Is General Communication at Conferences or on Websites Okay Under the Regulation S Exemption?

Posted by Kurt Reuss on October 08, 2015

We have a conference coming up in Dallas, Texas this month where there will be a number of booths talking about their EB5 offerings. Jackie, would you imagine that all of those booths would be exclusive Reg D offerings, or are they going to be limited to what they can say at the booth?

Jackie Prester: My hope would be that reps in the booth will limit what they say. In the SEC precedent, the word “offer” is construed very, very broadly. It's not going to be limited to "Do you want to buy a security?" It will be much broader in scope; essentially the SEC would view conditioning the market to prepare for an offering of securities as an offer.

Reg S; Rule 901: The “General Statement”

Posted by Kurt Reuss on October 05, 2015

Rule 901, the 'General Statement' relating to Reg S explains that; 

"If one can demonstrate that no directed selling efforts are made within the U.S. and the sale of securities occurred outside the U.S. then registration requirements will not apply."

Clem, you had suggested that there may be some wiggle room regarding 'no directed selling efforts' being made in the U.S. Can you talk about that?

Clem Turner: When you look at the definition of 'directed sales efforts' in Regulation S, as well as in the preliminary notes, one of the exceptions is the communication with people who are excluded from the definition of a U.S. person. A U.S. person is defined as anyone who is a resident of the United States. This creates a lot of controversy, an issue, when our clients want to pitch to people that are in the United States, but here on temporary visas, such as a student visa, for example. 

What is 'Regulation S' and How Did It Come Into Being?

Posted by Kurt Reuss on October 01, 2015

'Regulation S' is simply a series of rules that clarify the SEC's position, that securities offered and sold outside of the U.S. do not need to be registered with the SEC. Clem, could you give us a little background on Reg S and how it came about?

Clem Turner: Reg S is essentially a codification of the fact that the SEC understands its role is to govern security offerings within the United States, and to protect investors who invest inside the United States. It is intended to clarify that to the extent an offering is made primarily for offshore investment that it would be a valid exemption under the registration requirement of Section 5. 

Kurt Reuss: From what I've read about the development of Reg S, the SEC’s intention essentially was to say; "You can sell securities outside the U.S., we just don't want unregistered issues to be relied upon by U.S. persons." Is that essentially how you see it?

The Issuer Exemption as it relates to EB-5

Posted by Kurt Reuss on August 11, 2015

An exemption from registration as a broker dealer under Section 15(a) of the Securities Exchange Act of 1934 is available for persons associated with an issuer and involved in the sale of the issuer’s securities.

Some clarity on the once-every-12-month aspect of the Issuer Exemption

Posted by Kurt Reuss on August 10, 2015


Rule 3(a)4-1, often referred to as the 'Issuer Exemption', restricts an issuer from offering its own securities for a period of 12 months following the conclusion of the issuer's previous offering. So if we assume an offering comes to market and is solicited by the issuer for a period of say 9 months, then the issuer wouldn't be able to begin a new investment offering for 12-months after the first offering is concluded. Is that right?

EB5 Investors, Reliance on "Issuer Exemption" Involves Risk

Posted by Kurt Reuss on August 07, 2015

Jackie, If you meet the guidelines of the Issuer Exemption 3a(4)-1, then you are in the clear as it provides for a non-exclusive safe harbor. Can you give us a sense of what might be deemed outside of that exemption? Is it something along the lines of say, "The speed limit is 60 miles per hour, so I'm not going to recommend that anyone drive 62, even though I think it'd be fine.” Is that the way you approach it?

Jackie Prester: It's a gray area. Unfortunately, if you fall outside the safe harbor, which I think most regional centers and most people that are involved in EB5 offerings do because of the 12-month limitation, then you're stuck with facts and circumstances. The SEC is not going to give you a black line kind of assurance that “yes, you're a broker-dealer” or “no, you're not.” So it becomes really a risk analysis of how can you contain the risk or reduce it.

Does the Issuer Exemption work in EB5?

Posted by Kurt Reuss on August 05, 2015

The title of today's webinar "The so-called Issuer Exemption," includes the disclaimer “so-called” because the phrase “Issuer Exemption” is not part of the regulations. Nowhere in the Exchange Act is there an actual reference to an “issuer exemption.” The phrase is really a colloquial term which refers to Rule 3(a)(4)-1.

When we talk about broker-dealers in the EB5 context, we're really talking of brokers. Brokers are ones who affect transactions for others. Section 15(a) of ‘The Exchange Act’ says, "It is unlawful for any unregistered broker to effect any transactions in or otherwise engage in the business of purchasing or selling securities.” 

So in order to properly explain “the so-called Issuer Exemption” we need to start by defining what a broker is. Rule 3(a)(4) of The Exchange Act defines a broker as any person engaged in the business of effecting transactions in securities for the accounts of others. The Act also outlines the requirements of brokers to register with the SEC and any states they conduct business and brokers are required to become members of FINRA. Brokers are subject to extensive regulatory requirements and oversight. 

Does the typical NCE qualify for the Issuer Exemption?

Posted by Kurt Reuss on August 01, 2015

Jackie, does the typical EB5 issuer (NCE) qualify for Rule 3(a)4-1 (The Issuer Exemption)?

Jackie Prester: There are two different levels of inquiry. You’ve got this very specific rule which pertains to the ‘Safe Harbor’ status. For that you've basically got to check the box on all the conditions. And if all the conditions are met, because of the ‘safe harbor’ status, you’re not deemed to be a broker-dealer. But even if you don’t meet all of the conditions, you may still not be deemed to be a broker-dealer, however, that is dependent upon the facts and circumstances. 

Would an NCE ever be deemed an issuer or would it be by definition a broker? If we take a step back and ask, "What's the definition of a broker?”; a broker is someone who effects transactions on behalf of others. The NCE, the entity itself, is out there offering securities of the NCE, say of a limited partnership or membership interests.

So by definition the securities being offered and sold are securities of the NCE, as the NCE is the issuer. But where the rub comes is that an entity doesn’t offer and sell securities. Individuals do. 

The individuals who are associated with the NCE, whether directly (if they're an officer of the NCE), or indirectly (if they’re an officer of the general partner or the regional center) are actually a step or two removed from the NCE. 

So are those individuals who are acting on behalf of the NCE effectively brokers, i.e. acting on behalf of others, or are they really just part of the NCE itself and considered to be part of the issuer? Legally, that's the real inquiry. 

Federal statutes of limitations for claims against EB5 investments

Posted by Kurt Reuss on May 14, 2015

(Steven Kramer): Developers seeking to raise capital by forming (or otherwise utilizing) an EB-5 Regional to sell investment securities to foreign nationals face potential claims under the U.S. and state securities laws. Here we focus on federal securities claims and the various Statutes of Limitations that apply.

Statutes of limitations set the time period during which a government enforcement or private action must be brought.  If not brought before the expiration of the relevant limitations period, a developer who is a defendant in an enforcement proceeding or private claim based on securities laws can assert the statute of limitations as an affirmative defense potentially resulting in dismissal of the claim. 

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 a 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. 

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