USCIS Director Alejandro Mayorkas, President Obama's nominee to be deputy secretary of the Department of Homeland Security, is under investigation by the DHS Inspector General for allegedly helping a Chinese investor get an EB-5 immigrant investor visa after the investor's petition was denied and his appeal rejected.
According to the Associated Press, the matter came to light based upon information obtained from an FBI analyst in the counter-intelligence unit in Washington, D.C.
According to an email message sent by the IG, the complaint against Mayorkas is that he helped Anthony Rodham, the brother of former Secretary of State Hillary Rodham Clinton and the owner of a regional center named Gulf Coast Funds Management, L.L.C., of McLean, Va., to get approval for the Chinese investor's visa after the visa petition was denied and the investor's appeal was rejected.
Tuesday, July 23, 2013
Thursday, July 11, 2013
SEC eliminating prohibition on general solicitation, advertising in certain offerings
Companies seeking to raise capital through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration. Most of the exemptions from registration prohibit companies from engaging in general solicitation or general advertising -- that is, advertising in newspapers or on the Internet among other things -- in connection with securities offerings.
Rule 506 of Regulation D is the most widely-used exemption from registration. In an offering that qualifies for the Rule 506 exemption, an issuer may raise an unlimited amount of capital from an unlimited number of "accredited investors" and up to 35 non-accredited investors. Under SEC rules, accredited investors are individuals who meet certain minimum income or net worth levels, or certain institutions such as trusts, corporations, or charitable organizations that meet certain minimum asset levels.
JOBS Act
In April 2012, Congress passed the Jumpstart Our Business Startups Act (JOBS Act). Section 201(a)(1) of the JOBS Act directs the SEC to remove the prohibition on general solicitation or general advertising for securities offerings relying on Rule 506 provided that sales are limited to accredited investors and an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors. By requiring the SEC to remove this general solicitation restriction, Congress sought to make it easier for a company to find investors and thereby raise capital.
While issuers will be able to widely solicit and advertise for potential investors, the JOBS Act required the SEC to adopt rules that "require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission." In other words, there is no restriction on who an issuer can solicit, but an issuer
faces restrictions on who is permitted to purchase its securities.
The law also directed the SEC to amend Rule 144A under the Securities Act, an exemption from registration that applies to the resale of securities to larger institutional investors known as qualified institutional buyers (QIBs). Under current Rule 144A, offers of securities can only be made to QIBs. Under the new rule, Rule 144A is amended so that offers of securities can be made to investors who are not QIBs as long as the securities are sold only to persons whom the seller reasonably believes are
QIBs.
2012 proposal
Last August, in order to comply with the congressional mandate to implement Section 201(a)(1) of the JOBS Act, the Commission proposed a rule that would remove the general solicitation ban for certain 506 offerings in which sales of securities would be limited to accredited investors and issuers would be required to take reasonable steps to verify such accredited status. After doing so, the Commission received numerous comments, including requests seeking greater clarification on the types of verification that would be considered reasonable under the rule.
Commenters also suggested that the SEC consider measures that they believed would provide additional protections for investors in connection with removing the general solicitation ban. Several of those additional measures identified by these commenters are included in a separate proposal that the Commission approved today.
New rulemaking
Rule 506
The final rule approved on July 10 makes changes to Rule 506 to permit issuers to use general solicitation and general advertising to offer their securities provided that:
The issuer takes reasonable steps to verify that the investors are accredited investors.
All purchasers of the securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities.
Under existing Rule 501, a person qualifies as an accredited investor if he or she has either:
An individual net worth or joint net worth with a spouse that exceeds $1 million at the time of the purchase, excluding the value (and any related indebtedness) of a primary residence.
An individual annual income that exceeded $200,000 in each of the two most recent years or a joint annual income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year.
The determination of the reasonableness of the steps taken to verify an accredited investor is an objective assessment by an issuer. An issuer is required to consider the facts and circumstances of each purchaser and the transaction. Nevertheless, in response to commenters' requests, the final rule provides a non-exclusive list of methods that issuers may use to satisfy the verification requirement for individual investors.
The methods described in the final rule include the following:
Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year.
Receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status.
The existing provisions of Rule 506 as a separate exemption are not affected by the final rule. Issuers conducting Rule 506 offerings without the use of general solicitation or general advertising can continue to conduct securities offerings in the same manner and aren't subject to the new verification rule.
Rule 144A
Under the final rule, securities sold pursuant to Rule 144A can be offered to persons other than QIBs, including by means of general solicitation, provided that the securities are sold only to persons whom the seller and any person acting on behalf of the seller reasonably believe to be QIBs.
Form D
The final rule amends Form D, which is the notice that issuers must file with the SEC when they sell securities under Regulation D. The revised form adds a separate box for issuers to check if they are claiming the new Rule 506 exemption that would permit general solicitation or general advertising.
What's next
The rule amendments become effective 60 days after publication in the Federal Register.
Rule 506 of Regulation D is the most widely-used exemption from registration. In an offering that qualifies for the Rule 506 exemption, an issuer may raise an unlimited amount of capital from an unlimited number of "accredited investors" and up to 35 non-accredited investors. Under SEC rules, accredited investors are individuals who meet certain minimum income or net worth levels, or certain institutions such as trusts, corporations, or charitable organizations that meet certain minimum asset levels.
JOBS Act
In April 2012, Congress passed the Jumpstart Our Business Startups Act (JOBS Act). Section 201(a)(1) of the JOBS Act directs the SEC to remove the prohibition on general solicitation or general advertising for securities offerings relying on Rule 506 provided that sales are limited to accredited investors and an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors. By requiring the SEC to remove this general solicitation restriction, Congress sought to make it easier for a company to find investors and thereby raise capital.
While issuers will be able to widely solicit and advertise for potential investors, the JOBS Act required the SEC to adopt rules that "require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission." In other words, there is no restriction on who an issuer can solicit, but an issuer
faces restrictions on who is permitted to purchase its securities.
The law also directed the SEC to amend Rule 144A under the Securities Act, an exemption from registration that applies to the resale of securities to larger institutional investors known as qualified institutional buyers (QIBs). Under current Rule 144A, offers of securities can only be made to QIBs. Under the new rule, Rule 144A is amended so that offers of securities can be made to investors who are not QIBs as long as the securities are sold only to persons whom the seller reasonably believes are
QIBs.
2012 proposal
Last August, in order to comply with the congressional mandate to implement Section 201(a)(1) of the JOBS Act, the Commission proposed a rule that would remove the general solicitation ban for certain 506 offerings in which sales of securities would be limited to accredited investors and issuers would be required to take reasonable steps to verify such accredited status. After doing so, the Commission received numerous comments, including requests seeking greater clarification on the types of verification that would be considered reasonable under the rule.
Commenters also suggested that the SEC consider measures that they believed would provide additional protections for investors in connection with removing the general solicitation ban. Several of those additional measures identified by these commenters are included in a separate proposal that the Commission approved today.
New rulemaking
Rule 506
The final rule approved on July 10 makes changes to Rule 506 to permit issuers to use general solicitation and general advertising to offer their securities provided that:
The issuer takes reasonable steps to verify that the investors are accredited investors.
All purchasers of the securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities.
Under existing Rule 501, a person qualifies as an accredited investor if he or she has either:
An individual net worth or joint net worth with a spouse that exceeds $1 million at the time of the purchase, excluding the value (and any related indebtedness) of a primary residence.
An individual annual income that exceeded $200,000 in each of the two most recent years or a joint annual income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year.
The determination of the reasonableness of the steps taken to verify an accredited investor is an objective assessment by an issuer. An issuer is required to consider the facts and circumstances of each purchaser and the transaction. Nevertheless, in response to commenters' requests, the final rule provides a non-exclusive list of methods that issuers may use to satisfy the verification requirement for individual investors.
The methods described in the final rule include the following:
Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year.
Receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status.
The existing provisions of Rule 506 as a separate exemption are not affected by the final rule. Issuers conducting Rule 506 offerings without the use of general solicitation or general advertising can continue to conduct securities offerings in the same manner and aren't subject to the new verification rule.
Rule 144A
Under the final rule, securities sold pursuant to Rule 144A can be offered to persons other than QIBs, including by means of general solicitation, provided that the securities are sold only to persons whom the seller and any person acting on behalf of the seller reasonably believe to be QIBs.
Form D
The final rule amends Form D, which is the notice that issuers must file with the SEC when they sell securities under Regulation D. The revised form adds a separate box for issuers to check if they are claiming the new Rule 506 exemption that would permit general solicitation or general advertising.
What's next
The rule amendments become effective 60 days after publication in the Federal Register.
Wednesday, July 3, 2013
Friday, June 21, 2013
Thursday, May 30, 2013
Tuesday, April 2, 2013
SEC relaxes restrictions on companies' use of social media
The Securities and Exchange Commission (SEC) says that companies can use Twitter, Facebook and other social media to announce key information as long as they alert investors about which websites they plan to use for such disclosures.
The SEC said it would apply its disclosure rules to social media and other emerging forms of communication in the same way that it applies those rules to the websites of public companies.
The announcement stems from a post last July on the personal Facebook page of Netflix's chief executive, sharing company information that the SEC said had not been revealed through more traditional means. The SEC said it did not initiate an enforcement action or allege wrongdoing in that case. -- Reuters
Monday, March 4, 2013
USCIS releases draft EB-5 adjudication guidance
I was tempted to fire off some comments quickly on the new EB-5 draft policy guidance to show I am out there in front of EB-5 issues. I'm not, so I waited, and I'm glad I did. This new draft policy guidance recognizes some basic facts about the EB-5 Program, which is a good thing.
Read it here.
I find some language I can agree with, but I still have some disagreements with the draft guidance, and that is troubling, because I am an end-user and have to explain this program to lawyers, investor recruiters, and investors. This draft guidance shows me that I am not even close to doing this competently. This guidance and other guidance and memoranda issued by USCIS have always been uniformly bad for the EB-5 Program. Where USCIS makes pronouncements about EB-5, it always reveals its misunderstanding of how the EB-5 Program is supposed to operate and what standards, requirements, guidance and procedures should apply.
USCIS is great at quoting law and regulations in its guidance, memoranda, requests for additional evidence, and administrative appeals office decisions, but it is lousy at applying them or even understanding them. So many of USCIS "impressions" about how the EB-5 Program should work are blatantly confused between the regular (sometimes referred to as the "standalone") EB-5 Program and the regional center statutory version. They are very different. Often USCIS doesn't recognize this or even appreciate it.
This situation is not hopeless, but it's not good. I come at this with an acknowledged agenda. I think the EB-5 Program should be managed well and properly, by a federal agency with an economic development mission, for the benefit of the people of the United States. Not what we have now. Not even close.
I was doing well during my first review of the draft policy guidance, which stated law and regulations (as USCIS normally does in the early going in an attempt to prove they know how to copy stuff), until I got to the bottom of page 18 and the top of page 19 (of 25).
"For an immigrant investor who is investing in a new commercial enterprise that is part of a regional center:
"o The entity seeking designation as a regional center will file a Form I-924 that, together with the supporting evidence, demonstrates by a preponderance of the evidence that the requirements for a regional center have been met. The individuals who establish the regional center can be, but need not be, the immigrant investors themselves; and,
"o Once USCIS designates the entity as a regional center, each immigrant investor will file a Form I-526 that, together with the supporting evidence, demonstrates by a preponderance of the evidence that the immigrant investor has invested, or is actively in the process of investing, lawfully obtained capital in a new commercial enterprise in the United States that will create directly or indirectly full-time positions for not fewer than ten qualifying employees."
The predicate is just wrong, and USCIS mixes up administrative procedures. This is not at all helpful to an understanding of the process.
Regulations permit investors to prove that they have created 10 jobs -- direct, indirect, or induced -- if the new commercial enterprise in which they invested is within the geographic boundaries of a regional center and has been adopted as a regional center investment project. 8 C.F.R. § 216.6(a)(4)(iii-iv).
Although USCIS seems to recognize this, we have seen few statements that it does.
There is a very troubling paragraph on page 20 concerning creation of jobs "within a reasonable time".
"The regulations require that the business plan submitted with Form I-526 establish a likelihood of job creation 'within the next two years.' 8 C.F.R. § 204.6(j)(4)(i)(B), demonstrating an expectation that EB-5 projects will generally create jobs within such a timeframe."
Every EB-5 lawyer knows that the so-called "two-year rule", which USCIS in this paragraph incorrectly identifies as a "law", was literally lifted from the "marriage fraud amendments" wherein an alien who marries a U.S. citizen obtains "conditional residence", which is converted to lawful permanent residence if the alien can demonstrate that a bona fide marriage has existed for two years. But it gets worse.
USCIS wrote in that same paragraph: "Jobs projected to be created beyond that time horizon (that is, more than three years after USCIS approved the petitioner’s Form I-526) will usually not be considered to be created within a reasonable time, unless extreme circumstances, such as force majeure, are presented."
Strict adherence to this "two-year rule", which bears no relationship to any principles in the business world, sound business practices, or the painfully slow-growing economy, and the corollary "within a reasonable time" rule is neither logical nor helpful.
Although still very "project-centric" when discussing regional centers, there is one little phrase at the top of page 21 that seems to recognize my regional center's project hosting business model: " ... [A]n affiliated commercial enterprises's organizational structure."
USCIS seems to have taken a more reasonable view of "material change". I write "seems" because it's not clear. We'll see when some new adjudications start coming out of the California Service Center bunker in the near future. The agency pulled a definition of "material change" from a denaturalization case. It has adopted the following: "A change in fact is material if the changed circumstances would have a natural tendency to influence or are predictably capable of affecting the decision," citing Kungys v. United States.
The recognition that changed circumstances may not be the fault of the EB-5 project developer(s) on page 21 is a watershed moment in EB-5 history. Also, for the first time, USCIS has recognized that the law does not require a direct connection between the business plan and job creation in accordance with the business plan.
"While that position [the business plan and job creation] is a permissible construction of the governing statue, USCIS also notes that the statute does not require that direct connection." And there is this:
"Pursuant to this policy, USCIS will no longer deny petitions to remove conditions solely based on failure to adhere to the plan contained in the Form I-526 ...."
While acknowledging its "deference" policy and recognizing "the fluidity of the business world" and material changes to the business plan after the alien obtained conditional resident status, USCIS states that alien investors who avail themselves of this new flexibility decreases the degree of predictability they would enjoy if they (or project developers) adhered to the business plan.
I am rarely able to praise USCIS for doing or not doing something, so I take this opportunity to
congratulate USCIS for some tweaks that could actually benefit the EB-5 Program and the national EB-5 community.
Read it here.
I find some language I can agree with, but I still have some disagreements with the draft guidance, and that is troubling, because I am an end-user and have to explain this program to lawyers, investor recruiters, and investors. This draft guidance shows me that I am not even close to doing this competently. This guidance and other guidance and memoranda issued by USCIS have always been uniformly bad for the EB-5 Program. Where USCIS makes pronouncements about EB-5, it always reveals its misunderstanding of how the EB-5 Program is supposed to operate and what standards, requirements, guidance and procedures should apply.
USCIS is great at quoting law and regulations in its guidance, memoranda, requests for additional evidence, and administrative appeals office decisions, but it is lousy at applying them or even understanding them. So many of USCIS "impressions" about how the EB-5 Program should work are blatantly confused between the regular (sometimes referred to as the "standalone") EB-5 Program and the regional center statutory version. They are very different. Often USCIS doesn't recognize this or even appreciate it.
This situation is not hopeless, but it's not good. I come at this with an acknowledged agenda. I think the EB-5 Program should be managed well and properly, by a federal agency with an economic development mission, for the benefit of the people of the United States. Not what we have now. Not even close.
I was doing well during my first review of the draft policy guidance, which stated law and regulations (as USCIS normally does in the early going in an attempt to prove they know how to copy stuff), until I got to the bottom of page 18 and the top of page 19 (of 25).
"For an immigrant investor who is investing in a new commercial enterprise that is part of a regional center:
"o The entity seeking designation as a regional center will file a Form I-924 that, together with the supporting evidence, demonstrates by a preponderance of the evidence that the requirements for a regional center have been met. The individuals who establish the regional center can be, but need not be, the immigrant investors themselves; and,
"o Once USCIS designates the entity as a regional center, each immigrant investor will file a Form I-526 that, together with the supporting evidence, demonstrates by a preponderance of the evidence that the immigrant investor has invested, or is actively in the process of investing, lawfully obtained capital in a new commercial enterprise in the United States that will create directly or indirectly full-time positions for not fewer than ten qualifying employees."
The predicate is just wrong, and USCIS mixes up administrative procedures. This is not at all helpful to an understanding of the process.
Regulations permit investors to prove that they have created 10 jobs -- direct, indirect, or induced -- if the new commercial enterprise in which they invested is within the geographic boundaries of a regional center and has been adopted as a regional center investment project. 8 C.F.R. § 216.6(a)(4)(iii-iv).
Although USCIS seems to recognize this, we have seen few statements that it does.
There is a very troubling paragraph on page 20 concerning creation of jobs "within a reasonable time".
"The regulations require that the business plan submitted with Form I-526 establish a likelihood of job creation 'within the next two years.' 8 C.F.R. § 204.6(j)(4)(i)(B), demonstrating an expectation that EB-5 projects will generally create jobs within such a timeframe."
Every EB-5 lawyer knows that the so-called "two-year rule", which USCIS in this paragraph incorrectly identifies as a "law", was literally lifted from the "marriage fraud amendments" wherein an alien who marries a U.S. citizen obtains "conditional residence", which is converted to lawful permanent residence if the alien can demonstrate that a bona fide marriage has existed for two years. But it gets worse.
USCIS wrote in that same paragraph: "Jobs projected to be created beyond that time horizon (that is, more than three years after USCIS approved the petitioner’s Form I-526) will usually not be considered to be created within a reasonable time, unless extreme circumstances, such as force majeure, are presented."
Strict adherence to this "two-year rule", which bears no relationship to any principles in the business world, sound business practices, or the painfully slow-growing economy, and the corollary "within a reasonable time" rule is neither logical nor helpful.
Although still very "project-centric" when discussing regional centers, there is one little phrase at the top of page 21 that seems to recognize my regional center's project hosting business model: " ... [A]n affiliated commercial enterprises's organizational structure."
USCIS seems to have taken a more reasonable view of "material change". I write "seems" because it's not clear. We'll see when some new adjudications start coming out of the California Service Center bunker in the near future. The agency pulled a definition of "material change" from a denaturalization case. It has adopted the following: "A change in fact is material if the changed circumstances would have a natural tendency to influence or are predictably capable of affecting the decision," citing Kungys v. United States.
The recognition that changed circumstances may not be the fault of the EB-5 project developer(s) on page 21 is a watershed moment in EB-5 history. Also, for the first time, USCIS has recognized that the law does not require a direct connection between the business plan and job creation in accordance with the business plan.
"While that position [the business plan and job creation] is a permissible construction of the governing statue, USCIS also notes that the statute does not require that direct connection." And there is this:
"Pursuant to this policy, USCIS will no longer deny petitions to remove conditions solely based on failure to adhere to the plan contained in the Form I-526 ...."
While acknowledging its "deference" policy and recognizing "the fluidity of the business world" and material changes to the business plan after the alien obtained conditional resident status, USCIS states that alien investors who avail themselves of this new flexibility decreases the degree of predictability they would enjoy if they (or project developers) adhered to the business plan.
I am rarely able to praise USCIS for doing or not doing something, so I take this opportunity to
congratulate USCIS for some tweaks that could actually benefit the EB-5 Program and the national EB-5 community.
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