EB-5 Immigrant Investor Program & U.S. Securities Laws

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1 EB-5 Immigrant Investor Program & U.S. Securities Laws Ronald R. Fieldstone, Esq. Arnstein & Lehr LLP

2 Summary of Employment Based Fifth Preference (EB-5 Program) for Immigration Purposes Overview of Program The EB-5 Program for lawful permanent residence is currently administered by USCIS. The EB-5 Program has concurrent goals of immigration to the U.S. through qualified investment into a commercial enterprise, and job creation for U.S., citizens or lawful residents. Investors receive conditional residency after taking the risk in a qualified investment of their own creation, or as part of a partnership or limited liability company in a regional center. After two years of receiving such status, the investor may apply for a removal of conditional status at which time it must be shown that 10 qualifying full-time job positions per investor have been created, some direct - some indirect. 2

3 Summary of Employment Based Fifth Preference (EB-5 Program) for Immigration Purposes Overview of Program The required investment level is $1,000,000 unless the investment is made into a business located in a targeted employment area, such as a rural or high unemployment region, at which time a reduced investment of $500,000 USD is required. 3

4 Summary of Employment Based Fifth Preference (EB-5 Program) for Immigration Purposes Requirements In order for an immigrant investor to receive his/her green card though the EB-5 Program, it must be clearly established that the requisite requirements have been met. A new commercial enterprise has been established. The requisite amount has been invested into the commercial enterprise. A minimum of a $1,000,000 investment, unless an immigrant investor invests in a rural or high unemployment area which decreases the minimum investment to $500,000. The immigrant investor has demonstrated that the capital investment funds have been obtained legally. 4

5 Summary of Employment Based Fifth Preference (EB-5 Program) for Immigration Purposes Requirements The requisite number of full-time jobs have been created. A minimum of 10 full time direct or indirect employment positions must be established per immigrant investor under the Regional Center designation. The immigrant investor has actively participated in the business. Where applicable, employment opportunities have been created within a targeted employment area. 5

6 Summary of Employment Based Fifth Preference (EB-5 Program) for Immigration Purposes Regional Center Designation A separate EB-5 Program was implemented by Congress in 1993, allowing foreign investors to invest in designated regional centers. Of the 10,000 investor visas that are available annually, 3,000 are reserved for those who apply under the regional center program. Investing in a regional center additionally provides flexibility though the acceptance of indirect job creation as part of the job requirements. Private and governmental agencies may apply to USCIS in order to be designated as a regional center. 6

7 The Relevance of U.S. Securities Laws to Immigrant Investors, EB-5 Regional Centers and Their Advisors When a regional center forms a limited partnership or limited liability company in which the EB-5 investor would become a limited partner (or member, in the case of a limited liability company), the regional center is offering an EB-5 investor a security. Therefore, a regional center must comply with federal and state laws in conducting the offering of securities. Given that the main focus of an EB-5 investment for the investor is obtaining permanent residency in the United States, investors may not recognize or consider that a regional center is offering a security. More importantly, EB-5 investors most likely will have no idea what the implications are if a regional center tells them they are being offered or sold a security. Some regional centers may themselves not be fully aware of these implications. 7

8 The Relevance of U.S. Securities Laws to Immigrant Investors, EB-5 Regional Centers and Their Advisors Though each state s securities statute must be examined for specificity, generally, states prohibit issuers from paying anyone in effectuating a securities transaction unless the recipient is a registered broker-dealer or agent. All states require that broker-dealers and agents register in the states in which they operate (there are a few limited exceptions). States will interpret the activities that qualify as effectuating a securities transaction broadly, as will the SEC. Performing due diligence, negotiating terms of the offering, soliciting the investors, and handling the funds of the investors are activities that states and the SEC have found to qualify as broker-dealer activities. 8

9 The Relevance of U.S. Securities Laws to Immigrant Investors, EB-5 Regional Centers and Their Advisors In addition, a third party who receives any transactionbased compensation in connection with a securities transaction will almost always be deemed a brokerdealer. On the other hand, if a third party does nothing more than provide the name and contact information of a potential investor to the issuer, the third party would be considered a finder rather than a broker-dealer. 9

10 EB-5 Program Statistics Regional Center Data: There are currently (as of 6/30/11) 147 approved regional centers, operating in 39 states, including the District of Columbia and Guam. A complete list of approved regional centers is also available online at Approximately 90-95% of the individual Form I-526 petitions filed each year are filed by Alien Investors who are investing in regional centers - affiliated commercial enterprises. There are 83 initial regional centers proposals, as well as 9 regional centers proposals seeking to amend approved regional centers, pending initial review with USCIS. Information supplied by United States Citizenship and Immigration Services (USCIS) 10

