Category Archives: Blog

Dec 7, 2015
EB-5 Program Regional Centers Oppose Being Compliant with Federal Labor Laws

As we inch closer to meaningful EB-5 reform, some regional centers, and related groups, in opposition have focused on one sentence of the draft bill:

(VII) a certification that the regional center has policies and procedures in place that are reasonably designed to ensure that the regional center and any associated new commercial enterprises and job-creating entities comply with Federal labor laws.

When I first heard of the opposition, I was shocked. After all, the EB-5 program is a JOB CREATION program that is supposed to benefit AMERICAN workers. It is not an entitlement program for large real estate development firms or other sponsors. The new requirement above is exactly the kind of reform the program needs to help ensure that the American people get the benefits they deserve for providing Green Cards to immigrant investors. Any objections to following the law should leave a foul taste in the mouth of anyone who wants the EB-5 program to produce the benefits it claims for our society. This is not even asking Regional Centers to certify that their NCEs are in fact compliant with the law. All that it requires is that they put ‘reasonably designed’ policies and procedures in place.

Is there any real burden at all? Shouldn’t every business in America have reasonable policies and procedures in place to help ensure that the business is in compliance with Federal Labor laws? It is true, Regional Centers are separate organizations (entities) from the New Commercial Enterprises that they sponsor to gain the benefits afforded by the EB-5 program, so this does require them to have an extra set of procedures in place. My answer to any objection is, Exactly! The Regional Center allows the NCE to get the benefit, so it makes perfect sense to require the regional center to have a reasonable set of policies and procedures in place to help ensure that America gets its share of the value of the grand bargain for allowing the EB-5 program to exist. Without this requirement, the Regional Center program would have an enormous moral hazard. The Regional Centers may then have little regard for the labor practices of the NCEs under their umbrella.

Some of the objectors have raised gloom and doom arguments about how this kind of regulation might create over reaching and unintended consequences under the Federal Labor Laws by ‘grouping’ Regional Centers together with the NCEs they sponsor. Once again, Exactly! They are grouped already. The Regional Centers should be underwriting the labor practices of their NCEs and if they do not comply, then THEY SHOULD NOT BE PART OF THE EB-5 PROGRAM! If there are labor laws or decisions by the National Labor Relations Board that are over-reaching or that create too great a burden on employers, then seek to amend those statutes or overrule those rulings. The current labor laws are the law of the land, too little, or too much.

To be compliant, the Regional Centers must simply make sure their NCEs are trying to comply. It’s not particularly burdensome. Is it that hard to run an eVerify report? Or to hire an HR administrator or firm to comply? Millions of businesses do it every day. For goodness sake, it is not like the proposed regulation requires procedures to ensure that all indirect and induced labor associated with the project go to qualified workers, it is only their direct employees. Under the draft bill, that would only be 10%. It is only hard if the underlying business really cannot comply, if a large part of their workforce cannot pass eVerify. Then, it is a real problem. My answer to that is: GET OUT OF THE EB-5 PROGRAM. This is supposed to be about creating jobs for people who are authorized to work in America.

Just before I wrote this piece, I signed a letter pledging that my firm and all EB-5 business associated with it, would comply with paragraph VII quoted above. I will do this regardless of whether the reforms are passed. I call on all EB-5 sponsors to do the same so we can prove to America that we are serious about helping our country and not just enriching ourselves. If you agree, kindly, sign a letter with the text that follows and send to any (and preferably all) members of the House Appropriations committee and the leadership in both parties. Also, continue to voice your support for including the EB-5 reforms in the Omnibus bill this week. If you do not agree, kindly get out of the EB-5 program. I, and everyone in my organization, are working every day not only for ourselves, but to create the promised value for America. Are you?

Letter Text:

Dear Members of the United States Congress,

We the undersigned sponsors in the EB-5 program, including the sponsors of direct employment new commercial enterprises and USCIS approved EB-5 Regional centers, hereby pledge that our organizations enact policies and procedures that are reasonably designed to ensure any and all associated new commercial enterprises and job creating entities comply with State and Federal labor laws. Thus, we support Section 102(G)(VII) of the proposed bipartisan proposed legislation reauthorizing the EB-5 Regional Center Program.

Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog

Dec 4, 2015
The EB-5 Revolution has Begun

“God forbid we should ever be 20 years without such a rebellion”, said our founding father Thomas Jefferson. By all accounts, the EB-5 program is about 5 years overdue. The EB-5 program has come to a moment of truth in its quarter century history. The program has done much good, and some bad things have occurred in its name. At an increasing rate over the last several years, the program has started to forget its roots, as a job creation program, to become a small part of high-end large real estate project finance in a few prime cities in America. This is not the fault of the real estate developers who simply saw an opportunity in a program that was misunderstood by its administrators and mis-designed by Congress. Not being at fault, however, is not an excuse to leave a broken system unrepaired.

At its heart, the EB-5 program has the potential to be among the crown jewels of American immigration policy. Whether it can live up to that potential may largely be determined by the events in the next day or at most several days. Early in the day, yesterday, on December 2nd, compromise EB-5 reform language was proposed for inclusion in the Omnibus spending bill that must be enacted by December 11th to avoid a government shutdown. The bill contained real reforms. If enacted many things in the EB-5 program would change. And change it should. Change, especially to the most entrenched members of the EB-5 community is a scary thing. Despite a nearly non-stop barrage of negative press and SEC activity in the space over the last two years, many incumbent Regional Centers want nothing more than to be left alone so business as usually can continue undisturbed. As Rome burns around them, they see no peril at all in perpetuating the status quo. They fail to see that against a backdrop of trillions, EB-5’s few billions are at risk of getting cancelled entirely if the risks and distractions prove not to be worth the effort to our government. They fail to see that the blind acceptance of Chinese investors and agents is starting to change.

The bill is not the end of the EB-5 program as some complain, but rather, to quote another great leader, Winston Churchill, “It is [or would be] the end of the beginning.” With any ending, the next phase will require an adjustment process. Foremost, the shenanigans that were allowed in constructing TEAs would end and there would be no project grandfathering. The draft bill contains a very reasonable compromise that allows truly disadvantaged areas and the immediate proximate areas to qualify for the lower investment threshold. It is true that some projects, those in the most affluent areas, may no longer qualify as TEAs. To those developers, please stop whining. If you are fortunately enough to have the right to develop a plot of land in Manhattan, Los Angeles or Miami with a budget of hundreds of millions of dollars, whether or not EB-5 capital is part of your program will not matter one iota. Your project will get financed and you will make your many millions. A few less than without EB-5 capital, but so be it. Or maybe your investors would be willing to pay the 20% additional amount required to be part of a project in a premium location. Even if not, use the disappointment as a challenge and deploy the needed skill and efforts to a development that is slightly less lucrative, but that does qualify for EB-5, which then makes it worth a good bit more. Learn, adapt, adjust. A new challenge is simply an opportunity for those willing to take hold of it. The objecting Regional Centers are acting like the auto makers faced with mandated seat belts and then air bags a generation later. They screamed and predicted massive woes. Instead, the market embraced the newer better technology, which ultimately helped propel further growth. So too will be the path of an improved Regional Center program in EB-5.

The bill requires all Regional Centers to have 10% direct jobs. Read another way, that’s one whole job per investor. One, the smallest possible integer. Is that so much to ask? The currently accepted econometric methodologies fail to prove two important points. Firstly, that the jobs created will have a long duration and secondly, whether the created induced and indirect labor actually goes to American workers. This requirement simply insists that America, the “we the people,” get one single eVerified job per investor to insure, at a minimum, some verified value to our society in exchange for the coveted lawful permanent residency. Again, some Regional Centers complain that their current way of doing projects would not qualify. The answer is, so change. Evolve. If you are building an office building, add a call center or health clinic as part of your plan. If you are building a warehouse, add a trucking company. If you don’t know how to do it, joint venture, engage with other professionals. One job per investor would require 10% of the EB-5 capital. If you can do that at the present $500K level (which many who focus on Direct EB-5 know how to do), then at $800K investment levels, it would require a little over 7% of the EB-5 capital to work. Or simply gross up the budget for the new requirement.

