Parties involved with raising EB-5 capital

Investment issuers should be prepared to be a part of marketing efforts: face-to-face contact is critical to building trust. It is also important to have internal monitoring mechanisms that help you understand what marketers are doing: what are they saying, what promises are they making, are they faithfully translating documents, etc.

Marketing Team

A well-established and experienced EB-5 marketing team can make the process of acquiring investors faster, easier, and more efficient. These professionals understand the legal and ethical considerations when marketing EB-5 offerings, which can limit risk and liability taken up by the investment issuer. They should also be knowledgeable about foreign business practices and customs and hold established connections in the target countries for optimal efficacy. However, it is very important that these professionals are thoroughly vetted and overseen by the issuer’s management team, as EB-5 marketing may expose investment issuers to the liability for “misrepresentation” in marketing their offering, even if the promoters are not directly employed by them. All members of an investment issuer’s marketing team, including agents receiving commission from the sale of EB-5 offerings, should be registered with USCIS through form I-956K. 

Private Placement Consultants and Broker Dealers

One of the most important parties you will work with is a private placement consultant – also known as an investment specialist or registered representative of a broker-dealer (BD). The most important thing to know about investment specialists is these individuals are the liaisons between investors and the issuer until the entire investment has been made. Offerings which use an investment specialist will find themselves at an advantage amongst the litany of projects being promoted across the world, especially given the investment specialist will provide additional marketing for your project. Working with an SEC-registered broker will give your project a “seal of approval” and an extra layer of security that investors conducting due diligence will be attracted to. 

The Securities and Exchange Act of 1933 defines a “broker” as “any person engaged in the business of effecting transactions in securities for the account of others”, and a dealer as “any person engaged in the business of buying and selling securities for such a person’s own account through a broker or otherwise.” For example, firms functioning as both a broker by introducing buyers and sellers and as a dealer by taking positions or receiving compensation in selected securities would be deemed to be a “broker-dealer”. These individuals and firms are required to register with Financial Industry Regulatory Authority (FINRA), Securities Investor Protection Corporation (SIPC), and the Securities and Exchange Commission (SEC), and are also authorized to give investment advice and financial guidance to potential EB-5 investors. 

Investment specialists will evaluate your EB-5 project and market it to their clients (the prospective EB-5 investors) if the project is up to their financial standards. These agents will give valuations to projects based on their viability, risk, and profitability. These agents are required to represent the investors rather than the project offering they are promoting; therefore, it is important to ensure the details of the project offering are immaculate before approaching a BD to prevent any poor valuations.

Investment specialists receive compensation from the investment issuer, which they are required to disclose to the investor through the project’s offering documents. Investment specialists fall under the jurisdiction of both the federal government and their state of operation; therefore, the services they offer may differ depending on location. 

Foreign Intermediaries/Immigration Agents

Foreign Intermediaries (often seen as Immigration Agents) are non-licensed individuals, who assist with the offer and sale of securities overseas. Usage of and payment to finders is often frowned upon by the SEC and FINRA, and sometimes even violates various states’ “blue sky laws” involving the sales of securities to “non-accredited” purchasers. When considering using a foreign finder, one must discuss the matter with an RC’s legal counsel before proceeding, as violation of blue sky laws could result in noncompliance with SEC laws, regulations, and exemptions of securities sold both in and outside the US. 

The court case SEC v. Kramer (2011) established more favorable rules towards finders, as the “distinction between a finder and a broker…remains largely unexplored” and finders are not mentioned in U.S. law anywhere. Rather, finders came to existence through SEC no-action letters, in which the “finder exception” was established for individuals who do nothing more than provide contact info of a potential investor to an issuer. This exemption is not yet codified, and the use of finders is still a relatively gray area in EB-5 securities sales. To ensure all securities are sold and offered in a legitimate manner, due diligence should be conducted on the history of the agent and their company prior to soliciting services and entering into a contract with a finder. It is important for investment issuers to work closely with their securities counsel to ensure compliance at all stages of their investment’s solicitation process.

These individuals usually live in active EB-5 markets and speak the native language, with some degree of English fluency. They are imperative to the process of raising capital by transcending the physical and language barriers between the investment issuers and their investors. They can help you ensure your messaging is conveyed clearly, adapt it for the audience, and relay any feedback or follow ups that investors may have for you. Lucrative referral fees paid from the investment issuers to agents mean that investors who express an interest in EB-5 will likely be bombarded with a variety of offerings from numerous agents; therefore, finding an experienced, diligent, and ethical agency is critical for the success of an issuer marketing abroad.