How Rule 506 Changed EB-5 Offerings

The EB-5 visa program was created by the U.S. Congress as part of the Immigration Act of 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors.

Under the EB-5 program, foreign investors can obtain EB-5 visas designated by the U.S. Citizenship and Immigration Services (USCIS) to gain lawful residency in the U.S. for themselves and their immediate family in exchange for a capital investment of at least $500,000 in a qualified U.S. business enterprise.

Accredited Investors l Rule 506 Requirements

Regulation D  under the Securities Act  of 1933,as amended (the “Securities Act”), sets forth a safe harbor  from the registration statement requirements of the Securities Act for certain private placements of securities. In connection with these exemptions, offerings made in reliance upon Regulation D, Rule 504, 505 and 506 can be made to up to 35 non-accredited investors and an unlimited number of “accredited” investors.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) amended the definition of an “accredited” investor  to exclude the value of

Rule 506(C) Verification of Accredited Investor Status

Rule 506(c) of Regulation D of the Securities Act became effective on September 23, 2013.   The rule fundamentally changes how private placements are conducted, by allowing issuers to engage in general solicitation and advertising of their private placements if specific requirements are met.

The SEC has confirmed that the Rule 506(c) exemption will not be forgiving for issuers who engage in general solicitation but fail to comply with its requirements.Even one sale to a non-accredited investor in s private placement will prevent the issuer from relying upon the exemption, making it a time bomb for issuers who fail to adopt proper compliance methods for their offerings.