Best Practices When Dealing With Securities & Investments For EB-5 Foreign Investor Seminar Orlando, Florida October 25, 2008 Stefan A. Rubin, Esq. 420

Best Practices Best Practices When Dealing With When Dealing With

Securities & InvestmentsSecurities & InvestmentsFor EB-5 Foreign Investor SeminarFor EB-5 Foreign Investor Seminar

Orlando, FloridaOrlando, FloridaOctober 25, 2008October 25, 2008

Stefan A. Rubin, Esq.

420 S. Orlando Ave., Suite 920

Orlando, Florida 32801

(407) 244-8004

[email protected]

Introduction and BackgroundIntroduction and Background

Federal, State and Foreign LawsFederal, State and Foreign Laws U.S. Securities LawsU.S. Securities Laws

• What is a Security?What is a Security?• Registration or ExemptionRegistration or Exemption• AntifraudAntifraud• Broker-Dealer Broker-Dealer

RegulationRegulation

U.S. ExemptionU.S. Exemption Regulation D Regulation D (a.k.a. Private Placement)(a.k.a. Private Placement)

• Rule 506 Safe HarborRule 506 Safe Harbor No more than 35 investors who are not No more than 35 investors who are not

“accredited investors”“accredited investors” No Advertising or General Solicitation!No Advertising or General Solicitation! No cap on amount raisedNo cap on amount raised Requires notice filing Requires notice filing

with the SEC with the SEC Preempts state securities Preempts state securities

registration registration

U.S. ExemptionU.S. Exemption

Regulation SRegulation S• Applies to funds coming or going Applies to funds coming or going

overseas to purchase securitiesoverseas to purchase securities• No cap on amount raised No cap on amount raised • Offer and sale must occur outside of USOffer and sale must occur outside of US• Burden on issuer to prove Burden on issuer to prove

compliancecompliance• Safe Harbor Safe Harbor • No state preemptionNo state preemption


• Reg. S Safe HarborReg. S Safe Harbor Offer and sale must be in an offshore Offer and sale must be in an offshore

transactiontransaction No directed selling efforts in USNo directed selling efforts in US Investor certify specific facts in Investor certify specific facts in

purchase documents purchase documents Securities contain a restrictive legendSecurities contain a restrictive legend Issuer must be prohibited from Issuer must be prohibited from

recognizing invalid transfersrecognizing invalid transfers


• Offers and sales must only be made Offers and sales must only be made to non-“US Persons”to non-“US Persons”

Based on residency, Based on residency, not citizenshipnot citizenship

• Investor must not be in Investor must not be in the US at time of offer the US at time of offer or saleor sale

Passport stamps?Passport stamps?

• What is an “offshore transaction”?What is an “offshore transaction”?


What is a “directed selling effort”?What is a “directed selling effort”?• Marketing efforts in US to induce sales of Marketing efforts in US to induce sales of

securitiessecurities• Mailing printed materials to US investorsMailing printed materials to US investors• Conducting promotional seminars in USConducting promotional seminars in US• Advertising in a publication primarily Advertising in a publication primarily

distributed in US, or in past year had distributed in US, or in past year had 15,000+ copies of an issue in the US15,000+ copies of an issue in the US

• Advertising on radio or television stations Advertising on radio or television stations broadcasting into the USbroadcasting into the US


What is not a “directed selling effort”?What is not a “directed selling effort”?• Tombstone ad published in the USTombstone ad published in the US

Less than 20% circulation in USLess than 20% circulation in US Limited information: issuer name, securities Limited information: issuer name, securities

offered, deadlines, etc.offered, deadlines, etc. Must contain securities legendMust contain securities legend

• Bona fide visit to the US to tour facilityBona fide visit to the US to tour facility• Press conferences outside of the USPress conferences outside of the US

Not favoring US over foreign, and not Not favoring US over foreign, and not intended to induce US purchasersintended to induce US purchasers


