On April 21, 2016, at the IIUSA Conference, members of the panel dealing with securities law issues confirmed the following:
- The SEC will take a more active role in coordinating with other federal agencies, including USCIS.
- There has clearly been a heightened use of subpoenas to obtain information related to SEC investigations. We have been privy to subpoenas issued regularly to regional centers, marketing agents as well as investors which will assist the SEC in obtaining information on projects and/or participants in projects, including regional centers, to verify SEC compliance.
- At the conference the panel discussed the difference between an exclusion from registration as a broker/dealer and/or registered investment advisors compared to an exception to registration entirely. The exception generally applies to foreign agents with respect to the broker/dealer matter, and the so-called “issuer” exemption based upon certain criteria being satisfied. The head of the Alabama Securities Regulatory Agency made an interesting comment. It was his position that if a bank account for a program was maintained in the State of Alabama, then the State of Alabama would automatically have extended jurisdiction over the parties in connection with the applicable transaction independent of any jurisdiction by federal authority.
- The SEC representative on the panel indicated that they were actively coordinating with foreign regulators in China to police the EB-5 industry.
- The FINRA representative indicated that if a transaction was undertaken by a FINRA licensed broker/dealer, then the engagement would involve the following compliance issues:
- Suitability of the project for investors;
- Review source of funding;
- Position that the broker/dealer is the gatekeeper and supervisor of activities and all offering and marketing materials must be filed with FINRA, although there was no automatic review process in place.
IIUSA announced at the conference that it is willing to cooperate with other participants and organizations in the EB-5 industry in order to try to promote one voice and have a centralized and focused influence over the integrity and immigration issues that are being considered by Congress.
Since the advent of the Jay Peak SEC action and based upon my constant communication with participants in the industry, including migration agents in China, I have the following observation:
- The Jay Peak matter has not had a material effect on marketing of EB-5 projects in China. This is primarily due to fact that the Jay Peak projects have apparently been sold to investors in approximately 74 countries and therefore, China represents only a minority of EB-5 investors and therefore the negative impact of Jay Peak has not been material.
- Jay Peak matters have clearly heightened the focus in Congress and many of the legislators ___ on integrity measures being adopted sooner rather than later as a condition to the renewal of Program. However, it is still the sentiment of the industry that the Program one way or another will be renewed in September.
With respect to marketing activities in China, the following should be noted:
- There was a tremendous rush for applicants last year due to the anticipated change in legislation, which, in effect “took the wind out of the sails” as a result of the degree of involvement of Chinese investors for the first half of 2016;
- The recognition in China of the seriousness of the retrogression issue and that the increased time delay to obtain an EB-5 visa to in excess of 5 years is having a negative impact on the marketing of interest of investments in China.
- Agents in China are considering other types of visa programs to either have investors migrate to other countries and/or obtain access to the United States to other visa categories.
- There is clearly a substantial number of projects being presented in China and therefore, this has heightened the degree of competition among the projects. Accordingly, it is anticipated that the cost of marketing has likewise increased due to the supply/demand factor and the ability of subagents to demand higher compensation based upon the excess supply of product.
There seems to be a significant push to access investors in Vietnam, which previously, had not been made significant market for EB-5 investors. Furthermore, there seems to be a heightened focus on Latin America and the Middle East as well. Statistics show that South America for the year 2015 only accounted for 2.3% of EB-5 investors.