EB-5 101 and Securities Law Considerations Laura Reiff reiffl@gtlaw.com Batya Goodman goodmanb@gtlaw.com GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM 2014 Greenberg Traurig, LLP. All rights reserved.
EB-5 Basics > EB- 5 category created in 1990 for foreign nawonals who invest in a new commercial enterprise that will benefit the U.S. economy and create at least 10 full- Wme jobs. > Congress set aside 10,000 immigrant visas annually for investors and their immediate family members. > Immigrant Investor Pilot Program enacted in 1993, providing for regional centers due to sunset on September 30, 2015. > Foreign nawonals can get a green card if: Invest $500,000 or $1,000,000 (depending on geographical area); and Investment creates full- Wme jobs for 10 U.S. workers > Green cards condiwonal for two years CondiWons removed if investment sustained and jobs created
Regional Center v. Individual EB-5 > Individual EB- 5 PeWWon Investor buys business, starts new business or invests in an exiswng business (formed ader 11/29/1990) Must create 10 direct full- Wme, W- 2 employees who are USCs or LPRs > Regional Center EB- 5 PeWWon Investment into a business associated with a USCIS Approved Regional Center 95% of all applicawons Main advantage Indirect employment counts through the use of an economist report to predict project job creawon.
What is a Regional Center? > EnWty that: Focuses on a geographic region Promotes economic growth through increased exports, regional producwvity, domeswc investment, and job creawon > Applies to USCIS for designawon approval > Oversees capital investment projects for alien investment > Markets for investors > Due diligence on investors > Prepares I- 526 package templates
Regional Centers cont. > Oversight of I- 526 filings > Tracks infusion of capital into job- creawng enterprise > Monitors compliance with business plan and foundawon facts in economic report > Ongoing administrawon and compliance responsibiliwes > Allocates jobs between investors > Prepares I- 829 package templates > Decides on new projects
What is an Indirect Job? > Jobs created in the regional economy as the result of the economic swmulus of the investment > To be demonstrated via reasonable methodologies (economic forecaswng tools): mulwplier tables Feasibility studies Market analyses Other economically or stawswcally valid forecaswng devices
Input/Output Models > ForecasWng tools to predict increased employment resulwng from defined changes in the economy: Employment Revenues Expenditures > Types of Models RIMS II, IMPLAN, REDYN
Procedure (Matter of Ho) > Ma#er of HO is a 1998 USCIS regulatory case that requires a business plan BUT one that significantly differs from a tradiwonal Business Plan. > A compliant Ma#er of HO Business Plan will avoid unnecessary and costly Requests For Evidence from USCIS
Mandatory Requirements of Matter of Ho Business plan > Business descripwon > Business Structure > MarkeWng Plan with targeted markewng analysis > Personnel Experience > CompeWWve Analysis Required Licenses and Permits Staffing Wmetable for hiring (must show how you intend to create 10 jobs per investor) Job descripwons Budget and Financial informawon
Securities Law Procedure > Raising capital = securiwes offering > Need sophiswcated securiwes counsel familiar with EB- 5 rules, Broker Dealer issues - preparawon all offering documents (Private Placement Memorandum) > Engaging placement agents and local securiwes lawyers in various countries > Road show presentawons and markewng materials in various countries
Securities Act of 1933 > Registered Public Offerings of securiwes SEC review, post- sale reporwng, etc. > Private Offerings Exempt from RegistraWon Mostly under RegulaWon D Needed for other exempwons > Note: The JOBS Act is law, but the implemenwng rules are not yet in effect! 11
Investment Company Act of 1940 > Prohibits investment companies from engaging in interstate commerce unless registered or exempt. > Investment companies any issuer which: Holds itself out as engaged primarily in the business of inveswng in securiwes; or Is engaged in such business and 40%+ of its assets (exclusive of gov t securiwes, cash and certain subsidiaries) are investment securiwes.
Investment Advisers Act of 1940 > Prohibits investment advisers from engaging in interstate commerce in connecwon with his or her business as an investment adviser unless registered or exempt. > Investment advisers anyone who, for compensawon, engages in the business of advising others as to the value of securiwes or issues reports concerning securiwes. > AnW- fraud provisions.
Investment Advisers Act of 1940 > Prohibits investment advisers from engaging in interstate commerce in connecwon with his or her business as an investment adviser unless registered or exempt. > Investment advisers anyone who, for compensawon, engages in the business of advising others as to the value of securiwes or issues reports concerning securiwes. > AnW- fraud provisions.
Structure > Real Estate Development TransacWons - normally run through a Regional Center (benefit of indirect jobs) Set up as loan from the new commercial enterprise to the development - paid off in 5 years at loan interest rate. Loan usually secured but deeply subordinate to a senior lender or as mezzanine financing > Non- Real Estate growth- oriented companies normally direct investments EB- 5 investor becomes a preferred equity holder with a small coupon (basically no other rights) Ader 5 years, investor wishes to redeem but can only be at the elecwon/ discrewon of the manager of the new commercial enterprise In both cases, the investor s capital must always be at risk
Why Use EB-5? > Complicated process that could yield very successful results > Billions of dollars raised by companies - small to Fortune 500 > Yield very effecwve - oden the coupon paid on the money over 5- year term can range from 1% - 2% > Makes economic sense as part of capital stack of any project that creates NEW jobs, thus making the Wme and investment worthwhile EB- 5 is also a good way to replace short- term construcwon loans easier. EB- 5 can come in and take out a 3 year construcwon loan with a 5-6 year term, giving a developer more Wme for a project to stabilize and obtain long- term financing to replace the EB- 5. > Deals make sense for investors - they get a green card and ulwmately ciwzenship in US for themselves and their family in exchange for $500,000/$1,000,000 > If deal is successful, investor receives their principal back in 5 years!
Questions? Laura Reiff reiffl@gtlaw.com Batya Goodman goodmanb@tlaw.com For up- to- date informawon on EB- 5 developments, please visit www.eb5insights.com 17