Success Strategies Webinar for EB-5 Regional Centers · If your investment through EB-5 turns out to be in a fraudulent securities offering, you may lose both your money and your

April 2, 2014

Webinar

Success Strategies Webinar

for EB-5 Regional Centers

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Agenda

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• Reid Thomas: State of the Market

• Clem Turner: Current Trends in EB-5 Offerings

• Kevin Wright: EB-5 Market Forces: Operating a Regional Center

• Reid Thomas: New Solutions: Streamlining EB-5 Operations

Confidential

• Focused value for our EB-5 customers

– Capital Efficiency

– Operational Efficiency

– Risk Management

• NES Financial developed solutions specifically for EB-5

– Combination of expertise, technology, & administration capabilities

– Middle & back office solutions to help clients focus on their business

– Solutions are powered by NES Financial proprietary technology

• Leading provider of EB-5 financial administration solutions

– Suite of solutions available for all phases of EB-5 process

– Partner with banks to provide complete escrow solutions

– Experience with over 200 EB-5 projects

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NES Financial and EB-5

EB-5 Industry Experiencing Explosive Growth

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EB-5 Now a Mainstream Source of Capital

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Investor Alert - Investment Scams

Exploit Immigrant Investor Program Release Date: October 01, 2013 (Source: uscis.gov)

…the SEC has taken emergency enforcement

action to stop allegedly fraudulent securities

offerings made through EB-5…(Source: sec.gov)

FINRA Rule 2111 – Suitability

The suitability rule applies …. in connection

with the EB-5 Immigrant Investor Program. (Source: finra.org)

FINRA Rule 15c2-4 – That may result in the

return of investor’s funds if the contingency is not

met. Broker-dealer may only deposit investors’

funds in an escrow account with a bank.

EB-5 is Receiving Increased Oversight

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And the Rules are Evolving

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… the SEC will address in its new rules how issuers

need to verify accredited investor status… (Source: ILW.com articles)

Operational Guidance for EB-5

Cases Involving Tenant-Occupancy (Source: uscis.gov Dec’2012)

May 30, 2013 Policy Memorandum

SUBJECT: EB-5 Adjudications Policy

Office of Inspector General

USCIS will update

regulations…more clearly

delineating evidentiary

requirements… (Source: DHS OIG Report 14-19 Dec 2013)

Latest Developments in Securities Law:

What Regional Centers need to know.

NES Financial 2014 Success Strategies Webinar

For EB-5 Regional Centers

Clem G. Turner, Esq.

Homeier & Law, P.C.

150 Broadway, Suite 1920

New York, NY 10038

(646) 393-4701

[email protected]

April 2014

Standard Disclaimer

This presentation is designed to provide practical and useful

information on the subject matter covered. However, it is

provided with the understanding that no legal, tax, accounting,

or other professional services are being rendered or provided. If

legal advice or other expert assistance is required, the services of

a competent professional should be sought.

Los Angeles | Homeier & Law, P.C | New York 9

Executive Summary

SEC Involvement with EB-5

Broker Dealer Registration

Broker Dealer Compensation

Fraud in the Securities Markets

Jobs Act Changes to Regulation D


Recent SEC Involvement with EB-5 Recent Regional Center Prosecutions for securities viols and fraud

Chicago Convention Center – February 8, 2013

USA Now Regional Center – October 1, 2013

Joint SEC/USCIS EB-5 Stakeholder Teleconference – April 3, 2013

Joint SEC/USCIS Investor Alert - October 1, 2013

“USCIS and the SEC have in recent years built a strong partnership with an emphasis on fostering EB-5 program integrity. The two agencies coordinate on issues at the case-specific and programmatic levels, and have participated in joint public engagement events to raise awareness among EB-5 developers and investors as to these issues. This Investor Alert is another example of our coordinated efforts regarding EB-5 program integrity.”


Hot Securities Issues in EB-5

During Joint SEC/USCIS EB-5 Stakeholder Teleconference the

SEC discussed several key issues:

Broker Dealer Registration

Broker Dealer Compensation

Fraud in the EB-5 Market

In addition, Regional Centers need to be aware of the effects of

the recent JOBS Act Amendments.


Broker/Dealer Registration The Exchange Act defines a “broker” as “any person engaged in the business of effecting transactions in securities for the account of others,”

In other words: an intermediary who procures investors for an Issuer’s offering for a fee (Issuer = EB-5 Funded Entity)

Brokers must be registered with the SEC (costly process/heavy regulations). Primarily regulated under Exchange Act and state laws Unlawful to pay any unregistered broker a transaction-based fee for any

activities related to offer, solicitation, or sale of securities in USA

Provisions believed inapplicable “extra-territorially” (outside USA) (So not applicable to foreign brokers who conduct ALL activities outside the USA)

Problem is with word “ALL” SEC reiterated if foreign broker conducts ANY activities related to offer/sale

of securities within the USA - likely “unregistered broker issues” Currently NO foreign brokers active in EB-5 believed registered


Broker/Dealer Registration, Cont. Staff unwilling to answer inquiries about specific offerings and hesitant to express clear stance on exactly what activities or presence constitutes “brokering” in USA

Staff did confirm a very expansive view of activities it deems likely to raise “brokering issues”:

Not just formal marketing, solicitation, and sales to investors Also includes:

1. holding meetings/confs in USA with (or soliciting) potential Issuers

2. working with US Issuers to structure a successful EB-5 offering

3. having physical presence (i.e. an office) in USA

4. frequent US visits; appearing at seminars; negotiating agency agmts

At present, SEC position unclear – but aggressive posture


Broker/Dealer Compensation Using compensated intermediaries (“Brokers”) to bring investors to an EB-5 offering is a material fact requiring adequate disclosure to investors

Securities laws: Offering documents must disclose ALL material facts so investor can make informed investment decision

“Material” – any fact a reasonably prudent investor would find useful when making a decision to invest

Would a reasonable investor deem it important to know the person recommending an investment gets paid for successfully encouraging investment? YOU BET!

Omitting material information risks violating Anti-Fraud provisions of the Securities Laws

SEC reiterated several times that offering documents must clearly disclose broker compensation.


Broker/Dealer Compensation, Cont. Present Issue: Many foreign brokers in EB-5 resist disclosure of their compensation in the Offering Disclosure Documents

Why? Concern investors won’t invest if they learn broker compensation, especially due to conflicts of interest EB-5 brokers can earn $40-$60K up-front AND 1%-3% ($5-$15K) annual compensation

This is up to $135K per investor over 5 year life of $500k investment!

Brokers’ motivation to conceal compensation is EXACTLY why Securities Laws compel compensation disclosure as material What is unclear: how specific must disclosure be?

Name each broker? Precise amount of comp?

This is the domestic offering standard

Interim step: disclose range & timing, factor into projections, include risk factors and conflict of interest disclosure

SEC will likely clarify that EB-5 requires same disclosure as domestic standard (so ideally, disclose this now).


Fraud in the EB-5 Market SEC Investor Alert: Investment Scams Exploit Immigrant Investor Program – October 1, 2013

The U.S. Securities and Exchange Commission's Office of Investor Education and Advocacy and U.S. Citizenship and Immigration Services are jointly

issuing this Investor Alert to warn individual investors about fraudulent investment scams that exploit the Immigrant Investor Program, aka "EB-5."

Look for warning signs of fraud. Beware if you spot any of these hallmarks of fraud:

Promises of a visa or becoming a lawful permanent resident. Investing through EB-5 makes you eligible to apply fora conditional visa, but there is no

guarantee that USCIS will grant you a conditional visa or subsequently remove the conditions on your lawful permanent residency. USCIS carefully reviews

each case and denies cases where eligibility rules are not met. Guarantees of the receipt or timing of a visa or green card are warning signs of fraud.

Guaranteed investment returns or no investment risk. Money invested through EB-5 must be at risk for the purpose of generating a return. If you are

guaranteed investment returns or told you will get back a portion of the money you invested, be suspicious.

Overly consistent high investment returns. Investments tend to go up and down over time, particularly those that offer high returns. Be suspicious of

an investment that claims to provide, or continues to generate, high rates of return regardless of overall market conditions.

Unregistered investments. Even though a regional center may be designated as a regional center by USCIS, most new commercial enterprise investment

opportunities offered through regional centers are not registered with the SEC or any state regulator. When an offering is unregistered, the issuer may not

provide investors with access to key information about the company's management, products, services, and finances that registration requires. In such

circumstances, investors should obtain additional information about the company to help ensure that the investment opportunity is bona fide.

