager/general partner of new commercial enterprise. In many cases, the regional center (especially where it is not affiliated with the developer/project company), may serve as the manager/general partner of the new commercial enterprise (“NCE”) formed to undertake the EB-5 offering. In connection with that role, it is important to specifically articulate the role of the regional center and/or its affiliate in managing the entity, including, but not limited to, various reporting requirements, oversight of the EB-5 program with respect to immigration matters and, most importantly, the administration of the operation of the NCE (including, but not limited to, assisting in all aspects related to the due diligence and enforcement of the loan provisions that normally apply with respect to a regional center EB-5 project). In connection therewith, it is important to disclose exactly how the regional center and/or its affiliate intends to undertake its due diligence and administrative responsibilities and whether or not thirdparty professionals will be engaged to provide any of those functions. By way of example, in connection with a typical real estate-related EB-5 program involving significant construction activities, it is common for the manager/ general partner to engage a qualified disbursement agent, title company or financial institution to administer the loan disbursement in order to protect the EB 5 loan. A good practice would be to interpose an entity between the LP/NCE and the regional center to be the GP/manager and thereby minimize the liability of the regional center in the event that the project/joint commercial enterprise fails and the partners, members or any other creditors of the NCE decide to make a claim against the GP/manager for failing to protect the NCE, or that the GP/ manager improperly administered the NCE. 3. Assisting with marketing. In addition to sponsoring the project and serving as a manager of the NCE, the regional center can also assist in the marketing of the EB-5 offering. In assisting in marketing activities, the regional center has a further responsibility to ensure that such activities are in compliance with U.S. securities laws and, in all cases, should ensure that the EB-5 offering otherwise complies with U.S. securities laws. In particular, the offer and sale of securities to investors under the EB-5 offering will need to fall within the permitted exemptions from registration under Regulation S and/or Regulation D of the Securities Act of 1933 (the “1933 Act”) and otherwise not violate the registration requirements related to broker-dealer registration under the Securities Exchange Act of 193 B