The anti-fraud, securities laws and verification requirements are needed reactions to a history of abuses that have only recently garnered regulator attention. No one can nor should object. It’s a pain and expensive, but deserved. If the industry had done a better job at policing its own ranks, the heavy hand from above would not have been needed. This can and will force the marginal and fraudulent players from ever wanting to try their hand at the game.

This doesn’t need to be a war, it should, in fact, be a celebration of the next chapter in the evolution of the EB-5 program. I call on everyone to reach out to their Senators and Representatives in Congress (especially those on Judiciary and Appropriations Committees) to express strong support for inclusion of the EB-5 reform language in the Omnibus bill. Let us work together to build a better EB-5 program and with it a better America.

Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog

May 1, 2014
E3 Investment Group CEO Invited to White House Office of Science and Technology Policy JOBS Act Forum

E3 Investment Group, headquartered in New York, announced today Chief Executive Officer Matt Gordon has been invited to participate in a policy forum on the JOBS act organized by the White House Office of Science and Technology Policy.  The JOBS Act, or officially, the Jumpstart Our Business Startups Act, was signed into law on April 5th, 2012.  Recently, the Securities and Exchange Commission promulgated the needed rules under the JOBS Act to allow issuers directly advertise investment opportunities to potential high net worth investors and has proposed other rules which allow for ‘crowd funding’ to all investors.

According to Mr. Gordon, “The EB-5 program has always been a crowd-funding program, albeit with a particular focus on high net worth immigrant investors as the ‘crowd’.  We are greatly honored to have been asked to help participate in an important policy forum based on our expertise and reputation of being at the forefront of legal structure, investor protection and technological issues.”

Mr. Gordon continued, “We look forward to having an active voice in the policy arena to help the law catch up with a rapidly advancing world.  The key will always be to support market participant behavior through technologies that allow good and honest people to engage in robust activities while minimizing overly burdensome regulations.  If we can accomplish this goal in the EB-5 Program, with crowd-funding and beyond, it will be a significant and on-going boost to the US economy.”

Feb 27, 2014
Patent Filed for Scalable-Direct EB-5 Business Method

E3 Investment Group, headquartered in New York, announced today that Chief Executive Officer Matthew Gordon had filed for a patent to protect the intellectual property of the Scalable-Direct™ business method of structuring EB-5 investment offerings. According to Mr. Gordon, “The Scalable-Direct business method solves a number of problems. It allows investors to participate in larger, scaled enterprises, without the need for a sponsoring Regional Center. This saves time and expense, which translate into higher investor returns and lower risk.”

At the heart of Scalable–Direct™ each investor invests in his or her own separate legal entity, independent of all others. This greatly protects the investor from allocation of labor issues and from a singular massive liability producing event that could take down an entire project or venture if structured as a single investment pool. Further, Scalable-Direct™ investment opportunities, as the name implies, are by their nature ‘Scalable’. They have the ability to grow over time in a stable disciplined fashion. Unlike projects that start large and need all of their EB-5 capital at the beginning, there is no artificial urgency with Scalable-Direct™ investments. The pressure to raise capital quickly has created problems for other sponsors, where some sacrifice quality (and even legality) for speed. Ultimately, investors in a Scalable-Direct™ project can enjoy the superior cost economics that come from being part of a commonly managed and coordinated enterprise.

“We have literally built a novel legal machine,” continued Mr. Gordon, “The marketplace is beginning to appreciate the better mouse trap and we thought it was important to take this step to protect the intellectual property of the Scalable-Direct™ business model.”

Mr. Gordon is publishing Organizational Law Issues in the EB-5 Program, which fully describes the Scalable-Direct™ business model. The work will appear in Forming and Operating an EB-5 Regional Center: A Guide for Developers and Business Innovators, Editors: Angelo A. Paparelli and L. Batya Schwartz Ehrens. The book is being published by ILW.com.

 

 

Feb 11, 2014
E3 Investment Group A New Direct EB-5 Model

Recently, Matt Gordon, Managing Director of E3 Investment Group, spoke with EB-5 Investment Report about their Scalable Direct EB-5 Model, a creative business alternative for direct EB-5 investors.

