Below is an announcement from the SEC detailing charges brought against an unregistered EB-5 Brokerage firm.  To learn how you can protect yourself as an EB-5 investor and EB-5 developer, contact Barella Law, P.C. to speak with EB-5 attorney Kyle Barella.

SEC Charges Unregistered Brokers in EB-5 Immigrant Investor Program

FOR IMMEDIATE RELEASE

2015-127
Washington D.C., June 23, 2015 — The Securities and Exchange Commission today charged two firms that illegally brokered more than $79 million of investments by foreigners seeking U.S. residency.  The charges are the first against brokers handling investments in the government’s EB-5 Immigrant Investor Program and follow earlier SEC actions against fraudulent EB-5 offerings.

Ireeco LLC, originally of Boca Raton, Fla., and its successor Ireeco Limited, a Hong Kong-based company operating in the U.S., were charged with acting as unregistered brokers for more than 150 EB-5 investors.  The EB-5 program administered by the U.S. Citizenship and Immigration Services (USCIS) provides a path to legal residency for foreigners who invest directly in a U.S. business or private “regional centers” that promote economic development in specific areas and industries.

According to the SEC’s order, Ireeco LLC and Ireeco Limited used their website to solicit EB-5 investors, some of whom were already in the U.S. on a temporary visa.  While Ireeco LLC and Ireeco Limited promised to help investors choose the right regional center to invest with, they allegedly directed most EB-5 investors to the same handful of regional centers, ones that paid them commissions of about $35,000 per investor once USCIS approved an investor’s petition for conditional residence (“green card”).

“While raising money for EB-5 projects in the U.S., these two firms were not registered to legally operate as securities brokers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “The broker-dealer registration requirements are critical safeguards for maintaining the integrity of our securities markets, and the SEC will vigorously enforce compliance with these provisions.”

Without admitting or denying the SEC’s findings, Ireeco LLC and Ireeco Limited agreed to be censured and to cease and desist from committing or causing similar violations in the future.  They also agreed to administrative proceedings to determine whether they should be ordered to return their allegedly ill-gotten gains, pay penalties, or both based on their violations.

The SEC’s investigation was conducted by Brian Theophilus James in the Miami office, and the case was supervised by Assistant Regional Director Chedly C. Dumornay and Associate Regional Director Glenn S. Gordon.  The SEC appreciates the assistance of the USCIS.

When researching the options for making an EB-5 investment, potential investors frequently hear about the two EB-5 investment paths - direct and indirect.  But are there really three paths?  The answer to this question is yes and no.  This blog will explore the different options a potential investor has when deciding to make their EB-5 Green Card investment.

The most popular option for the EB-5 Visa is the indirect regional center investment.  The indirect regional center investment allows the client to make a completely passive investment in a project that will be the sole responsibility of a developer to maintain.  These investments are often loan based, but in some cases equity based investments.

The EB-5 investor will not have any managerial or day-to-day responsibility.  They simply invest their money and leave it in the hands of the developer to meet the immigration requirements so they can become full-fledged green card holders.  It’s an affordable option because the vast majority of regional center projects are located in targeted employment areas that allow for the reduced investment of only $500,000.

What are the positive attributes of an indirect regional center investment?  The reduced investment amount is what makes the regional center path most appealing to clients.  Some investors also enjoy not having to worry about the day-to-day burden of running the business.  While a client may have created a successful business in their home country, they may be unfamiliar with US business practices and culture and opt to have the project managed for them.  For these investors, the regional center path fits perfectly into their immigration plan.

What are the negatives of an indirect regional center investment?  Regional center investments will offer a low return.  This isn’t to say that the project is bad – it’s just the nature of EB-5.  A typical regional center project will generally yield a 0.5% - 1% return.  This isn’t very high, so investors wishing to obtain a larger return should choose a different path for their EB-5 investment.  Clients should be very wary of regional center projects offering them large returns.  Another potential negative aspect is that the EB-5 investor doesn’t have any decision making power in the business.  This may not be ideal for clients that consider themselves to be savvy investors.

So what are the options for investors not wishing to invest through the indirect regional center path?  Here is where the discussion of three paths to EB-5 comes up.  Many clients (and immigration attorneys) misinterpret the rules regarding a direct (non regional center) investment.  Often they think the investor must be involved in the day-to-day operation and running of the business.  They believe they have to live in the same city and go into the business daily to qualify for EB-5.  That is one option, what I refer to as a “true” direct EB-5 investment, but it’s not the only option for direct EB-5.

So what are the two paths under the direct EB-5 umbrella?  It’s first important to examine the rules regulating the requirement that the EB-5 immigrant investor be engaged in the management of the new commercial enterprise.  The EB-5 Program requires the immigrant investor to be engaged in the management of the new commercial enterprise, either through the exercise of day-to-day managerial responsibility OR through policy formulation.  8 C.F.R. §204.6(j)(5).  

