Plain English EB-5 PPMs
We often assume that being an accredited investor equates to being a sophisticated investor, but that’s often not the case and in many cases accredited investors are filing lawsuits saying, "I didn't understand what was in the offering document. It was ambiguous." From a risk-mitigation standpoint, what we write and how we write it really does count. Hence the push toward Plain English in EB5 documents.
The trend toward using 'Plain English' rather than legalese in contracts has reached the EB5 world. The point is to eliminate ambiguity and to capture the true meaning: What are the risks? What are the conflicts?
The SEC's Plain English Guidebook encourages writing contracts that sound like real speech rather than legalese—especially relevant in EB5 investment contracts, given the fact that our constituents tend to not be native English-speakers and that contracts often are translated into other languages.
As an example, prospectuses may have a sentence like, “No person has been authorized to give any information or make any representation other than those contained or incorporated by reference in this joint proxy statement prospectus and, if given or made, such information or representation must not be relied upon as having been authorized, and a possible rewrite is you should rely on the information contained in this document or that we have referred you to.”
In plain English, that would read, “We have not authorized anyone to provide you with information that is different.”
Basic English includes the following rules of grammar:
*Use the active versus the passive voice. Instead of “the stock is bought by the investor” say “the investor buys the stock.”
*Reduce use of abstractions. Instead of, “No consideration or surrender of BECO stock will be required of shareholders of BECO in return for the shares of UNIS common stock issued pursuant to the distribution,” say, “You will not have to turn in your shares of BECO stock or pay any money to receive your shares of UNIS common stock from the spin-off.”
*Do not use BOLD CAPITAL LETTERS to emphasize text. Reading bold capital letters can be difficult. Use italics or just bold instead.
*Effective typography: Leave some white space on the page to make it easier to read. Use left-justified, ragged right. Keep sentences to a reasonable length. Use bullets and tables and graphs and diagrams to make your offering more clear.
The place to begin tackling the switch to Plain English is in the document templates the law firm use from project to project. Roughly half of what is contained in a PPM, for example, is in every PPM—details of the immigration risk factors, where's the EB5 program today.
A template could include a discussion of the EB5 program’s immigration risk factors, written in plain English and updated as things change, such as the current discussion about retrogression of Chinese investors.
Key things that should be clearly spelled out are the risks related to the project and to immigration and any conflicts of interest that exist.
Making our disclosures clear and concise and transparent, being exacting with the verbiage that we select, goes a long way toward avoiding lawsuits and protecting the issuer.