In the SEC’s recent charges against two unlicensed brokers in Florida, the SEC Order contained a misstatement of the law regarding the EB-5 program. Oddly placed in the ‘Factual Background’ section of the Order, paragraph 7 summarized the legally required investment amounts as follows: “An applicant investor is only required to invest $500,000 if done through a regional center.” The EB-5 program regulations require all investments to be of at least $1 million, unless the investment is made in a targeted employment area, which then allows for the reduced investment amount of $500,000. See 8 CFR 204.6 (f). Subsection (1) states the general $1 million threshold and subsection (2) states the $500,000 level for investments in targeted employment areas.
One should not judge the SEC too harshly for this error. There are many ‘myths’ about what is and what isn’t the law relating to the EB-5 program. This same mistake has been made by many (even who participate in the EB-5 program). Hopefully the error in the statement of law as a part of the factual background section of the Order will not be a source of appeal for the accused to wiggle out of their just punishment. In future enforcement actions, the SEC should sharpen their understanding of the program as more sophisticated and better capitalized defendants may be able to escape punishment if errors are made. Hopefully, the SEC will appreciate that the EB-5 program is just a little bit different than typical investment markets. The confluence of immigration laws, federal securities laws and state laws can produce unexpected and unintended results. See my article published yesterday, entitled Miami Vice, for a more detailed analysis on this topic. Minor errors aside, to effectively regulate the EB-5 investment marketplace the SEC will need a deep understanding of how the program does (and doesn’t) work to get the right result.
The SEC’s press release on the changes can be found here: http://www.sec.gov/news/pressrelease/2015-127.html
A full copy of the order can be found here: http://discuss.ilw.com/content.php?4601-News-SEC-Charges-Unregistered-Brokers-in-EB-5-Programs
My analysis of the SEC’s actions and the interplay between the securities, immigration and contract law can be found in the article entitled, Miami Vice, found here:http://discuss.ilw.com/content.php?4597-Miami-Vice-By-Matthew-Gordon.
Reprinted with permission.
Originally posted at: ILW.COM EB-5 Blog