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April 2, 2014
Webinar
Success Strategies Webinar
for EB-5 Regional Centers
1
2
Agenda
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• Reid Thomas: State of the Market
• Clem Turner: Current Trends in EB-5 Offerings
• Kevin Wright: EB-5 Market Forces: Operating a Regional Center
• Reid Thomas: New Solutions: Streamlining EB-5 Operations
Confidential
• Focused value for our EB-5 customers
– Capital Efficiency
– Operational Efficiency
– Risk Management
• NES Financial developed solutions specifically for EB-5
– Combination of expertise, technology, & administration capabilities
– Middle & back office solutions to help clients focus on their business
– Solutions are powered by NES Financial proprietary technology
• Leading provider of EB-5 financial administration solutions
– Suite of solutions available for all phases of EB-5 process
– Partner with banks to provide complete escrow solutions
– Experience with over 200 EB-5 projects
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NES Financial and EB-5
EB-5 Industry Experiencing Explosive Growth
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EB-5 Now a Mainstream Source of Capital
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Investor Alert - Investment Scams
Exploit Immigrant Investor Program Release Date: October 01, 2013 (Source: uscis.gov)
…the SEC has taken emergency enforcement
action to stop allegedly fraudulent securities
offerings made through EB-5…(Source: sec.gov)
FINRA Rule 2111 – Suitability
The suitability rule applies …. in connection
with the EB-5 Immigrant Investor Program. (Source: finra.org)
FINRA Rule 15c2-4 – That may result in the
return of investor’s funds if the contingency is not
met. Broker-dealer may only deposit investors’
funds in an escrow account with a bank.
EB-5 is Receiving Increased Oversight
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And the Rules are Evolving
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… the SEC will address in its new rules how issuers
need to verify accredited investor status… (Source: ILW.com articles)
Operational Guidance for EB-5
Cases Involving Tenant-Occupancy (Source: uscis.gov Dec’2012)
May 30, 2013 Policy Memorandum
SUBJECT: EB-5 Adjudications Policy
Office of Inspector General
USCIS will update
regulations…more clearly
delineating evidentiary
requirements… (Source: DHS OIG Report 14-19 Dec 2013)
Latest Developments in Securities Law:
What Regional Centers need to know.
NES Financial 2014 Success Strategies Webinar
For EB-5 Regional Centers
Clem G. Turner, Esq.
Homeier & Law, P.C.
150 Broadway, Suite 1920
New York, NY 10038
(646) 393-4701
April 2014
Standard Disclaimer
This presentation is designed to provide practical and useful
information on the subject matter covered. However, it is
provided with the understanding that no legal, tax, accounting,
or other professional services are being rendered or provided. If
legal advice or other expert assistance is required, the services of
a competent professional should be sought.
Los Angeles | Homeier & Law, P.C | New York 9
Executive Summary
SEC Involvement with EB-5
Broker Dealer Registration
Broker Dealer Compensation
Fraud in the Securities Markets
Jobs Act Changes to Regulation D
Los Angeles | Homeier & Law, P.C | New York 10
Recent SEC Involvement with EB-5 Recent Regional Center Prosecutions for securities viols and fraud
Chicago Convention Center – February 8, 2013
USA Now Regional Center – October 1, 2013
Joint SEC/USCIS EB-5 Stakeholder Teleconference – April 3, 2013
Joint SEC/USCIS Investor Alert - October 1, 2013
“USCIS and the SEC have in recent years built a strong partnership with an emphasis on fostering EB-5 program integrity. The two agencies coordinate on issues at the case-specific and programmatic levels, and have participated in joint public engagement events to raise awareness among EB-5 developers and investors as to these issues. This Investor Alert is another example of our coordinated efforts regarding EB-5 program integrity.”
Los Angeles | Homeier & Law, P.C | New York 11
Hot Securities Issues in EB-5
During Joint SEC/USCIS EB-5 Stakeholder Teleconference the
SEC discussed several key issues:
Broker Dealer Registration
Broker Dealer Compensation
Fraud in the EB-5 Market
In addition, Regional Centers need to be aware of the effects of
the recent JOBS Act Amendments.