Matt Gordon calls his Scalable Direct Model, the “non-regional center” and although it is in its infancy, he is confident investors will respond. He explains, “It’s a direct EB-5 investment but each individual investor is in their own separate, legal entity and what we do is coordinate and we manage them so that way we essentially scale them as if they’re one large enterprise.”

A light bulb went off in Matt’s head when he started to investigate the regulations of the EB-5 program. Being a corporate attorney he was akin to operating companies and through educating himself on EB-5, he discovered that there were legislative pathways allowing creative structures on the direct side of the program. Unlike regional center EB-5, direct EB-5 doesn’t rely on indirect or induced jobs that require economic studies to conclude how the jobs are counted. Instead, like the name implies, jobs are counted directly. Basically, the number of W2 employees are what count.

Matt emphasizes that he did not get into this to compete with regional centers, instead, he’s utilizing this model to address the unmet demands for investors who did not want to invest in typical EB-5 projects like hotels or assisted living facilities. He adds, “There are some investors who didn’t want day to day management requirements, who wanted something else and the market wasn’t meeting that demand.”

He also addressed the myth that with direct EB-5, investors have to be hands-on as an active manager. He explains that there are ways of satisfying the requirement by setting up a corporation for example with the investor on the board of directors.

E3 Investment Group’s model isn’t suitable for all EB-5 projects. Matt found that the best fit is labor intensive industries like trucking, so that’s where they started. He says the way they set up a trucking company is the same in or outside of the EB-5 program. “Trucks are a great asset, they’re there, so if something goes wrong, it’s easy to sell a fleet of trucks.”

And if something does go wrong, the Scalable Direct Model is structured to help protect the investors. He says, “If something happens then it’s very easy to take that entity and separate it from the rest of the group because it really is already separate….we say [to our investors] if things aren’t going well and you want to liquidate, you have the right to kick us out.”

Matt is excited to announce his first I-526 application for his trucking project and he is confident he will have a significant number of investors following suit. They began marketing six months ago. “We are building momentum,” he says.

Matt is blazing a new path and welcomes others to “copy” his model, pointing out that this model is really just returning to the original roots of the EB-5 program.

Jan 30, 2014
E3 Investment Group’s Scalable-Direct Business Model will be Featured in a New Authoritative EB-5 Publication

E3 Investment Group, headquartered in New York, announced today that that Chief Executive Officer and Managing Director Matt Gordon has authored an article entitled Organizational Law Issues in the EB-5 Program, which will appear in Forming and Operating an EB-5 Regional Center: A Guide for Developers and Business Innovators, Editors: Angelo A. Paparelli and L. Batya Schwartz Ehrens. The book is being published by ILW.com and is expected to be available in February.

According to Mr. Paparelli, “The EB-5 program has captured the attention of a far more sophisticated class of developers, entrepreneurs investors and advisors just as the federal government has dedicated additional resources toward program compliance and enforcement.” The Scalable-Direct™ model, Paparelli noted, offers a streamlined method to meet EB-5 program requirements while requiring fewer steps along the path to permanent residence for investors — clearly a win-win for stakeholders.”

According to Matt Gordon, “It was a great honor to be asked to contribute to the book. Mr. Paparelli is among the most esteemed immigration attorneys in America. To have brilliant attorneys like him and Ms. Ehrens recognize the value of our Scalable-Direct™ model and how it can help expanding options for both sponsors and investors alike speaks for itself.”

Mr. Gordon regularly writes and speaks on corporate/securities law and policy aspects of the EB-5 program. Mr. Gordon continued, “The EB-5 program is a wonderful opportunity for the harmonious and simultaneous creation of economic and social good. Sponsors can make a lot of money, but more importantly, we can help rebuild inner cities and give job opportunities to those who need it the most. It should be an example of public policy at its best. Unfortunately, the intent of many participants and the execution has been sub-par historically. We feel it is important to be a leading voice helping the program reach its potential through more investor friendly offerings and better than best practices. Forming and Operating an EB-5 Regional Center is a fantastic platform to provide the immigration bar and sponsors the needed information to improve the EB-5 Program.”

