What is the Role of the SEC?

By William Mack 

on August 4th, 2016

Posted in EB-5 Investment, EB-5 Program, Immigration

In the United States, there are very strict laws in place to protect investors.  These laws are administered by a governmental agency known as the U.S. Securities and Exchange Commission (SEC).  The mission of this agency is to regulate the U.S. markets, protect investors from fraud, ensure fair, systematic, and efficient markets, and facilitate capital development.

The EB-5 program is a unique path towards a green card that allows an individual to self-sponsor them and their family members for a green card by investing $500,000 in a U.S. business that will create ten or more jobs in the U.S.  The advantages of the EB-5 are numerous:

·         It doesn’t require an employer or family sponsor

·         It allows investors to live anywhere in the United States (not necessarily by their EB-5 investment)

·         It allows them to travel freely in and out of the U.S. as a permanent resident

·         It allows them to have work authorization

·         It allows their children to attend university as a resident once they obtain a green card

As more and more investors turn to the EB-5 program as a way to immigrate to the United States, to help secure their futures, and send children to college, the role of the SEC in protecting investors is more important than ever (most EB-5 investments sold today are securities).  With so many foreign nationals investing in the U.S. to get a green card the SEC has focused in recent years on the EB-5 program and protecting these foreigners. The world of investing in securities is fascinating and complex, and it can be very fruitful. But unlike the banking world, where some deposits are guaranteed by the federal government, securities can lose value. There are no guarantees and, in fact, the EB-5 program does not permit a Regional Center to guarantee an investor’s principal investment into the business. By far the best way for investors to protect the money they put into the securities markets is to do research and proper due diligence to find an investment that is promoted by a developer and Regional Center that have a long track record of success.

At the same time, investors should know that the laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. To achieve this, Regional Centers prepare a Private Placement Memorandum (PPM), or similar disclosure, which outlines the investment terms and risks related to the particular project into which the investor is committing funds. The SEC believes that through the proper disclosure of risks, comprehensive, and accurate information can people make sound investment decisions.  The result of this information flow is to facilitate an active, efficient, and transparent capital market that facilitates the capital formation so important to investors in using this immigration program as a means to obtain permanent residency in the U.S.

To ensure that this objective is always being met, the SEC continually works with all major market participants, including especially the investors in our securities markets, to listen to their concerns and to learn from their experience.  To this end, when the SEC receives complaints from investors who have not had money returned, who have not been provided with information about the status of their investment and where fraud is suspected the SEC can launch an investigation.  Often this involves overseeing the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. Here the SEC is concerned primarily with maintaining fair dealing, and protecting against fraud. In cases where the SEC has found fraud or intent to commit fraud, they often freeze the assets of the business in order to be able to return funds if possible to the investors.  Understandably, this can also have immigration related consequences.  But the SEC will often appoint a receiver who will work with the investors and the SEC to complete a project, to protect capital and where possible to return it to the investors to make them whole again.

EB-5 is a growing industry and with the recent popularity of it, the SEC has made review of the industry and protection of investors a top priority for this year with the goal of ensuring investor confidence, protecting investors and regulating EB-5 businesses.  This will deter future fraud, create a more regulated environment and ultimately increase investor confidence in the EB-5 program long term.

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