Writing Private Placement Memorandums in 'Plain English'

Mike I know that your firm has been very active in overhauling your PPM drafting process to address the 'Plain English' question. Could you talk a little bit about that?

Mike Homeier: Sure. It’s something that we’re focused on, especially as we see the SEC bringing action against more people involved in the EB5 securities world. It seems that closer and closer compliance with normal, if you will, securities practice outside of EB5 is a better and better idea. One way for Issuers to get maximum protection is for them to give full material disclosure to investors, and the SEC some years back adopted a ‘Plain English' imperative for various required filings. 

The 'Plain English' initiative is designed to make the wording used in the offering documents , not just legalese. 

We’ve heard a rumor that folks other than us who are not lawyers have some difficulty from time to time understanding what it is lawyers write, go figure, but that’s the complaint we hear and the government has said they hear it too. And we want to better communicate information to investors that satisfies the disclosure obligation. 

So what does 'Plain English' mean in practical terms? There is an SEC handbook titled ‘A Plain English Handbook - How to create clear SEC disclosure document’. An example is writing in an active voice, not a passive voice, such as saying “we are paying a preferred return” as opposed to “the company anticipates paying a preferred return”.  Another example is breaking up sentences. Lawyers often write paragraph long sentences with one period, whereas 'Plain English' would break up the phrase after phrase after phrase of a single sentence into separate sentences. 

‘Plain English’ makes it easier for investors to understand what the disclosure is attempting to convey. If our goal is to achieve maximum protection for the EB-5 business principals by helping them satisfy their obligation to share their information with the investors so that the investors really are making an informed investment decision, ’Plain English' is viewed as going quite a long way toward accomplishing that.  It is routinely practiced by securities lawyers in areas other than private offerings as many law firms and lawyers use 'Plain English' in cases where it’s not required.

One of the things our firm decided to do in the current atmosphere where punitive SEC actions are coming in EB-5 process, and we’re expecting more of the same, it’s a good idea to maximize protection for investors, and thereby issuers, by moving to and adopting the 'Plain English' and recasting our documents.

Remember these disclosures are looked at not only by investors in making an investment decision but also by the SEC in deciding later on, when it’s too late to change disclosures, whether or not those disclosures were complete and comprehensible, and you always face the risk that there will be litigators who put their kids through college by bringing a lawsuit against someone. We don’t want to give them any ammunition.

John Tishler: PPMs in 'Plain English' are still technical. It’s a mistake to think that 'Plain English' is somehow soft and fuzzy. 'Plain English', when done well, is very precise.Ironically it’s often more expensive to draft in 'Plain English' than in legalese because it is very precise and yet at the same time you’re taking care of the suitability concern.