11 EB-5 Case Processing Form Type Form I-526 Form I-829 Target Processing Time 5 Months 6 Months Current Processing Time 5.5 Months 5 Months Regional Center Initial Designation Proposal Regional Center Amended Designation Proposal 4 Months 4 Months 4.5 Months 1 Month Note: Responses to requests for evidence (RFEs) for individual petitions, and for new or amended regional center proposals are matched with the case file upon receipt of the response. CSC strives to finalize EB-5 cases within 30 days after the responses to the RFEs are received. Information supplied by United States Citizenship and Immigration Services (USCIS) 11

12 EB-5 Visa Usage Fiscal Year and/or Quarters Total EB-5 Visas Issued FY11 Q1&Q2 2,129* FY10 1,885 FY09 4,218 FY08 1,360 FY FY *Preliminary Estimate of FY11 Q1&Q2 Visas Issued Information supplied by United States Citizenship and Immigration Services (USCIS) 12

13 Why are developers so interested in EB-5? Capital unavailable from traditional sources Foreign investor cheap source of capital Timing of funding Flexibility in structure investment can be either debt or equity. Debt has become the most common vehicle for funding. 13

14 List of Necessary Professionals for Regional Center Designation Application/Exemplar I

15 1. Immigration Lawyer familiar with EB-5 process. 2. Economist familiar with EB-5 process. 3. EB-5 Business Plan Writer familiar with EB-5 process. 4. Securities/Corporate Attorney familiar with EB-5 process. 5. Bank/Escrow Agent that will serve to escrow funds on behalf of EB-5 investors. Need to verify prior activity and willingness to serve. 6. Marketing Firm/Commissioned Agent Migration Brokers; In-House Marketing; Broker-Dealer Agents; and Finders. 15

16 Costs Professional fees for the necessary preparation of: 1. I-924 Application 2. Economical Study 3. Business Plan 4. Private Placement Memorandum Regulation S and Regulation D compliance 16

17 Costs Continued Private Placement Offering Memorandums can indicate that there are joint exemptions being sought. One is the Reg. S exemption for sales to foreigners and the other is a Reg. D exemption with respect to sales domestically to accredited investors. It is not inconsistent to have both exemptions apply to a particular offering if certain of the investors would be domestic. 17

18 Costs Continued Government filing fees - $6,250 Regional center recoupment of costs through charges to investors as part of cost allocation amount and not capital investment to funding entity. Regional center charges to project promoters see if affiliated or not. Additional marketing expenses over and above cost allocation. 18

19 Choices for Developers Establishing New Regional Center Geographic scope of regional center determined by economist. Whether to seek project pre-approval concept of shovel ready approval process and may be provided priority. EB-5 capital raise vs. developer equity and traditional debt Equity or loan model See above Escrow or not? Typical to escrow to protect investors. Amount to be charged over $500,000 cost allocation amount range of $40,000 to $50,000 is typical, excluding immigration attorneys fees. Marketing plan/choice of marketing agents. 19

20 Application to USCIS Business Plan Geographical area (TEA?) Operating or Partnership Agreement Offering Memorandum (PPM) Subscription Agreement Economic Report Marketing Plan Bank (Escrow Agreement?) Project preapproval (optional) 20

21 Advantages of Regional Center 1. Developers can count indirect and induced employment opportunities, and not just direct jobs, in meeting the ten full-time jobs per investor requirement. 2. A particular project within the regional center may be pre-approved by USCIS and other projects can be included with or without additional filings. 3. Regional center certification provides an aura of legitimacy or endorsement that may help in marketing to foreign investors. 21

22 Advantages of Regional Center Continued 4. Regional center designation is a one-time designation allowing future projects to be marketed without incurring delays. 5. In addition to funding their own projects, regional centers can profit by utilizing the designation to help fund projects developed by others. 22

23 Disadvantages of Regional Center 1. Regional center certification may take a lengthy period of time currently six months to one year. 2. Regional center certification will entail significant expenses as noted above. 3. Regional center certification is not the same as approval of any particular regional center project. 4. Regional center certification is no longer a small, privileged group. Over 135 regional centers have been certified (as of 7/6/11). Information supplied by Alliance of Business Immigration Lawyers (ABIL) 23

24 Disadvantages of Regional Center Continued 5. Many regional centers have not been able to attract any investors. Newer regional centers find it difficult to compete in their marketing efforts with longexisting regional centers with a track record of many immigration approvals, some with both I-526 and I- 829 approvals. Regional centers have ongoing administrative and filing requirements with USCIS in order to avoid decertification. Information supplied by Alliance of Business Immigration Lawyers (ABIL) 24

25 Ronald R. Fieldstone, Esq. 200 South Biscayne Boulevard Suite #3600 Miami, FL Tel: Fax: