Read on to learn more about what an EB 5 broker dealer is, what they do, and how to choose the right one.
Here’s what we’ll cover…
Do You Need an EB 5 Broker?
What is an EB 5 Broker Dealer?
EB 5 broker dealers are individuals or entities that provide valuable services to EB 5 investors, developers, and regional centers. These brokers are registered through the U.S.
Securities and Exchange Commission (SEC) and help perform initial project due diligence.
This includes evaluating the likelihood of a project’s success, which is extremely beneficial information for any involved in an EB 5 project.
On the investor’s level, brokers can be hired to provide information on EB 5 projects through answering questions, assessing risk levels, and gauging the accuracy of job creation projections.
Every EB 5 deal is different, and not all will involve a broker dealer in the process. However, projects that associate with a broker will likely have a better outcome than those who do not.
Do I Need an EB 5 Broker?
While hiring and consulting a broker dealer is not a requirement for an EB 5 investor, it makes the immigration process significantly easier.
A particularly crucial area for potential investors is assessing the risk level of an investment.
EB 5 invested capital must remain “at risk”, but investors who understand the risk factors present in a project are less likely to lose their capital funds while still meeting this requirement.
Broker-dealers can assess the risk level of an investment.
EB 5 Brokers and Securities Regulations
Navigating and following complex regulations can be challenging and possibly lead to critical mistakes that cost time and money.
As an example, an investment can be denied if the SEC finds that it was not properly registered and approved by its agency.
This ends the partnership and forces the investor to return to the beginning of the immigration process.
Obviously, having to restart is detrimental to an investor’s immigration success, especially when time is key.
A qualified EB 5 broker can help avoid such problems thanks to their experience with regulation compliance.
More brokers are now specializing in the EB 5 field; they have gained experience dealing with the EB 5 process and United States Citizenship and Immigration Services (USCIS).
These specialized brokers have become familiar with the various reports required by USCIS, which administers the EB 5 program.
This experience can be very beneficial for those navigating EB 5 regulations.
The Role of the SEC
Some people dislike the involvement of government regulations in businesses. However, the SEC’s primary function is to protect immigrant investors from unethical or dishonest practices.
The SEC was founded in 1934 to help restore the stock market after the crash that triggered the Great Depression.
Under the SEC, companies are required to be much more transparent with business operations and investment risks.
This oversight and regulation enforcement has saved investors billions of dollars.
Involving a broker dealer in the EB 5 process can not only increase the likelihood of success but also save money. SEC-registered brokers are well connected in the legal and investment community.
This often saves money for involved EB 5 partners through appropriate and professional referrals. The SEC also regulates and limits the commissions that can be charged.
Typically, these commission caps avoid unconscionable fees charged by unregulated and unlicensed salespeople that do not report to a regulating body.
What Can an EB 5 Broker Do for Me?
Broker-dealers prove to be beneficial for the entire immigration process, but especially so for certain EB 5-related topics. These include:
- Regulation D private placement exemptions.
- Determining a general solicitation is possible.
- Determining whether the purchasers have been verified and are accredited investors.
- Ensure compliance with Regulation S and proper filing with the SEC.
Under federal securities laws, all offers and sales of securities must be registered with the SEC or meet exemption.
Most regional centers offerings are private, so they must fall under an exemption, either through Regulation D or Regulation S. Reg D relates to domestic sales, and companies that meet Reg D requirements do not have to register their securities by filing Form D.
If a general solicitation is possible, that means a private placement securities offering can be advertised under Rule 506(c) of Regulation D.
This is especially beneficial to private placement securities issuers that would otherwise have trouble gaining the attention of foreign investors.
Issuers of securities under Reg D exemption must prove that any and all purchasers are accredited investors. The process of verifying this can be relatively straightforward or complex depending on the offering.
Typically, investors in offers under Reg D will simply assert they are indeed accredited. However, this is not so simple under 506(c).
The issuer is required to verify that an investor is accredited through extra steps such as obtaining a copy of a tax return or confirmation through a third-party advisor.
Regulation S relates to foreign securities sales. Issuers that meet the exemption under Reg S do not have to register securities offered overseas.
However, Reg S does not provide protection from blue sky laws (state securities laws that regulate the offering and sales of securities to prevent fraud).
Naturally, these laws must be complied with to avoid legal issues. An EB5 broker dealer can ensure compliance and proper filing with the SEC.
How Do I Choose the Right Broker?
The right EB5 broker dealer will be knowledgeable, properly qualified, and, most importantly, experienced; the more experience a broker has, the better.
Furthermore, a quality broker dealer will be up to date on any changes to EB 5 legislation.
A broker must also pass basic due diligence, which includes the following:
- Obtaining and evaluating the broker’s resume.
- Conducting a background check on the broker dealer.
- Meeting the broker face to face and visiting their office
- Checking references and client testimonials.
- Seeking legal counsel regarding the broker’s services, necessary licenses and registration, and any compliance concerns.
- Ensuring the broker has the proper qualifications and performs in compliance with all relevant laws.
Any broker registered with the SEC must also be a member of the Financial Industry Regulatory Authority (FINRA).
FINRA is responsible for the regulation of registered broker dealers. FINRA’s BrokerCheck website allows users to review the regulatory history of broker dealers, which includes:
- The EB 5 broker dealer’s formation date
- Information on the broker dealer, including owners, executive officers, and any affiliates.
- History of mergers, acquisitions, or other successions.
- The broker dealer’s registrations, such as with the SEC, FINRA, and any states or territories.
- What kinds of businesses the broker dealer is approved to engage with.
- The broker dealer’s securities laws registrations and their status (active, inactive, or suspended).
- Disclosures of sanctions, complaints, etc., and related details.
Broker Dealers Benefit the EB 5 Industry
Business owners and regional centers considering the EB 5 Immigrant Investor Program as a source of funding are highly encouraged to involve an EB 5 broker in the process.
While choosing the right broker dealer requires careful research, using FINRA’s BrokerCheck website and aiming for an experienced broker can make the selection easier.
Associating with a broker dealer provides the highest assurance that investment funds will be properly allocated and the EB 5 process will be as efficient and smooth as possible.
Doing so significantly increases the likelihood of a successful investment that encourages economic growth, job creation, and immigration.
Foreign nationals, regional centers, and business owners interested in the EB 5 Immigrant Investor Program can take the next step by booking a call with EB 5 Affiliate Network (EB5AN).
Our consulting services have helped thousands of investors succeed in the EB-5 industry.