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.