Los Angeles | Homeier & Law, P.C | New York 12
Broker/Dealer Registration The Exchange Act defines a “broker” as “any person engaged in the business of effecting transactions in securities for the account of others,”
In other words: an intermediary who procures investors for an Issuer’s offering for a fee (Issuer = EB-5 Funded Entity)
Brokers must be registered with the SEC (costly process/heavy regulations). Primarily regulated under Exchange Act and state laws Unlawful to pay any unregistered broker a transaction-based fee for any
activities related to offer, solicitation, or sale of securities in USA
Provisions believed inapplicable “extra-territorially” (outside USA) (So not applicable to foreign brokers who conduct ALL activities outside the USA)
Problem is with word “ALL” SEC reiterated if foreign broker conducts ANY activities related to offer/sale
of securities within the USA - likely “unregistered broker issues” Currently NO foreign brokers active in EB-5 believed registered
Los Angeles | Homeier & Law, P.C | New York 13
Broker/Dealer Registration, Cont. Staff unwilling to answer inquiries about specific offerings and hesitant to express clear stance on exactly what activities or presence constitutes “brokering” in USA
Staff did confirm a very expansive view of activities it deems likely to raise “brokering issues”:
Not just formal marketing, solicitation, and sales to investors Also includes:
1. holding meetings/confs in USA with (or soliciting) potential Issuers
2. working with US Issuers to structure a successful EB-5 offering
3. having physical presence (i.e. an office) in USA
4. frequent US visits; appearing at seminars; negotiating agency agmts
At present, SEC position unclear – but aggressive posture
Los Angeles | Homeier & Law, P.C | New York 14
Broker/Dealer Compensation Using compensated intermediaries (“Brokers”) to bring investors to an EB-5 offering is a material fact requiring adequate disclosure to investors
Securities laws: Offering documents must disclose ALL material facts so investor can make informed investment decision
“Material” – any fact a reasonably prudent investor would find useful when making a decision to invest
Would a reasonable investor deem it important to know the person recommending an investment gets paid for successfully encouraging investment? YOU BET!
Omitting material information risks violating Anti-Fraud provisions of the Securities Laws
SEC reiterated several times that offering documents must clearly disclose broker compensation.
Los Angeles | Homeier & Law, P.C | New York 15
Broker/Dealer Compensation, Cont. Present Issue: Many foreign brokers in EB-5 resist disclosure of their compensation in the Offering Disclosure Documents
Why? Concern investors won’t invest if they learn broker compensation, especially due to conflicts of interest EB-5 brokers can earn $40-$60K up-front AND 1%-3% ($5-$15K) annual compensation
This is up to $135K per investor over 5 year life of $500k investment!
Brokers’ motivation to conceal compensation is EXACTLY why Securities Laws compel compensation disclosure as material What is unclear: how specific must disclosure be?
Name each broker? Precise amount of comp?
This is the domestic offering standard
Interim step: disclose range & timing, factor into projections, include risk factors and conflict of interest disclosure
SEC will likely clarify that EB-5 requires same disclosure as domestic standard (so ideally, disclose this now).
Los Angeles | Homeier & Law, P.C | New York 16
Fraud in the EB-5 Market SEC Investor Alert: Investment Scams Exploit Immigrant Investor Program – October 1, 2013
The U.S. Securities and Exchange Commission's Office of Investor Education and Advocacy and U.S. Citizenship and Immigration Services are jointly
issuing this Investor Alert to warn individual investors about fraudulent investment scams that exploit the Immigrant Investor Program, aka "EB-5."
Look for warning signs of fraud. Beware if you spot any of these hallmarks of fraud:
Promises of a visa or becoming a lawful permanent resident. Investing through EB-5 makes you eligible to apply fora conditional visa, but there is no
guarantee that USCIS will grant you a conditional visa or subsequently remove the conditions on your lawful permanent residency. USCIS carefully reviews
each case and denies cases where eligibility rules are not met. Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.
Guaranteed investment returns or no investment risk. Money invested through EB-5 must be at risk for the purpose of generating a return. If you are
guaranteed investment returns or told you will get back a portion of the money you invested, be suspicious.
Overly consistent high investment returns. Investments tend to go up and down over time, particularly those that offer high returns. Be suspicious of
an investment that claims to provide, or continues to generate, high rates of return regardless of overall market conditions.
Unregistered investments. Even though a regional center may be designated as a regional center by USCIS, most new commercial enterprise investment
opportunities offered through regional centers are not registered with the SEC or any state regulator. When an offering is unregistered, the issuer may not
provide investors with access to key information about the company's management, products, services, and finances that registration requires. In such
circumstances, investors should obtain additional information about the company to help ensure that the investment opportunity is bona fide.
Unlicensed sellers. Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or
registered. Designation as a regional center does not satisfy this requirement. Many fraudulent investment schemes involve unlicensed individuals or
unregistered firms.
Layers of companies run by the same individuals. Some EB-5 regional center investments are structured through layers of different companies that are
managed by the same individuals. In such circumstances, confirm that conflicts of interest have been fully disclosed and are minimized.
If your investment through EB-5 turns out to be in a fraudulent securities offering, you may lose both your money and your path to lawful permanent
residency in the United States. Carefully vet any EB-5 offering before investing your money and your hope of becoming a lawful
permanent resident of the United States.
Los Angeles | Homeier & Law, P.C | New York 17
Anti-Fraud Req’t - Full Disclosure Must accurately and completely describe your offering.
