THE BASICS OF EB-5
revenue targets; however, one of the advantages is
that demonstrating job creation at the I-829 process
is achieved by providing audited financials, which is
arguably less onerous than having to provide I-9’s and
W-2’s for each employee that would be needed under a
direct model.
Offering Documents
A misconception among would-be EB-5 issuers is
that there is no need to prepare offering documents if
there are a small number of investors or if the offering
is only for a few million dollars. However, regardless
of the number of investors or the amount of the EB-5
raise, preparing offering documents is required in
almost all cases and is nonetheless a best practice
to help mitigate securities liability and increase the
marketability of a project.
Under U.S. securities laws, any investment is a security
and an issuer may not offer or sell securities unless
its offering is registered with the U.S. Securities
and Exchange Commission (SEC) or falls under an
exemption to registration. EB-5 offerings are mostly
conducted under the Regulation D exemption from
registration. For strictly off-shore offerings to non-U.S.
persons, the Regulation S exemption should apply.
Although offerings exempt from registration are typically
not subject to the same disclosure requirements as
registered offerings, exempt EB-5 offerings are still
subject to the anti-fraud provisions of the securities
laws, which impose liability for material misstatements
or omissions in connection with the offer or sale of
securities. It should be noted that the officers, directors,
and other key persons of the issuer could have
personal liability for any alleged misrepresentations
in an offering—even if such persons had little input or
involvement on the offering process. As such, great
care must be taken in any offering of securities.
The offering documents serve the important role
of providing investors with the material information
they need to make an informed investment decision.
Furthermore, the preparation of the offering documents
should involve engaging in due diligence on the project.
Proper due diligence should decrease the risk of
material misstatements and omissions in connection
with the offering.
A finding that an offering contained material misstatements
and/or omissions could lead to rescission and fraud
claims against the issuer and, as noted above, personal
liability to the officers, directors and other key persons
of the issuer. If the offering is rescinded, such officers,
directors and other key persons may have to pay
43
EB5 INVESTORS M AGAZINE
fines and be liable to refund the investors capital
contributions. For the past couple of years, the SEC has
increasingly cracked down on EB-5 projects. As such,
securities liability is a very real risk for issuers that may
be mitigated by consulting with a securities lawyer who
can help ensure that you are aware of the applicable U.S.
securities laws and how to comply with them. Failure to
prepare offering documents may save you money in the