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News for the Hospitality Executive |
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EB-5 Financing and the SEC: How to avoid trouble! |
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recent update on this topic, click here By Jim Butler and the Global Hospitality Group® Hotel Lawyers | Authors of www.HotelLawBlog.com January 23, 2013 Hotel Lawyer with
some practical advice on how to avoid SEC problems with your EB-5
financing
activities. Today, two of our hotel lawyers explain why EB-5 offerings may bring inadvertent broker dealer registration violations by regional centers, developers and other US persons involved in EB-5 financings. More importantly, they give some practical advice on how to effectively take advantage of the exemptions from the somewhat troublesome broker dealer registration requirements. A
practical guide to Are regional
centers really required to register as broker-dealers under U.S.
securities
laws? Many people do not realize that even if the offering of EB-5 investment securities is exempt from registration under U.S. securities laws, every person who sells EB-5 investments is still subject to the requirements for broker-dealer registration or exemption. We agree that it is extremely important to conduct EB-5 investment offerings in compliance with all applicable securities laws, but we believe there are better ways of complying without registration as a broker-dealer. In this article, we will answer some of the most frequently asked questions we receive from our clients using EB-5 financing for their projects, and offer some practical guidelines for regional centers and project developers to conduct EB-5 investment offerings in compliance with the regulations and policies of the Securities and Exchange Commission ("SEC"). Do
broker-dealer registration requirements apply to EB-5 offerings that
are exempt
from U.S. securities laws? Why does it
matter to a regional center or a project developer whether or not the
people
selling EB-5 offerings are registered or not? Aren't most
EB-5 offerings sold outside the U.S. to non-U.S. persons? U.S. persons who sell securities to non U.S. buyers inside or outside the U.S. are required to register or have an exemption from registration as a broker-dealer under U.S. securities laws. The usual practice is to engage one or more non-U.S. marketing agents in the country in which the EB-5 investments are being sold. They solicit investors and organize meetings with potential subscribers in EB-5 investments. However, some regional centers or project owners may engage U.S.-based companies to assist in selling EB-5 investments in foreign countries, and this is a problem under U.S. securities laws. In addition, some regional centers send their own personnel to abroad to assist in marketing EB-5 investments to non-U.S. persons, and this is one reason that some commentators believe that regional centers may be required to register as broker-dealers under U.S. securities laws. Who is required
to register as a broker-dealer to conduct an EB-5 offering outside the
U.S.? 1.
Non-U.S.
persons may sell securities entirely outside the U.S. to non-U.S.
buyers without registration as a broker-dealer under U.S. Securities
laws.
2. Non-U.S. persons who sell securities to buyers inside the U.S., other than foreign persons temporarily within the U.S., are required to register or have an exemption from registration as a broker-dealer under U.S. securities laws. 3. U.S. persons who sell securities to non U.S. buyers inside or outside the U.S. are required to register or have an exemption from registration as a broker-dealer under U.S. securities laws. Therefore, any person or company based in the U.S., including a regional center or "marketing agent," who solicits or sells EB-5 investments inside or outside the U.S. will either be required to register as a securities broker-dealer or have an exemption from registration under U.S. securities laws. How does a regional center qualify for an exemption from registration as a securities broker-dealer? . . . some regional centers send their own personnel to abroad to assist in marketing EB-5 investments to non-U.S. persons, and . . . [therefore] may be required to register as broker-dealers under U.S. securities laws. Regional centers typically act as the general partner or manager of the entity that is selling EB-5 investments, and when that is the case, the officers, directors and employees (generically referred to as "associated persons") of the regional center will primarily rely upon SEC Rule 3a-4. It provides several possible ways to comply with the exemption, two of which are relevant to EB-5 offerings. One way is for associated persons of the regional center who have substantial regular duties for the regional center other than solicitation of EB-5 investments, who are not associated persons of a broker or dealer and are not compensated for their solicitation activities, to participate in no more than one EB-5 offering every 12 months. These conditions do not restrict the manner in which the associated persons may participate in solicitations, as long as they are not paid based on the amount of investments they sell, and they do not participate in more than one offering each year. However, for regional centers that sponsor more than one offering per year, those conditions will not be met. In that case, the best way for a regional center to comply with the Rule 3a-4 exemption is to limit the activities of its associated persons to preparing or delivering written (not oral) communications regarding the offering, and/or responding to inquiries of potential purchasers in communications initiated by potential purchasers, using information contained in the offering documents provided to investors in the EB-5 offering. In that case, it is necessary for the regional center to engage either a U.S. securities broker-dealer or a non-U.S. broker to solicit EB-5 investments, and have regional center personnel play a more limited role. What are some of the other securities broker-dealer issues related to EB-5 offerings? Complying with U.S. securities broker-dealer laws and their exemptions can be challenging for some regional centers, particularly those that conduct more than one offering every 12 months. To avoid potential claims by regulators or investors, it is important that all regional centers have systems and procedures in place to address these issues and others, including the following:
Would it be
easier or better for the regional center to register as a broker-dealer
rather
than try to avoid registration? What is the
best way to assure compliance with the requirements for exemption from
broker-dealer registration? How to find out if
EB-5 financing could work for your hotel development project My partners, Catherine Holmes and Victor Shum, have written some great articles on various key aspects of the EB-5 Immigrant Investor Visa Program and regularly help hotel developers take advantage of this opportunity where it is appropriate. We invite you to take a look at the free information on EB-5 financing for hotel development and to call us if you would like to discuss it further. To learn more, go the HotelLawyer.com. Scroll down on the home page until you see "EB-5 financing" on the right side and click there. You will then see all the EB-5 articles we have posted. Alternatively, here are links to a
few of the
articles in the collection. This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer? Catherine Holmes is a transaction and finance partner with JMBM's Global Hospitality Group® and Chinese Investment Group™ and specializes in resort and hotel purchase and sale transactions, resort and urban mixed-use financing and development, hotel management and franchise agreements, and hospitality asset workouts. With her background in securities transactions, she also assists hotel developers with public and private offerings of securities. For more information, please contact Catherine Holmes at +1 310.201.3553 or [email protected]. Victor Shum is a corporate and securities partner in JMBM's Global Hospitality Group® and Chinese Investment Group™. He has advised clients on EB-5 matters since 1999 and assists hotel developers on EB-5 financing as well as public and private securities, mergers and acquisitions, cross-border issues, and other strategic business transactions, including real estate transactions and intellectual property and technology licensing matters. For more information, please contact Victor Shum at +1 415.984.9611 or [email protected]. __________________________ Our Perspective. We
represent hotel lenders,
owners and investors. We have helped our clients find business and
legal
solutions for more than $60 billion of hotel transactions, involving
more than
1,300 properties all over the world. For more information, please
contact Jim
Butler at [email protected] or
+1
(310) 201-3526.
Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why. Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. |
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Contact: [email protected] 310.201.3526 |
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