Loan Administration Checklist

Posted by Kurt Reuss on May 18, 2018

The Manager of the NCE (EB-5 investors) should consider the following loan administration checklist. 

    1. Retain Independent Counsel. The loan documentation should be in accordance with industry standards and consider the EB-5 Immigration program's unique requirements.
    2. Undertake the same due diligence as a financial institution.  This includes obtaining a feasibility of current market conditions, appraisers, title reports and potentially title insurance, a survey, zoning and environmental reports.

When do you need a broker dealer in EB-5?

Posted by Kurt Reuss on July 14, 2016

Role of EB-5 Broker Dealer

Kurt: Lori, Could you give us your thoughts about the need for a broker-dealer in EB-5 transactions?

Lori: Since I'm the only person on the panel who doesn't work for a broker-dealer, hopefully I'm objective. Let me begin by saying that every deal is different and thus all the facts are different. Obviously, we take that into account when we advise participants in an EB5 offering what they need to do. Generally, however, we believe that participants, whether issuers or regional centers, could have a better outcome if they associate with a broker-dealer, especially in regard to the following topics:

Could Reg D 506(c) Offerings Replace Reg S Offerings in EB-5?

Posted by Kurt Reuss on June 21, 2016

Kurt: We've had a number of webinars that discuss the potential problems issuers could face from a Regulation S offering, because of its strict rules associated to managing all solicitation and market conditioning to outside the U.S. and its territories. Contrast that to the Regulation D 506(c) rules which open up possibilities for a general solicitation to be conducted anywhere you want, so long as the issuer is committed to verifying each EB5 investor's accreditation credentials.

Three issues to consider when using concurrent Reg S and Reg D offerings are:

  1. Use separate documents for Reg S and concurrent Reg D Rule 506(c) offerings. That's integral to deciding to doing a concurrent offering.
  2. Don't use a website to solicit investors for Reg S offerings.
  3. Construct a separate web portal for each offering or else have a generic landing page that directs investors to appropriate content, tailored to each specific exemption.

The Evolving Role of Broker Dealers in EB-5

Posted by Kurt Reuss on March 11, 2016

Kurt: How do you see the role of the broker dealer evolving as regional centers are required to provide certifications of securities compliance as stipulated in the draft Integrity Bill?

Greg: I'm not yet ready to concede that EB5 regional centers have to be broker dealers but it's all based on what activities they're engaged in. You certainly can't use a broker dealer as a shield, if either the issuer or the regional center is going to engage in unlicensed broker dealer activity, but I think we're going to see more broker-dealers in the space. 

Ronnie: Right now, a substantial majority, and I'm guessing over 90% of EB5 capital, is not raised through broker dealers. I could be wrong but that's my perception. That's not good or bad, it's just the reality.

I don't think we're trying to change the industry but we want to strengthen compliance with certain procedures, in particular the ‘33 Act (Securities Act of 1933) with disclosures. I think everybody agrees that we need to make sure there's proper disclosures.

Whoever the issuer is, and the principal to the issuer, needs to take responsibility for complying with many of the items in the proposed Integrity Bill. Now the question becomes, do we impose that responsibility on regional centers, if they are not the issuer?

If Broker Dealers Can't Raise Money For Most EB-5 Deals, Do You Need Them?

Posted by Kurt Reuss on November 10, 2015

Kurt Reuss: John, as a broker dealer in EB5, what about the argument that you probably don’t have the ability to raise money for an offering right now.

A Broker Dealer: I would agree. Last year, we probably brought 30 investors into deals but to get these deals done you really have to go through China. That’s simply how this business is currently designed. 

Kurt Reuss: What is the role of a broker dealer and how do they provide compliance? And where in the process does that compliance sometimes fall apart? Are there situations where an issuer doesn’t get the compliance or coverage that they thought they were going to get and that they’re paying for?

A Broker Dealer: Certainly, I guess there are a number of ways to frame it. If you hire an immigration attorney, they’ll do their job as an immigration attorney. If you hire a securities attorney, they’ll draft the documents. The fact is we reject more than half the deals we see. Probably 9 out of 10 of the deals we see in this space, we reject. If you can recall the recent issue of fraud in Seattle, we would not have done that deal.

One person controlling every aspect of a deal, that’s a pass, a complete pass. The fact that a deal’s getting done, that it has a securities attorney and an immigration attorney doesn’t necessarily mean it’s a good deal or a bad deal. It might mean that no one has really dug into the transaction from the investor’s perspective. Ultimately, that’s the job of a broker dealer. As a service provider, you never want to be associated with a fraud or a failure in any business and EB5 is a small business so certainly, you wouldn’t want to be associated with that.

