Back in 1990, Congress created the United States Citizenship and Immigration Services (USCIS) EB-5 Immigrant Investor Program. The idea was to help stimulate the country’s economy by encouraging foreign investment in U.S.-based projects in exchange for a quicker path to U.S. citizenship for those foreign investors. The foreign investors, who invested in an EB-5 project of at least $500,000 that would lead to the creation or preservation of 10 or more jobs for U.S. workers, could qualify for an EB-5 visa. Later in 1992, USCIS set aside EB-5 visas for those foreign investor investments made through regional centers designated by the USCIS.
In recent enforcement actions, the SEC took action against six lawyers and three law firms for acting as non-registered brokers in connection with EB-5 offerings.
Typically, such investments are made through the purchase of limited partnership or limited liability company interests formed for the sole purpose of developing the particular investment project. The offer and sale of such interests are “securities” as defined under the state and federal securities laws, but are offered under a private offering exemption such as Regulation D under the Securities Act of 1933. Accordingly, there is no oversight by the U.S. Securities and Exchange Commission (SEC) or state securities regulators in connection with the conduct of the offering, including the offering materials used by promotors of investment projects offered to foreign investors in an EB-5 offering. Securities regulators such as the SEC, however, still have the authority to investigate such offerings for securities fraud and unregistered broker violations.
Stephen L. Cohen, associate director of the SEC’s Division of Enforcement, in recent testimony before the U.S. Senate’s Committee on the Judiciary, reported on the rising number of SEC enforcement cases involving EB-5 offerings. According to Associate Director Cohen, over the last two-year period ending in December, 2015, the SEC filed 19 cases involving EB-5 offerings. Over half of those cases involved securities fraud allegations. Eleven of those cases involved unregistered broker allegations. There is no question that the SEC has stepped up its review of EB-5 offerings, as many of the offerings are conducted by non-registered persons who often provide little or no disclosure to prospective foreign investors about the risks in connection with such investments.
In order to more effectively regulate such non-registered offerings, the SEC according to Associate Director Cohen, has stepped up its efforts to educate prospective investors about the risks of such investment programs. In addition, the SEC has worked with the USCIS to help prevent and detect violations of the securities laws in connection with EB-5 investment programs.