EB-5 Regional Centers Will Need to Wait a Little Longer for Loosening of Restrictions on Advertising
Late last month, Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro announced to the House Oversight and Government Reform Subcommitte that the SEC was not prepared to meet the July 4th deadline on issuing new rules pursuant to the Jumpstart Our Business Startups (“JOBS Act”). The JOBS Act provides for an ease in the stringent restrictions on advertising by company’s currently engaged in a securities offering by directing the SEC to revise its rules under Regulation D’s safe harbor from Securities Act registration for certain unregistered offerings.
Many regional centers rely on Regulation D’s safe harbor while offering securities either from the U.S. to foreign investors, or to investors in the United States, including both U.S. investors and foreign investors residing in the U.S. pursuant to lawful non-immigrant status such as F-1 students, H-1B Specialty Workers, E-2 treaties, and L-1 Multinational Managers and Executives and O-1 Extraordinary Ability aliens. Currently, to rely on Regulation D’s safe harbor, regional centers cannot engage in a general solicitation or advertising in connection with the offering. Regulation D’s current ban on advertising covers television commercials, radio ads, dedicated seminars, magazine and newspaper advertisements, mailings and even websites.
The JOBS act is a welcomed change by many in the EB-5 community as a way to provide access to accredited investors already in the U.S. without needing to engage marketing agents abroad through a time-consuming and often expensive process. However, until the SEC issues its rules detailing the terms and conditions under which the ban will be relaxed, there is also uncertainly in the community as to how great its impact will be. For now, we know the revised rules must permit advertising where all purchasers in a Regulation D Rule 506 offering are “accredited investors” at the time of purchase. Accredited investors are defined as those that have either $1 million net worth or at least $200,000 ($300,000 with their spouse) in annual income each of the past two years and who has a reasonable expectation to reach that same level this year. Regulation D Rule 506 currently permits sales to up an unlimited number of accredited investors and up to 35 non-accredited investors. At this point it is unclear what steps issuers will be required to take to confirm accredited investor status in reliance on revised Rule 506.
The SEC has also announced that they will hold an open meeting on August 22nd to consider rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506. It is unknown how much longer after this hearing the EB-5 regional center community will have to wait for the SEC to issue its rules and implement the JOBS Act . The meeting notice is available at: http://sec.gov/news/openmeetings/2012/ssamtg082212.htm