EB5 Investors Magazine Volume 5, Issue 2 - Page 44

THE BASICS OF EB-5 revenue targets; however, one of the advantages is that demonstrating job creation at the I-829 process is achieved by providing audited financials, which is arguably less onerous than having to provide I-9’s and W-2’s for each employee that would be needed under a direct model. Offering Documents A misconception among would-be EB-5 issuers is that there is no need to prepare offering documents if there are a small number of investors or if the offering is only for a few million dollars. However, regardless of the number of investors or the amount of the EB-5 raise, preparing offering documents is required in almost all cases and is nonetheless a best practice to help mitigate securities liability and increase the marketability of a project. Under U.S. securities laws, any investment is a security and an issuer may not offer or sell securities unless its offering is registered with the U.S. Securities and Exchange Commission (SEC) or falls under an exemption to registration. EB-5 offerings are mostly conducted under the Regulation D exemption from registration. For strictly off-shore offerings to non-U.S. persons, the Regulation S exemption should apply. Although offerings exempt from registration are typically not subject to the same disclosure requirements as registered offerings, exempt EB-5 offerings are still subject to the anti-fraud provisions of the securities laws, which impose liability for material misstatements or omissions in connection with the offer or sale of securities. It should be noted that the officers, directors, and other key persons of the issuer could have personal liability for any alleged misrepresentations in an offering—even if such persons had little input or involvement on the offering process. As such, great care must be taken in any offering of securities. The offering documents serve the important role of providing investors with the material information they need to make an informed investment decision. Furthermore, the preparation of the offering documents should involve engaging in due diligence on the project. Proper due diligence should decrease the risk of material misstatements and omissions in connection with the offering. A finding that an offering contained material misstatements and/or omissions could lead to rescission and fraud claims against the issuer and, as noted above, personal liability to the officers, directors and other key persons of the issuer. If the offering is rescinded, such officers, directors and other key persons may have to pay 43 EB5 INVESTORS M AGAZINE fines and be liable to refund the investors capital contributions. For the past couple of years, the SEC has increasingly cracked down on EB-5 projects. As such, securities liability is a very real risk for issuers that may be mitigated by consulting with a securities lawyer who can help ensure that you are aware of the applicable U.S. securities laws and how to comply with them. Failure to prepare offering documents may save you money in the