To view our recent interview on EB-5 Investment Report interview, see http://eb5investmentreport.com/investment-group-new-direct-eb-5-model/

Angelo Paparelli: http://www.seyfarth.com/AngeloPaparelli

L. Batya Schwartz Ehrens http://www.seimmigration.com/#!our-firm/cyir

Dec 26, 2013
E3 Investment Group Concludes Successful First Asian Roadshow and Secures an Investor From a Failed Regional Center Project

E3 Investment Group, headquartered in New York, announced today that it has completed its first road show in Asia with stops in South Korea, Vietnam, and China. E3 Investment Group, represented by founder and Managing Director Matt Gordon, met with prospective investors and others interested in theScalable-Direct™ business model. According to Matt Gordon, “We had overwhelming interest, actually more than we expected for our first trip.”

The highlight of the trip was E3 Investment Group’s seminar entitled, ‘Invest and Live in the USA’ in Ho Chi Min City, Vietnam. The seminar about the US EB-5 program was extremely popular, where Mr. Gordon presented to over 100 people and was assisted by local TV celebrity, Thai Minh Chau. Key themes of the seminar were the problems experienced by many regional center investors due to poor organizational structures of the offerings and how the offerings created under the Scalable-Direct™ business model were created to solve the problems endemic in other EB-5 offerings. The most important point was that investors should come first. The investors’ goal of job creation should be superior to that of the sponsor’s quest for profits. The investors’ return of capital and profits should come prior to the project sponsor receiving the lion’s share of its economic value from the project.

Mr. Gordon continued, “One meeting while in Vietnam was especially meaningful to me. A woman had invested with a regional center project over a year ago. She chose one of the oldest and largest sponsors in EB-5, one with large numbers of I-526 and I-829 approvals. Shortly before our meeting, the Regional Center informed the investor that they had received multiple project related requests for evidence (RFEs) and that she was being released from her subscription. She had invested her money, her family’s future and a year of her life for nothing.”

“She signed with us two days later. She learned the hard way that the past success of EB-5 project sponsors means little. It could actually be a liability these days in EB-5. Even worse for this investor, this sponsor did not use an escrow arrangement, so the investor’s capital was already put into the project. Now she and her family have to wait until the sponsor can sell or mortgage their assets in order to return the capital. That is a really harsh result, which is why all our investors’ capital is escrowed, with the leading administrator in EB-5, until approval of his or her I-526 petition. We cannot touch a penny of the investment capital until the investor is approved.”

“We are relatively new in EB-5, but we are committed to being the most investor friendly, incentive compatible sponsor in the EB-5 program. If your investors really do come first, and you, as the sponsor, has to wait until after they get what they are promised to get what you want, then they know you will work hard each and every day to create the needed jobs for their green cards, and earn enough profits to repay them with profits as quickly as possible. Proper incentives and structure really does matter, a lot. The marketplace is starting to take this to heart.”

The E3 Investment Group reports that there are now nearly two dozen investors who are working through the paperwork and agreements with their attorneys and advisors. According to Mr. Gordon, “This was a defining trip for our firm. We are on our way.”

Part of E3 Investment Group’s mission is to engage with the best and brightest entrepreneurs throughout the world who seek to bring their talents and capital to the United States in their continued pursuit of a better life for themselves and their families. “They are the pure embodiment of the American Dream. It inspires me every day to think that we are driving a global recruiting effort for the future engines of US economic growth. I met with people who grew up in war-town countries, who now own thriving software companies, and others who created enterprises to recycle the world’s plastic trash that provide tens of thousands of people with wages twice to four times higher than their national average,” said Mr. Gordon. “They look to America, not as an end of their pursuit but as the beginning of even greater things to come. By bringing these people to our country, we will not create the ten jobs per investor specified under the EB-5 program, we will create thousands.