For investors courageous enough to take the plunge and run their own EB-5 business, they can do so through the “true” direct EB-5 path.  They will be responsible for the creation and day-to-day management of the business, as well as meeting all the immigration requirements.  Their investment return will be based solely on their own personal efforts.  This path can prove to be risky and should only be undertaken by clients confident in their ability to meet all requirements under the program.

This may work for some investors, but the majority of EB-5 clients do not want to assume full responsibility for their immigration future.  These clients may benefit from a more “hands off” direct investment.  This “hands off” direct investment path is great for investors wishing to invest in smaller projects that may yield significantly higher returns than the indirect regional center investment.  In conformity with the rules, these investors will have a policy-making role by being a corporate officer or member of the corporate board of directors.  Just like the regional center investment, this EB-5 Visa project can be placed in a targeted employment area and qualify for the $500,000 investment.

These investors get the best of both worlds.  Unlike the regional center path they have some control over the business and typically receive a larger return.  However, there is no requirement for then to run the day-to-day operations and they leave the responsibility of meeting the immigration requirements to the project developer.  The EB-5 investor is free to live and work anywhere in the United States, regardless of the business location.  This path is ideal for all EB-5 investors frustrated with the lack of control and low returns of an indirect regional center investment.

For more information on procuring your U.S. Green Card through the EB-5 Visa Program and which EB-5 path is most suited for your investment needs, contact General Counsel, P.C. EB-5 lawyer Kyle Barella today.  Our EB-5 team serves EB-5 Visa clients in Washington DC, Virginia and around the world.  Our office is located in Northern Virginia in the McLean Business Center.

www.eb5investmentlaw.com | www.generalcounsellaw.com

6849 Old Dominion Dr. Suite 220, McLean, VA 22101 | 703.556.0411 | [email protected]

Washington DC EB-5 Attorney | Virginia EB-5 Attorney

EB-5 investors are becoming increasingly aware of the Securities and Exchange Commission (SEC),  the top U.S. securities regulator, and its involvement in the EB-5 Visa Program. As a result, investors are anxious to learn the connection between the nation’s financial watchdog and the immigration program.  Created by the Securities Act of 1934, the SEC was designed to protect investors from fraud by enforcing securities laws requiring complete disclosure of information and regulating the people involved in the securities transactions.  Attorneys handling EB-5 Visa clients should be prepared to provide a competent explanation on both immigration and securities issues involved in the EB-5 process.  In the past, securities law was considered a specialty area of law reserved for large firms in cities such as New York.  However, at present, to practice as an EB-5 attorney, it is important to have at least a minimum understanding of the U.S. securities law.

The SEC defines a security as any stock, bond, debenture, note, transferable share, investment contract or certificate of interest in a profit-sharing agreement. In general, all securities offered in the United States must be registered with the SEC and comply with the regulations, or be eligible to claim an exemption from registration. A typical EB-5 Regional Center Project is structured in the form of a Limited Partnership and according to SEC, interest in the partnership is an investment contract and therefore, a security . To further elaborate on the term “investment contract”, the Supreme Court of the United States determined the definition in the landmark case of SEC v. Howey.

According to the Supreme Court, an investment contract is any transaction in which (1) a person invests money (2) in a common enterprise (3) is led to expect profits and (4) solely from the efforts of others.  The four elements combined  are commonly referred to as the Howey Test and are used to determine whether an instrument qualifies an investment contract. 

The first element is interpreted as the investor not purchasing a consumable commodity or service, rather, making an actual bona fide at risk investment.  The second element of commonality is determined by multiple investors having interrelated interest in a common scheme (it is sufficient if a single investor has a common interest).  The third element of expectation of profits is interpreted as expected returns must come from the earnings of the enterprise.  Lastly, earnings must come from the efforts of others, this is broadly construed to mean that the efforts of managers must predominate over the passive investor.

EB-5 Regional Center Projects structured as a Limited Partnership meet all 4 elements of the Howey Test and are therefore defined as an “investment contract”. Foreign investors (1) invest at minimum $500,000 (2) into a common enterprise, Limited Partnership, (3) with an expectation of returns on the investment and (4) through the efforts of the managing partner. 

Simply meeting the definition of a security is just the beginning of the complex regulations of U.S. securites. In our next blog, we will elaborate on the scope of the regulatory authority of the EB-5 Visa Program by SEC. 

For more information on the EB-5 Visa and SEC compliance, please contact our office today.

Barella Law, LLC | + 1 (202) 621-3198 | [email protected] | www.eb5investmentlaw.com
9128 Strada Place | Suite 10115 | Naples, FL 34108

The Information contained in this blog is for information purposes only, and should not be considered legal advice for any individual case or situation.  The information provided is not a substitute for consultation with an attorney.  No attorney/client relationship is created by the information contained herein.

