EB5 Investors Magazine Volume 1 Issue 2 | Page 35

• Material Changes According to the memo , material changes will no longer result in automatic denial . The new policy allows investors to explain material changes ( see memo for definition ) when applying for removal of conditions ( I-829 ).
The timing of a material change will impact a project :
• If the material change occurs after conditional permanent resident status is obtained and during the conditional residency two year term , the investor can remove conditions as long as investment has been sustained and required jobs generated .
• If the material change occurs between approval of the I-526 but before adjustment of status or admission as a conditional resident , no changes may be made . A new I-526 will have to be filed .
• If the material change occurs before the I-526 has been approved , the investor must file a new I-526 with the changed circumstances . This creates the risk that an investor ’ s child / children could age out and not allow an aged out child to remain under the parent ’ s application .
• Job Creation The memo states that adjudication of cases will no longer be reliant on North American Industry Classification System ( NAICS ) codes . NAICS codes will still be used as a reference by economists to verify credibility of assumptions for job creation . Investors should still establish that requisite direct or indirect jobs will be created . The jobs created need to be in “ substantial compliance ” and show creation “ within a reasonable time .”
• Bridge Financing A developer or principal , either directly or through a separate job creating entity , may utilize interim , temporary or bridge financing prior to receipt of EB-5 capital . The developer or principal may still receive credit for job creation for the EB-5 investors . Generally , replacement of bridge-financing with EB-5 investor capital should have been contemplated prior to acquiring non-EB-5 financing and the investors must prove their capital has been put into the project .
Good Practice Point : Have the following or similar wording be included in the initial loan documents and / or promissory note for the bridge financing : “ The lender acknowledges and agrees that the loan may be reduced in part or in full by utilizing EB-5 source funds .” While this is not a mandatory requirement , it will obviate any intent issues that may arise .
The Adjudications Memo Dated May 30 , 2013 The 27 page May 30 , 2013 Policy Memorandum , “ EB-5
Adjudications Policy ,” PM-602-0083 can be located at :
http :// www . uscis . gov / USCIS / Laws / Memoranda / 2013 / May / EB-5 % 20Adjudications % 20PM % 20 ( Approved % 20as % 20 final % 205-30-13 ). pdf The policy memo is solely for the training of USCIS personnel and does not create any right or benefit outside of the USCIS ; applicants , petitioners , appellants , and litigators , as well as counsel , may not use this policy memo to establish a case against the USCIS .
U . S . Securities and Exchange Commission ( SEC ) Implementing regulations under portion of the JOBS Act
On July 10 , 2013 the SEC issued regulations implementing the portion of the Jumpstart Our Business Startups Act ( JOBS Act ), enacted in April 2012 , allowing an issuer enjoying exemption from registration under Rule 506 of Regulation D under the Securities Act of 1933 to engage in general solicitation and advertising , even in the United States . The SEC news release , with links to the regulations and related discussion , can be found at http :// www . sec . gov / news / press / 2013 / 2013-124 . htm . The regulations took effect September 23 , 2013 .
This ruling will have several implications on the EB-5 industry . The new exemption is separate from the existing and continuing Regulation D exemption that prohibits general solicitation , but does not dictate specific methods for verifying accreditation status .
• The rules do not require confirming that potential investors are accredited before soliciting them through general means ; instead they require verification of purchasers before they actually subscribe .
• The issuer must also take reasonable steps to verify that purchasers of securities are accredited investors .
• Determining how to verify the accredited status of foreign investors , few of whom would have filed U . S . tax forms or would be susceptible to a meaningful credit report from a U . S . credit reporting agency , will be one of the most significant challenges for EB-5 issuers .
• Allowing general solicitation under Regulation D does not exempt issuers from prohibitions on using unregistered brokers .
• Many EB-5 issuers who have become accustomed to using foreign sales agents under the Regulation S exemption for purely foreign offerings may be tempted to use those same or other unregistered agents for general solicitation for investors who will not qualify under Regulation S . This is prohibited .
• In a separate final rule , the SEC now bans any person that is a “ bad actor ” or who is affiliated with a bad actor from relying on the regulation exemption . The disqualification applies only for events that occur after the effective date of the rule , but events occurring before that date must be disclosed to investors .
Continued on page 36 www . EB5Investors . com 35