To view brief segments of video from the seminar and photos, see http://e3investmentgroup.com/media

For a short video on how Scalable-Direct™ works, see http://www.e3investmentgroup.com/scalable-direct

To view our recent interview on EB-5 Investment Report interview, see http://eb5investmentreport.com/investment-group-new-direct-eb-5-model/

See the following link for a comparison between Scalable-Direct™ and the typical EB-5 Investment structures:http://e3investmentgroup.com/direct-vs-regional-center-based-investments

Nov 26, 2013
E3 Investment Group Embarks on First Asian Roadshow and has Secured Second Scalable-Direct™ Investor

E3 Investment Group, headquartered in New York, announced today that it will visit Vietnam, South Korea and China on its first roadshow to Asia in early December. The roadshow will allow prospective investors to learn about the advantages of E3’s Scalable-Direct™ business model and how it compares to investments typically offered by regional center sponsors. These advantages include: significantly faster government processing time, superior targeted investment returns and lower immigration status risk.

According to Matt Gordon, Managing Director of E3 Investment Group, “This roadshow provides us with a fantastic opportunity to interact in-person with our potential investors in their home countries. We entered the EB-5 arena to bridge the gap in quality between what we saw the established sponsors offering and what investors were demanding. The more they learn about us, the stronger the response.”

E3 Investment Group will be joined by Expert Admissions, one of the leading college and secondary school advisory firms in the US. According to Matt Gordon, “Many of our prospective investors have children for whom they, like all parents, want the best possible education. In engaging with our investors, we wanted to go beyond the typical EB-5 sponsor and bring and make available the resources and relationships to help them achieve all of their goals, beyond the pathway to immigration that we provide them. In our search for an educational resource partner, we found Expert Admissions to be the best. Like us, they are completely focused on helping their clients achieve their goals.”

According to Bari Norman, Ph.D., President of Expert Admissions, “It has become increasingly difficult for students to be admitted to the best schools, and international applicants face additional hurdles in not only identifying the schools that are the best fits for them, but also in distinguishing themselves amidst a growing international pool. We work with international students and their families so that they may make the best possible educational decisions with an eye toward admission to US colleges and universities. We are thankful to E3 Investment Group for the opportunity to engage deeply in a region that traditionally has not had access to the needed counselors whose only goal is to help actualize both the student’s and his or her family’s goals. We look forward to a long collaborative relationship with them.”

E3 Investment Group has also announced that it has secured its second investor in its Scalable-Direct business model™. The investor is a Vietnamese national who owns a successful technology company. According to Mr. Gordon, “The US policy goal of the EB-5 program is to create ten job per investors. We believe that by offering a superior EB-5 product, we will be able to attract many of the world’s greatest entrepreneurs. By welcoming successful businessmen and women into our country, there is no doubt that their creative energies and capital will lead to domestic US job creation and growth many times beyond the mandates set forth by Congress. The EB-5 program should be the crown jewel of US immigration policy and, with investors like this, it will be.”

E3 Investment Group’s Scalable-Direct™ model may be the first of its kind to allow foreign nationals who invest their capital as part of the US government’s EB-5 immigrant investor visa program to receive the benefits of an enterprise class organization, while each remaining independent from all other investors by being the only investor in its entity. This is designed to allow the investors to receive permanent residency in the United States, while using their capital to create jobs in high unemployment areas for US citizens and permanent residents.

For a short video on how Scalable-Direct™ works, see http://www.e3investmentgroup.com/scalable-direct

To view our recent interview on EB-5 Investment Report interview, see http://eb5investmentreport.com/investment-group-new-direct-eb-5-model/

See the following link for a comparison between Scalable-Direct™ and the typical EB-5 Investment structures: http://e3investmentgroup.com/direct-vs-regional-center-based-investments

About Expert Admissions
Expert Admissions is a premier college and boarding school admissions advisory firm. A leader in its field, Expert Admissions counselors have served as admissions officers at the most selective colleges and schools. They share their insider knowledge with clients, helping them identify schools that are the best fit and assisting them in gaining admission, even in a highly competitive landscape. Featured in national media, Expert Admissions counselors are recognized as leaders in their industry.