Full Project Disclosure (including Broker Compensation) Requires extensive securities attorney due diligence on principals, project
and regional center to confirm Offering Memorandum is complete.
Your offering is pursuant to an IMMIGRATION Program; Offering Memorandum must incorporate disclosure regarding facts and risks UNCOMMON to non-EB5 private offerings: Immigration Law and EB5 Program specifics
USCIS administration and Green Card/Consular Visa process;
I-526 and I-829 Process;
Visa Retrogression Issues
Job creation and corresponding economic analysis;
Potential sunset of EB5 Program;
Taxation issues;
Regional Center administration and potential conflicts,
etc.
Los Angeles | Homeier & Law, P.C | New York 18
JOBS Act - Effect on Offerings On September 23, 2013 the SEC adopted final rules effecting JOBS Act changes to Regulation D “Private Placement” exemption. Adopted rules establish new “Rule 506(c)” under Regulation D
Allows for “general solicitation” (i.e. mass marketing) of private offerings solicit investors through newspapers, magazines, television, radio,
seminars, websites, and email However sales ONLY allowed to accredited investors
Investor with net worth over $1 million; or
Investor with net income over $200k/year or $300k/year with spouse
AND accredited status must be verified – by “reasonable steps” In-depth confirmation required – no more “check the box” questionnaires
Review bank statements, tax returns, brokerage statements, appraisal reports
Form D filing must now indicate reliance on Rule 506(b) or (c)
Los Angeles | Homeier & Law, P.C | New York 19
JOBS Act - Effect on Offerings, Cont. If an Issuer conducts a “general solicitation”
No fall-backs to “safe-harbors”
Cannot rely on Section 4(a)(2) Codified private offering exemption before Reg D was enacted
Cannot rely on Original Reg D Rule 506(b)
Unclear impact on state “blue sky” laws and foreign exemptions 506(c) offerings pre-empt state laws – except state notice filing req’s and fees
Often states exclude notice filing/fee - but not if gen’l solicitation occurs
Foreign countries may not permit general solicitation
Must tread carefully to avoid losing Regulation S co-exemption
Broad exemption for Offshore Offerings – wide latitude
Regulation S requires NO directed sales efforts in the US
Los Angeles | Homeier & Law, P.C | New York 20
Homeier & Law, P.C.
Collective 50 years Corporate and Securities Experience
Approximately 150 EB-5 Deals since 2009
Counsel to well over $1.5 Billion EB-5 Capital Raises Hotels and Casinos
Restaurants/Franchises
Medical Facilities/Assisted Living Facilities
Manufacturing
Charter Schools
Athletic Facilities
Etc.
Deep Relationships in EB5 Service Industry; representation on EB5 Trade Association’s Best Practices Committee
Big Firm Experience – Small Firm Rates Partners prior firms include: Skadden, Arps; Paul, Hastings; Sherman & Sterling; etc.
Los Angeles | Homeier & Law, P.C | New York 21
Clem Turner, Esq. Clem Turner is a shareholder and the Managing Attorney of the New York Office of Homeier & Law,
PC. Clem practices in the area of general corporate, corporate finance and business transactional law.
With over15 years experience in the corporate and business transactional fields, both as in-house
corporate counsel and with private law firms (such as Skadden, Arps, Slate, Meagher & Flom LLP)
Clem brings a deep level of legal knowledge and expertise to the EB-5 industry.
Clem has counseled numerous corporations and Regional Centers raising capital through the EB-5
Program on matters of structuring, strategy, securities law and corporate law. He has handled
numerous EB-5 transactions in the hotel and accommodations, casino, restaurant, senior and medical
facilities, manufacturing, technology and other industries. Clem has written several articles and
routinely lectures at EB5 events throughout the U.S. and he is the highest listed corporate/securities
attorney on www.eb5investors.
Clem received his B.A. from Princeton University and his J.D. from Georgetown University Law
Center. He is a member of the New York State Bar and California State Bar.
Los Angeles | Homeier & Law, P.C | New York 22
EB-5 MARKET FORCES:
OPERATING A REGIONAL CENTER
April 2, 2014
NES FINANCIAL
KEVIN WRIGHT | FOUNDER, WRIGHT JOHNSON
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Mr. Wright is considered one of the foremost experts on the EB-5 program.As an accomplished researcher, analyst and professional author, Kevin has assisted more than 70 applicants in receiving Regional Center designation and subsequent approval of the specific projects that are developed and put into operation through the Regional Center mechanism.
As a featured speaker on the EB-5 program on 3 continents Kevin regularly speaks to foreign agents and US based project developers to further their understanding of the role the economic analysis plays within the EB-5 context and helps project developers to craft their projects in a way that best suits them for EB-5 purposes.As a member of the American Dream Fund, team which recently raised in excess of $300 million dollars for the SLS Casino, Mr. Wright also has firsthand knowledge of the day to day interworkings of marketing a project in multiple countries around the world.
