"... EB-5 offerings are not subject to the heightened disclosure requirements ..." sales process . Most courts and securities practitioners likely would agree that the payment of commissions to middlemen involved in the offering and sales process in unregistered EB-5 offerings is material and should be disclosed to EB-5 investors even though there is no SEC rule that mandates such disclosure . However , reasonable minds may disagree on the level of disclosure necessary . The spectrum of potential disclosure is broad and could range from a minimum disclosure that an issuer has retained the services of one or more middlemen to solicit or steer investors to an EB-5 offering , to a very detailed disclosure identifying all middlemen and providing specific details about their compensation , similar to the disclosure required in a registered offering .
A CLOSER LOOK AT THE LAW
"... EB-5 offerings are not subject to the heightened disclosure requirements ..." sales process . Most courts and securities practitioners likely would agree that the payment of commissions to middlemen involved in the offering and sales process in unregistered EB-5 offerings is material and should be disclosed to EB-5 investors even though there is no SEC rule that mandates such disclosure . However , reasonable minds may disagree on the level of disclosure necessary . The spectrum of potential disclosure is broad and could range from a minimum disclosure that an issuer has retained the services of one or more middlemen to solicit or steer investors to an EB-5 offering , to a very detailed disclosure identifying all middlemen and providing specific details about their compensation , similar to the disclosure required in a registered offering .
One common business objection to providing detailed disclosure is that such disclosure would put the issuer at a competitive disadvantage in negotiating pricing with foreign agents involved in EB-5 offerings . Agents could use the information to negotiate higher compensation . In the end , materiality should be the guiding principle .
If the compensation to be paid to foreign agents is within a range a reasonable investor could expect , the argument for generic disclosure is stronger . In contrast , if the compensation paid is materially higher or structured differently than what could be commonly expected , a general disclosure is likely insufficient . That said , any flexibility that issuers may currently have will likely be eliminated by future legislative amendment to the EB-5 program . Recent legislative proposals mandate disclosure about fees , ongoing interests , and other compensation paid or to be paid to middlemen involved in EB-5 offerings . Most industry participants expect future amendment legislation to pass with some form of mandatory disclosure requirement .
PENALTIES AND CONSEQUENCES
As demonstrated in Feng , courts can impose significant sanctions for securities law violations . In Feng , the defendants were permanently enjoined from future securities law violations . The court also ordered them to disgorge their commissions , $ 1,268,000 plus $ 468,012 in prejudgment interest and assessed significant civil money penalties against them , including $ 160,000 against the attorney and $ 800,000 against his law firm .
In addition to these sanctions , participants in EB-5 offerings could also be subject to bars or suspensions from participating in the securities industry if they committed misconduct while acting as an investment adviser or broker dealer , whether they were registered or
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