To learn more about Expert Admissions, see http://www.expertadmissions.com/AboutUs/WhyExpertAdmissions.aspx

Nov 18, 2013
The Good, The Bad and The Ugly – Getting Bad Actors out of the EB-5 Program SEC Rule 506(d) and Beyond

The EB-5 program is starting to get a somewhat shaky reputation overseas as word spreads on the prosecution of fraudulent project sponsors. First, there was the Chicago Convention Center case in February and then in October, a husband and wife Ponzi-scheme team from Texas.   There is one business broker in Florida who is trying to sell direct EB-5 investments – he is a convicted felon and subject to deportation proceedings.  I have recently heard rumors of one or more principals at major regional centers who have criminal backgrounds.   It’s no wonder that potential foreign investors are becoming aghast at the seeming lack of quality control over who is and is not allowed to participate in the US Immigrant Investor Program.  Given that the prosecutorial interest in the EB-5 program is recent, one could only imagine the number of prosecutions if the SEC and Justice Department would have started looking at practices much sooner.  At this point, these prosecutions are probably the tip of the iceberg.

It’s high time that we get the bad actors out of the EB-5 program.

Fortunately, congress and the SEC have provided the legal infrastructure for doing so.  Under Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, congress required the SEC to create rules to disqualify bad actors from private placements that rely upon Rule 506 of Regulation D, which is the typically relied upon exemption to registration requirements under the Securities Act of 1933. The SEC did so on July 10th of this year:

“‘Bad actor’ disqualification requirements, sometimes called “bad boy” provisions, disqualify securities offerings from reliance on exemptions if the issuer or other relevant persons (such as underwriters, placement agents and the directors, officers and significant shareholders of the issuer) have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws.”  See http://www.sec.gov/rules/final/2013/33-9414.pdf, P.7.

The persons covered under this rule are:

  • the issuer, including its predecessors and affiliated issuers
  • directors, general partners, and managing members of the issuer
  • executive officers of the issuer, and other officers of the issuers that participate in the offering
  • 20 percent beneficial owners of the issuer, calculated on the basis of total voting power
  • promoters connected to the issuer
  • for pooled investment fund issuers, the fund’s investment manager and its principals
  • persons compensated for soliciting investors, including their directors, general partners and managing members

See http://www.sec.gov/info/smallbus/secg/bad-actor-small-entity-compliance-guide.htm for the full text of the SEC’s compliance guide.

Under the rule: “Disqualification will apply only for triggering events that occur after the effective date of the amendments; however, pre-existing matters will be subject to mandatory disclosure”.  Accordingly, bad actors are getting a free pass for disqualifying events that took place before September 23, 2013.  Disclosure of such act is still required, but is that really enough?

Immigrants under the EB-5 program are held to a higher standard.  An immigrant who seeks admission to the United States as a conditional lawful permanent resident would be denied entry based on a great number of felonies committed before September 23, 2013.  Are we telling the world that it is fair and acceptable to deny entry to felons who have paid their debts to society, but that the same person, if a US citizen, who committed the same crime, is perfectly free to sell EB-5 investments?

If congress will not hold the EB-5 industry to higher standards, then we must impose these burdens on ourselves.  With this article, I am calling on IIUSA, all regional centers and all direct EB-5 investment sponsors to make the following pledge and to certify to all their investors:  That no person who has even been convicted of any felony be allowed to hold the position of an officer, director, general partner, managing member or otherwise have control over a sponsor or issuer of EB-5 investments.

I call on all broker dealers and law firms that work on EB-5 projects to conduct the needed due diligence to ensure sponsor compliance with the existing Rule 506(d) and the heightened standards proposed here for all sponsors who agree to the pledge.

We do not need the SEC, Justice Department and state prosecutors to do this job. We can and should do it ourselves.  If we, the EB-5 sponsors, do this ourselves, we can get rid of both the bad actors and the ugly projects.  Projects can and will fail, that is the essence of risk, which is fundamental to the EB-5 program.  An immigrant’s dream should never be dashed because of the bad-faith and ill-intent of criminals in our midst.  Every immigrant participant in the EB-5 program should have a fair and fighting chance to realize their dream to walk among us on American soil.  Let us work hard, so that the good prevail.