Title IV, being Reg A+ investment offerings, requires you to register your securities with the SEC, so that's going to bring more responsibility on you.
Title III involves raising no more than $1 million.
So my sense is that Title II, Reg D - Rule 506(c) is probably most applicable to EB-5.
John Leo: I look at crowdfunding as a great platform to supplement traditional fundraising, or vice-versa - traditional fundraising supplementing the crowdfunding platform. I think you get a much broader look and a much broader pool of investors.
Based on our experience, Reg D investors make up 20%- 25% of the investors in the EB5 projects. Reaching those investors through a crowdfunding platform, whether it's an issuer using their own portal or someone else's portal, is a great way to approach the market.
I don't think you'll fully fund a deal that way. I really don't think you can fund a $10-million or $20-million EB-5 project through just Reg D, but I do think it's part of the solution. I think you'll be able to attract a lot of investors that you normally would not come into contact with.
Kurt: When we look at Regulation D, Rule 506, we see it's got two elements. Soliciting solely to friends and family is obviously going to be very limited.
So when we talk about crowdfunding, we start at this very large idea that you can solicit your offering directly to the public; then we need to narrow it down to where it really applies to the EB-5 space. It’s clear to me that 506(c) is what we're typically going to be talking about when we talk about EB 5 Visa. Rule 506(c) permits general solicitation and advertising of private placements.
How broad is that concept and what are the limitations?
Jor Law: It's actually quite broad. As the others mentioned, you could do a 506(c) and then a Title III, and a Title IV, if you want. The reason why I think you've focused on Title II 506(c) is because there are actually quite limiting factors on the other ones. For example, in Title III, you can't truly generally solicit. You can basically only solicit to the extent necessary to direct someone to an eb5 capital funding portal.
506(c) lets you generally solicit any way you want, to anyone that you want and anywhere you want. You could generally solicit anywhere in the world without violating US law. You obviously still have to comply with local jurisdictions, but there are really no limitations other than that you should not generally solicit in a fraudulent manner.
It's much more powerful than the traditional 506(b), which would've required you to only solicit to friends and family, closed networks and pre-identified persons that you had substantial relationships with. It's a much more powerful exemption if you're able to market to the masses, to people that you don't know.
Scott Andersen: What it essentially does is blur the distinction between a public offering and a private placement because now you are able to advertise your private placement offering, publicly. There are some additional regulatory hurdles that you need to comply with in order to meet your securities exemption, and the main one is making certain that you are verifying properly the accreditation of your investors.
You can't rely on the traditional 506(b) “check-the-box” approach. Rather, you have to do a full verification of accreditation and the SEC has set forth a number of safe harbors so that you can meet that requirement. That is the essence of the JOBS Act, the ability to engage in this so-called general solicitation, which is general advertising of private securities offerings.