Liability associated with EB-5 marketing materials

Posted by Kurt Reuss on November 02, 2015

Kurt Reuss: In looking at marketing materials from a number of regional centers there are some common elements we typically see in the larger offerings such as talking about their experience; the results they’ve gotten from previous projects; the fact that principal has been paid back to investors; the percentage of I-526 and I-829 approvals; the project’s description and highlights. 

Sometimes we see marketing material that include information on the budget; loan amounts and both the senior loan and the EB-5 loan. Developer equity is often in there; as is job cushion; the rate of return to investors and the term.

Bob, is there anything in that list that strikes you as being something that you’d want to be cautious about?

Bob Cornish: Certainly, results from previous projects and principal paid back to investors is, in my mind, probably the most prominent issue on this list, simply because there are so many prohibitions and guidelines regarding how you represent past performance, how you represent what the results may be from a certain strategy.

One of the problems you have in the EB-5 context versus traditional investment management vehicles is how do you actually measure performance? Is it the return on the investment? Not really since most investments are not designed to generate monetary return other than the return of principal and the green card. More importantly, how do you measure what a successful result is? If 97% of the people who went into the EB-5 program were able to get their green cards, what does that mean? Who measures that and how has it been verified?

Should EB-5 Regional Centers Have Their Employees Register with a Broker Dealer?

Posted by Kurt Reuss on March 23, 2015

Robert Cornish: Having an employee register with an EB5 broker-dealer has its benefits and its drawbacks. Having supervised workers in the past and other registrants from far away, one thing people need to understand is that once your employees register with a broker-dealer firm they have obligations that may not jive with the ones that you have.

For example, email retention. Broker-dealers are required to retain email communications. You're going to have to facilitate some way for the broker-dealer to retain your employee’s emails. Correspondence coming in and out of your office regarding that employee’s business activities needs to be reviewed on a periodic basis. That can be a difficult thing to handle. Clearly there has to be supervision of what that person is doing. 

Implications of starting your own broker-dealer firm

Posted by Kurt Reuss on March 20, 2015

Jackie Prester: After analyzing the broker dealer rules I know that a lot of regional centers start becoming concerned that their traditional activities as an EB5 regional center could potentially result in them being deemed a broker-dealer. And so, the quick answer is, "Okay then, we'll just get licensed as a broker-dealer”, easy enough.

Well the problem is that it's not particularly easy or cost effective to get licensed as a broker dealer firm in the U.S.. It tends to take a good deal of time and money and more importantly in order to be licensed as a broker dealer firm it has to be managed by folks who have taken the requisite broker-dealer licensing tests and have the principal licenses before actually even opening the doors.

Disadvantages of Hiring a Broker-Dealer for an EB-5 Offering

Posted by Kurt Reuss on March 18, 2015

Kurt Reuss (host): What are some of the disadvantages, or even competitive disadvantages, of hiring a broker dealer as a placement agent for an EB5 project offering?

Jackie Prester: Before tackling the question, I'd like to just take 15 seconds to remind folks what the 'competitive advantages' of hiring a broker-dealer are, and then we can pile on the disadvantages. In terms of the competitive advantage of having a broker dealer, I think there's something to be said from an investor's viewpoint of knowing that a broker dealer has gone to the trouble of doing the due diligence necessary to serve in this role. There's a credibility factor that gets added for that issuer.  

There's also a competitive benefit to the issuer when a broker dealer is involved. A broker dealer is in the business of putting together the disclosure documents and pulling together a lot of other materials, of running the time-line.

A broker-dealer has the expertise to help the deal go more smoothly and to make sure it will be marketed in a way that is appealing to EB5 investors. I see those as some of the competitive advantages.

Who Controls the Translation of the PPM?

Posted by Kurt Reuss on March 10, 2015

Julian Montero: With respect to translating the PPM into foreign languages, IIUSA adopted in its Best Practices a standard that PPMs should be fully translated although it’s clear that the English language document should control. Bob how do you feel about that and whether it poses a particular risk and whether it should be avoided?

Bob Cornish: The usefulness of the PPM being translated is really only as good as the translation itself. I can’t tell you how many times someone has asked me whether they can just run it through Google Translator. The resulting document regarding risk disclosure could be talking about the color of the hanger in the closet for all you know and that’s something you certainly want to avoid.