BROKER-DEALER CONSIDERATIONS
In addition to having to consider fiduciary duties, there are
possibly broker-dealer considerations for issuers and possibly
foreign migration agents acting for, or on behalf of, investors
in the context of redeployment. The Securities Exchange
Act of 1934, as amended (Exchange Act) defines a “broker”
as someone who is engaged in the business of “effecting
securities transactions” for the account of others. While a
broker must clearly be acting for the account of others, the
Exchange Act does not expressly define “engaged in the
business” or “effecting securities transactions.” However,
courts have generally given broad meaning to such terms
and have held that the following could constitute broker-
dealer activities: assisting in the structuring of a prospective
securities transactions; helping an issuer to identify potential
purchasers of securities; screening potential participants;
soliciting securities transactions, including marketing and
advertising activities; negotiating between the investors and
issuer; assessing or making valuations as to the merits of a
proposed investment or giving advice in connection therewith;
taking orders or facilitating the execution of a securities
transaction; handling customer funds and securities; and
preparing and transmitting transaction confirmations.
"one should keep in
mind that SEC may,
nonetheless, bring an
enforcement action
against the NCE for
unlawfully engaging
an unlicensed broker-
dealer -- even if that
broker-dealer is acted
entirely off-shore"
To the extent foreign migration agents take an active role
in the redeployment decision making process, it is possible
that they may become so intertwined with the issuer that
they either become fiduciaries themselves or could be
deemed broker-dealers who are effecting securities for
the account of the NCE’s EB-5 investors. Since a foreign
migration agent, who has been granted the right to approve a
redeployment is likely to evaluate the merits of such project,
it is possible that a foreign migration agent’s role in such
redeployment could bring them within the scope of a broker
under the Exchange Act to the extent that they are “effecting
securities transactions.” This is especially true where the
original offering did not contemplate redeployment and
investor consent is necessary and/or an additional offering
is required to be effected to proceed with a redeployment
project.
88
EB5 INVESTORS M AGAZINE
Importantly, however, it has been the general view that
overseas migration agents that remain strictly offshore are
not subject to the jurisdiction of the Securities and Exchange
Commission (SEC). While that may be the case in practice
to date, one should keep in mind that SEC may, nonetheless,
bring an enforcement action against the NCE for unlawfully
engaging an unlicensed broker-dealer -- even if that broker-
dealer is acted entirely off-shore. As a result, both issuers
and migration agents may not fully focus on or completely
understand the full impact of improperly engaging an
unregistered broker-dealer and the adverse impact that an SEC
claim would have on a project (and by extension, its investors).
Since the redeployment landscape continues to evolve, it is
increasingly important for investors and project principals to
understand the mechanics of redeployments and the impact a
redeployment may have on the investors and the project. It is
also critical to identify the roles of the different parties involved
and the ramifications for failing to abide by fiduciary duties or
comply with existing securities laws. As a result, EB-5 investors
and project principals are well advised to seek competent
counsel to review redeployment mechanics in order to account
for fiduciary duties and broker-dealer considerations and to
help avoid potential liability for the NCE, the GP and potentially
the foreign migration agent.
Osvaldo F. Torres
graduated from
the University of Pennsylvania Law School
in 1987. During his 30-year career, Torres
has prepared offering documents for a
variety of projects. For the past eight years,
Torres has been immersed in the EB-5
space. He regularly represents regional
centers, developers and projects with
their structuring and offering matters,
including hotel, multi-family, senior living,
franchising and other projects. He is a member of the EB-5 SEC
Roundtable, serves on IIUSA’s Leadership, Public Policy and Editorial
committees, and is rated AV Preeminent by Martindale-Hubbell.
R. William Cornelius is an associate
attorney at Torres Law, P.A. and currently
works on general corporate matters as
well as offering documents for private
placements and EB-5 investments. Cornelius
is a 2014 graduate of Nova Southeastern
University’s Shepard Broad Law Center and
is a member of the Florida Bar.
Sources:
1
For ease of reference, this article describes fiduciary duties as they apply to the general partner of
a limited partnership since USCIS has recognized limited partnerships as appropriate investment
vehicles for the purposes of satisfying certain management requirements under the EB-5 program.
However, the fiduciary duties that the manager of a limited liability company owes to its members
are substantially similar to the fiduciary duties described in this article.