Does the EB-5 program allow potential immigrants to “cut” to the front of the immigration line? The answer is a definitive, no.  Believed by many to be a shortcut to US permanent residency, the EB-5 program is not a line-cutting program.  In fact, the US Government sets aside each year, 10,000 visas for EB-5 investors.  Of the 10,000 visas, 3,000 are set aside for investments made in Target Employment Areas (TEA).  

As the government specifically sets these visas aside, it’s not possible for EB-5 investors to steal visas from other immigrants or jump to the front of the line.  Compared to other countries around the world that utilize a point system for immigration, the United States does not have such a program.  Unless a potential immigrant has a job or family member available to sponsor them, there are limited options for obtaining US Permanent Residency.  

The EB-5 Visa Program allows these immigrants with limited options to legally move to the US.  This misconception that EB-5 investors “buy” their way into the US at the expense of immigrants of lesser means is outdated and simply incorrect.  The government implements visa quotas, which allow each visa category a limited number of spaces.  

The benefits of the EB-5 program provide immigrants with a chance to live, work and study in the US, with the added benefit of their investment contribution leading to the growth of the US economy.  

Barella Law, LLC | + 1 (202) 621-3198 | [email protected] | www.eb5investmentlaw.com
9128 Strada Place | Suite 10115 | Naples, FL 34108

The Information contained in this blog is for information purposes only, and should not be considered legal advice for any individual case or situation.  The information provided is not a substitute for consultation with an attorney.  No attorney/client relationship is created by the information contained herein.

Perhaps the most important aspect of any EB-5 Petition is the Lawful Source of Funds requirement by USCIS.  For apparent reasons, USCIS must ensure that every petitioner has acquired the funds to make their EB-5 investment through lawful means.

Given the different accounting and taxing principles around the world, this sometimes proves to be difficult to trace.  Through no fault of the attorney or investor, some countries simply do not practice the standard of record keeping required by USCIS.  This hurdle may be overcome by providing affidavits and other evidence and documentation to get around the deficiency.

Communication between the client and the attorney is most crucial during this stage of the EB-5 process.  An attorney may only perform his/her job when the client has made a complete disclosure of their source of funds.  USCIS needs to see the money traced back to its origin.

For example, if an investor claims to have gained the funds for the investment through the sale of a property, he must show more than just the bill of sale for that property.  USCIS will want to see that he was in fact the owner of the property, and owned it for a reasonable time.  This may be proved by the investor providing his original purchase agreement, or other evidence to prove ownership.

Although the EB-5 Investment is $500,000 for Regional Center Projects located in target employment areas, there are other costs associated with the investment.  Generally an administration fee is assessed to the Petitioner.  Although an attorney should not have to account for the administration fee in the Lawful Source of Funds, the trend among EB-5 attorneys has been to provide documentation accounting for that money. The last thing an attorney wants is to give USCIS an excuse to issue a Request for Evidence (RFE).

Barella Law, LLC | + 1 (202) 621-3198 | [email protected] | www.eb5investmentlaw.com

9128 Strada Place | Suite 10115 | Naples, FL 34108

The Information contained in this blog is for information purposes only, and should not be considered legal advice for any individual case or situation.  The information provided is not a substitute for consultation with an attorney.  No attorney/client relationship is created by the information contained herein.

By Anna Barella | CHOICE INVESTMENTS | www.adviseusa.com

Earlier this week the team at Choice Investments attended a business-networking event hosted by the Québec-Florida Chamber of Commerce.  At the event, we met local business owners originally from Québec, Canada now doing business in Florida, and in some cases those who still operate a business back home. The Québec – Florida Chamber of Commerce offers local and Québec businesses a unique ability to grow their business both in Florida and Québec.  

Each year, Florida welcomes over 800,000 snowbirds from Canada, and nearly a quarter of them hail from the Province of Québec. Every winter they typically spend anywhere between one and six months enjoying Florida’s beaches, shopping, dining and great weather.   Many also invest in real estate, both residential and commercial properties. 

Last year alone, Canadians contributed over $4 billion to Florida’s economy. Many choose to legally reside permanently in Florida, either by immigrating or opting for non-immigrant status such as the TN or E-2 visa. Should the US Government pass the Immigration Reform bill, many Canadians will be allowed to stay in the US for up to eight months out of the year. 

The EB-5 Immigrant Investor Visa remains popular among Canadians wishing to permanently immigrate to the United States.  By becoming a US permanent resident, the investor is able to take full advantage of business opportunities in the US and back in their native Canada.  We saw first hand the success of Quebeckers creating a cross-border life for them self.  Ultimately both the Province of Québec and the State of Florida benefit economically from entrepreneurial endeavors of the Québécois.