• Routine advertising or disseminating Routine advertising or disseminating information in the US that does not induce information in the US that does not induce the purchase or sale of securitiesthe purchase or sale of securities

• Lawful activities conducted outside of USLawful activities conducted outside of US• WebsitesWebsites

Disclaimer that no US purchasers Disclaimer that no US purchasers are allowedare allowed

Stricter requirements if Stricter requirements if offering materials are offering materials are posted onlineposted online


Directed selling effort ≠ offer or saleDirected selling effort ≠ offer or sale

Limited activity with an isolated investor Limited activity with an isolated investor in the US to induce a sale might in the US to induce a sale might invalidate the “offshore transaction” invalidate the “offshore transaction” requirement requirement even ifeven if that activity does that activity does not constitute a “directed selling effort”not constitute a “directed selling effort”

State ExemptionState Exemption

a.k.a. Blue Sky Lawsa.k.a. Blue Sky Laws State preemption for Rule 506State preemption for Rule 506 No state preemption for Regulation SNo state preemption for Regulation S

• Register or be exempt under state lawRegister or be exempt under state law• Most states do not have an exemption Most states do not have an exemption

identical to Regulation Sidentical to Regulation S• Consider state ULOEConsider state ULOE

Limit of 35 purchasersLimit of 35 purchasers

Offering DocumentsOffering Documents

Private Placement Memorandum or Private Placement Memorandum or Confidential Offering DocumentConfidential Offering Document

Entity Governing DocumentEntity Governing Document• Limited Partnership Agreement, LLC Limited Partnership Agreement, LLC

Operating Agreement, etc.Operating Agreement, etc. Subscription AgreementSubscription Agreement Escrow AgreementEscrow Agreement


PPM / Offering DocumentPPM / Offering Document• Offering detailsOffering details• The developer and the projectThe developer and the project• Projections, maps, charts, demographicsProjections, maps, charts, demographics• Risk factorsRisk factors

Entity Governing DocumentEntity Governing Document• Management, funding requirements, Management, funding requirements,

distributions, restrictions on transfer, etc.distributions, restrictions on transfer, etc.• USCIS requires that investors have USCIS requires that investors have

“control”, or at least set policies“control”, or at least set policies


Subscription AgreementSubscription Agreement• Irrevocable offer to buyIrrevocable offer to buy• Investor representationsInvestor representations• Offering period and payment termsOffering period and payment terms• Risk factorsRisk factors

Escrow AgreementEscrow Agreement• Will funds be returned if offering Will funds be returned if offering

results in 1 investor?results in 1 investor?

Broker-DealerBroker-Dealer

Federal and state law complianceFederal and state law compliance US Securities Exchange Act of 1934 US Securities Exchange Act of 1934

definition:definition:• ““any person engaged in the business of any person engaged in the business of

effecting transactions in securities for effecting transactions in securities for the account of others”the account of others”

• Can include issuers and its employeesCan include issuers and its employees Must register or be exemptMust register or be exempt

FindersFinders Finders FeesFinders Fees

• Transaction-based fee? Transaction-based fee? • How involved?How involved?• How often? How often? • Previous securities sales experience? Previous securities sales experience?

None of these factors is dispositive!None of these factors is dispositive!

Safest if a finder merely Safest if a finder merely provides names and provides names and contact information contact information

FindersFinders

PenaltiesPenalties• CriminalCriminal• Fines and penaltiesFines and penalties

• RescissionRescission• Principals may also be liablePrincipals may also be liable

QuestionsQuestions

This is provided by Ruden McClosky for informational This is provided by Ruden McClosky for informational purposes only. This does not contain legal advice, nor purposes only. This does not contain legal advice, nor does it constitute an attorney-client relationship. The does it constitute an attorney-client relationship. The hiring of a lawyer is an important decision that should hiring of a lawyer is an important decision that should not be based solely upon information such as this or not be based solely upon information such as this or advertisements. advertisements.