Kurt: In today's discussion, we're talking about what due diligence is in the EB5 context. That includes the procedures involved in performing due diligence, understanding the need for it and the benefits of due diligence.
To better define the EB5 due diligence concept, I've pulled a quote from an article written by Doug Hauer entitled “EB-5 Due Diligence Matters, Industry at Point of Inflection Regarding Securities Compliance”.
In the article Doug writes, "Pursuant to the Federal securities laws, an issuer and any parties acting for that issuer must exercise reasonable care in ensuring that the information given to the offerees and purchasers about a deal is complete and accurate."
"Due diligence is the process of ensuring, to the best of the investigator's ability that the statements, documents, and other information passing from the issuer to the purchasers are correct, and devoid of any false or misleading information to the same degree that the investigator would if evaluating his own property."
Greg, do you have any thoughts on Doug's definition?
Gregory White: I think he's right on the money. There are in fact, two key elements to the discussion.
The first is the need to exercise due care, and that, of course, is very important for broker-dealers and fiduciaries that might represent someone else in an EB5 transaction.
The second is that the issuer has a standard that is independent of the actual level of care exercised. That standard is placed upon a security’s issuer by SEC Rule 10b-5 and an analogous provision in the Securities Act of 1933 (Section 17a) that basically says you can't have false or misleading information or omissions from information as to a material matter in an offering, whether it's in the PPM or in additional materials handed out.
I think Doug has painted the landscape pretty well in that this is an exercise designed to do two things.
First, it's designed to give the investor what they need to make a rational decision.
Second, it's designed to protect those individuals who are participating in the offering on behalf of the issuer or as brokers from having liability for basically doing the work to make sure that the investor gets the right information.
Dawn Lurie: In general, I thought Doug's article was excellent. I think that the definition obviously is important and the topic was timely. It was a good reminder for the industry about the history here, and exactly what the obligations are for issuers for regional centers, and for everybody involved. If you haven't had the opportunity to read either the blog post or the full article, I would definitely recommend you do so.