Julian Montero, Jay Rosen, and I recently attended and lectured at the NES Financial EB-5 Innovation Summit, which was held in Los Angeles, San Francisco, New York and Miami. At the summit, we discussed market information and topics, including EB-5 reform legislation; SEC update; the evolution of EB-5 best practices; raising EB-5 capital; and the emergence of EB-5 as a mainstream investment.
The takeaways from the conference include the following:
1. Recent Proposed Legislation. The panel discussed what recently proposed legislation would entail and the potential likelihood of passage by September 30, 2016. It was the general consensus that new legislation will eventually be passed – it is only a question of when.
The integrity measures as a whole seem the least controversial. The pending integrity bill in the House and the other in the Senate attempt to tighten reporting and transparency in the EB-5 program in order to reduce the risk of fraud, as well as enable a more clear and transparent presentation of the entire project and compensation paid to various participants in the food chain. Some of the controversial integrity issues include the following:
a. The role and responsibility of the regional center to certify legal compliance, including with securities laws.
b. The potential cost of compliance with the due diligence requirements of the new legislation.
c. The potential requirement that all agents and other partners receiving compensation for marketing an EB-5 project must register with the Secretary of Homeland Security. What jurisdictional issues will apply to foreign agents as to U.S. jurisdictional claims if this registration actually passes?
d. One of the proposed bills provides for the potential approval of compensation to be charged, as is the case for licensed FINRA broker-dealers whose commissions are regulated.
e. Increased fees to fund compliance measures.
We discussed, to some degree, potential changes to the immigration component of the EB-5 program and lobbying efforts currently being undertaken, which are related to making sure the final bill is properly drafted to not unduly burden the program.
2. It was noted that, given the fact that this is an election year, there is a reasonable possibility that no new legislation will be passed and the bill will just be extended again. However, the group all agreed that it is very important from an industry-wide standpoint that the professionals be ready to comment and advise on pending legislation, in case it is proposed at an earlier time.
3. It has always been noted that the visa cap of 10,000 is a critical component, and the industry as a whole is trying to have the visa cap increased one way or another – either excluding family members in the numbers counted, increasing the actual cap, or borrowing unused visas from other programs.
4. Industry Trends. NES published some very valuable information showing industry-wide trends concerning concentration of project, size of the project, geographic preferences and regional center location. Those charts are included at the end of the post.
5. SEC Policies and Procedures. The panel members noted heightened SEC enforcement activities, including the fact that the SEC included EB-5 in its 2016 priority list for investigation and enforcement actions. Therefore, it is more important that regional centers, developers and professionals take proper measures to ensure appropriate actions; that all marketing activities are regulated to prevent fraud; and that potential broker-dealer registration matters and investment adviser registration matters comply with securities regulations. Parties participating in marketing activities must be conscientious of the heightened SEC enforcement actions and the need to ensure compliance with the registration filing to the extent that any marketing activities are conducted within the United States.
All in all, the panel members noted that EB-5 has become mainstream and has therefore gained much heightened publicity and attention from regulators.
Reposted with permission from Arnstein and Lehr.
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