EB5 Investors Magazine Volume 4 Issue 1 | Page 83

“at risk” the EB-5 investor must face both a risk of loss and a chance for gain relative to his or her investment. Although we expect further guidance on both the “sustainment” and “at risk” requirements in the form of a Policy Memorandum2 from the USCIS, which is forthcoming, present guidance from USCIS has not provided sufficient clarification. Some new commercial enterprises have determined that a prudent use of Repayment funds is to invest such funds into an additional job creating entity (an “Additional EB-5 Project”).3 EB-5 Investment Redeployment and Securities Law Issues New commercial enterprises that elect Redeployment of EB-5 investor funds into Additional EB-5 Projects for the purpose of sustaining “at risk” investments should consider several securities law issues, depending primarily upon how the Redeployment is effectuated. The key consideration is whether Redeployment causes EB-5 investors to face a new investment decision for purposes of the Securities Act of 1933, as amended (the “1933 Act”) and, if investment company issues are involved, whether the Redeployment will continue to provide an exemption under the Investment Company Act of 1940, as amended (the “1940 Act”). Additionally, a Redeployment of funds may necessitate analysis of the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and applicable state investment adviser laws. 1933 Act Guidance The Securities and Exchange Commission (the “SEC”) has not provided any specific guidance on structuring a Redeployment in the context of EB-5 offerings. The SEC, however, has provided guidance in other related situations that are of some assistance in providing securities law guidance involving such restructurings. This guidance in some cases relates to registered offerings, but remains relevant because it also r elates to guidance as to whether there is deemed to be the sale of new securities for which an exemption must be available if not registered. The first to look to relates to blind pool offerings, which have generally involved real estate and oil and gas offerings. Registered blind pool offerings that describe the parameters of investments to be made by an issuer after investors have made their initial investment decision do not require that a new investment decision be made if the investments are made in accordance with the parameters set forth in the related offering document and if such investments are determined by the general partner or managing member, as the case may be. Likewise, in the context of registered asset-backed financings where the assets are not fully identified at the time of the initial offering, new investment decisions are not deemed to be made when those assets are later identified, so long as the parameters of such assets are identified in the offering materials and investors do not vote on their selection or inclusion. In these two situations, the SEC has taken the position that no new investment decision is being made upon the later purchase of assets by the issuer and, thus, a new offering of securities has not occurred for 1933 Act purposes. Perhaps the most relevant guidance from the SEC with respect to Redeployment relates to how the SEC has historically treated assessments,4 particularly with respect to oil and gas offerings. Assessments, in this context, can either be deemed mandatory or voluntary. Mandatory assessments generally arise as the result of the initial investment decision made by investors if they initially agreed to such further payments to the issuer within the parameters set forth in the offering materials. Thus, no new investment decisions are made when investors later determine whether or not to pay mandatory assessments. The above-described scenarios all have one thing in common: no new investment decision is deemed to be made by investors when assets are later acquired or a mandatory assessment is subsequently called by the issuer and, therefore, there are no 1933 Act implications arising as a result thereof. However, there are other situations where new investment decisions are being asked of investors that do raise significant 1933 Act securities law issues, and that should be considered when structuring a Redeployment. These situations occur when, as a result of a Repayment made to a new commercial enterprise, investors are given a choice of (a) a dissolution of the new commercial enterprise and the receipt by investors of a proportionate share of the Repayment proceeds or (b) the approval of a new investment into a new and different job creating entity in order to preserve the sustained “at risk” and job creating requirements of the EB-5 Program. The implications of making a new investment decision at the time of a Redeployment requires an analysis of the requirements for a new offering of securities at the time of making that decision.5 This raises many securities law issues for issuers, such as whether Regulation D, Regulation S, or Regulation A+ would then be available as an exemption for the new securities offering. Regulation D would be problematic because of the lapse of time since the original offering and determining whether all investors would then be accredited, and Regulation S would have related issues in determining whether all conditions of the Regulation could then be satisfied, which is unlikely since the EB-5 investors will most likely then be in the United States. 1940 Act Considerations If a Repayment is made and the new commercial enterprise originally relied upon an exemption under the 1940 Act, then the new commercial enterprise will be required to consider a new 1940 Act exemption or operate so as not to be deemed an investment company when structuring a Redeployment. If the new commercial enterprise initially relied upon the exemption provided by Section 3(c)(1) of the 1940 Act, then it will need to ensure continued reliance or find another WWW.EB5INVESTORS.COM 81