WHAT ARE THE 2 QUESTIONS THAT EVERY
PROJECT DEVELOPER MUST ANSWER?
Marketing Success
Jobs
Exit Strategy
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“I-829 BUBBLE” CAUSED BY THE INCREASE IN
I-526 APPROVALS FROM LATE 2012 AND 2013
Construction of the Hotel
-2012 saw 3002 I-526s
approved
As the large volume of I-526
approvals come 21-24 months
after the applications were
initially submitted, project
developers need to be
prepared to prove job creation
as the I-829s become due.
-2013 saw 3699 I-526s
approved
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I-829 FILING REQUIREMENTS?
Provide evidence to your investors attorneys -Prove the investment has
been sustained through k1
-Prove the jobs were
created, and if not will be
created within one year
-Prove funds were deployed
-Audited financials and
receipts
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Proper Tracking of Expenditures
Construction of the Hotel
Proper Accounting of revenue or W2 tracking
Operation of the Hotel
Updated Economic Analysis based upon actual numbers
Verification of Inputs
HOW CAN A REGIONAL CENTER PREPARE FOR
I-829 SUBMISSIONS?
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WHAT ARE SOME OF THE OPERATIONAL
CHALLENGES IN MANAGING A SUCCESSFUL
REGIONAL CENTER?
Managing Process
Tracking Documents
Managing Investors
RFEs, NVC, Consular Interview, Proof of landing, Addresses, SS#
Tracking Documents Tracking Construction Expenditure
and Revenue
Tracking Funds Deployment of funds, Quarterly
reports, K1s, W8BEN,
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WHAT ARE THE PROJECT MARKETABILITY
CHALLENGES AND HOW CAN PROPER
OPERATIONAL SETUP IMPACT SALES RESULTS?
Good Team Proving to Agents that you
can drag a project over the
finish line is as important
as having a good project!
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New Solutions:
Streamlining EB-5 Operations
Executive Vice President, Reid Thomas
NES Financial
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Market Trends Forcing Operational Excellence
Confidential
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Job Creating Project Overview
Immigration Workflow
I-526 Visa
Processing I-829
Fund Administration
Expense Tracking
Document Management
Audit Trail
Escrow Subscription
Escrow Construction
Escrow Capital Return
NE
S F
inancia
l S
olu
tions
Subscription Deployment Return Investor/
Immigrant Citizen
Up To 5 Years
Escrow Structure Impacts Marketability
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Finding the right balance is critical
Escrow Structures in EB-5
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Investors’ funds can have a 4-5 year journey through 4 different entities
EB-5 Fund Administration Life Cycle
EB-5 Fund Administration Requires Specialized
Expertise
• Investor motivation is different
• Stakes are high and personal
• Regulations are unique and evolving
• Tracking requirements extend beyond the financial
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Success for investor is I-829 removal of conditions
Today’s EB-5 Immigration Tracking
• Multiple sources of information
– Law firms, agents, banks, investors
• Stored in multiple locations
– Paper files
– Virtual data rooms
– Computer disk
• Managed with multiple & disparate tools
– Salesforce.com
– Dropbox
– Excel
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The NES Financial Difference
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NES Financial Solutions
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NES Financial Solutions
NES Financial Solutions
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NES Financial Solutions
Master account at bank
Project Level Documents
Investor sub-accounts hosted on NES Financial’s eSTAC®
platform
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NES Financial Solutions
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NES Financial Solutions
Administrative fees tracked separately
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NES Financial Solutions
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NES Financial Solutions
KYC Requirements Investor Documents
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NES Financial Solutions
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NES Financial Solutions
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NES Financial Solutions
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NES Financial Solutions
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NES Financial Solutions
Life cycle of settlement account
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NES Financial Solutions
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NES Financial Solutions
Documents for I-829 filing preparation
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NES Financial Solutions
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NES Financial Solutions
Flow of funds evidence
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NES Financial Solutions
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NES Financial Solutions
EB-5 Immigration Workflow Dashboard
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EB-5 Immigration Workflow Dashboard
Project funding status
Capital raise progress against target
Immigrant/ investor status
indicators
Timeline of funding to I-526 filing
Why NES Financial?
• Only solution specifically built for EB-5
• Unique technology combines financial tracking & document storage
• Automated audit trail & summary reports consistent with USCIS requirements
• Permission-based web access for all stakeholders
• Scalable, cost effective, and best time to market option
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50 West San Fernando Street
Suite 300
San Jose, CA 95113
p: 800.339.1031
Contact Us: [email protected]
www.nesfinancial.com
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Panelist Q & A
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