Unlicensed sellers. Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or

registered. Designation as a regional center does not satisfy this requirement. Many fraudulent investment schemes involve unlicensed individuals or

unregistered firms.

Layers of companies run by the same individuals. Some EB-5 regional center investments are structured through layers of different companies that are

managed by the same individuals. In such circumstances, confirm that conflicts of interest have been fully disclosed and are minimized.

If your investment through EB-5 turns out to be in a fraudulent securities offering, you may lose both your money and your path to lawful permanent

residency in the United States. Carefully vet any EB-5 offering before investing your money and your hope of becoming a lawful

permanent resident of the United States.


Anti-Fraud Req’t - Full Disclosure Must accurately and completely describe your offering.

Full Project Disclosure (including Broker Compensation) Requires extensive securities attorney due diligence on principals, project

and regional center to confirm Offering Memorandum is complete.

Your offering is pursuant to an IMMIGRATION Program; Offering Memorandum must incorporate disclosure regarding facts and risks UNCOMMON to non-EB5 private offerings: Immigration Law and EB5 Program specifics

USCIS administration and Green Card/Consular Visa process;

I-526 and I-829 Process;

Visa Retrogression Issues

Job creation and corresponding economic analysis;

Potential sunset of EB5 Program;

Taxation issues;

Regional Center administration and potential conflicts,

etc.


JOBS Act - Effect on Offerings On September 23, 2013 the SEC adopted final rules effecting JOBS Act changes to Regulation D “Private Placement” exemption. Adopted rules establish new “Rule 506(c)” under Regulation D

Allows for “general solicitation” (i.e. mass marketing) of private offerings solicit investors through newspapers, magazines, television, radio,

seminars, websites, and email However sales ONLY allowed to accredited investors

Investor with net worth over $1 million; or

Investor with net income over $200k/year or $300k/year with spouse

AND accredited status must be verified – by “reasonable steps” In-depth confirmation required – no more “check the box” questionnaires

Review bank statements, tax returns, brokerage statements, appraisal reports

Form D filing must now indicate reliance on Rule 506(b) or (c)


JOBS Act - Effect on Offerings, Cont. If an Issuer conducts a “general solicitation”

No fall-backs to “safe-harbors”

Cannot rely on Section 4(a)(2) Codified private offering exemption before Reg D was enacted

Cannot rely on Original Reg D Rule 506(b)

Unclear impact on state “blue sky” laws and foreign exemptions 506(c) offerings pre-empt state laws – except state notice filing req’s and fees

Often states exclude notice filing/fee - but not if gen’l solicitation occurs

Foreign countries may not permit general solicitation

Must tread carefully to avoid losing Regulation S co-exemption

Broad exemption for Offshore Offerings – wide latitude

Regulation S requires NO directed sales efforts in the US


Homeier & Law, P.C.

Collective 50 years Corporate and Securities Experience

Approximately 150 EB-5 Deals since 2009

Counsel to well over $1.5 Billion EB-5 Capital Raises Hotels and Casinos

Restaurants/Franchises

Medical Facilities/Assisted Living Facilities

Manufacturing

Charter Schools

Athletic Facilities

Etc.

Deep Relationships in EB5 Service Industry; representation on EB5 Trade Association’s Best Practices Committee

Big Firm Experience – Small Firm Rates Partners prior firms include: Skadden, Arps; Paul, Hastings; Sherman & Sterling; etc.


Clem Turner, Esq. Clem Turner is a shareholder and the Managing Attorney of the New York Office of Homeier & Law,

PC. Clem practices in the area of general corporate, corporate finance and business transactional law.

With over15 years experience in the corporate and business transactional fields, both as in-house

corporate counsel and with private law firms (such as Skadden, Arps, Slate, Meagher & Flom LLP)

Clem brings a deep level of legal knowledge and expertise to the EB-5 industry.

Clem has counseled numerous corporations and Regional Centers raising capital through the EB-5

Program on matters of structuring, strategy, securities law and corporate law. He has handled

numerous EB-5 transactions in the hotel and accommodations, casino, restaurant, senior and medical

facilities, manufacturing, technology and other industries. Clem has written several articles and

routinely lectures at EB5 events throughout the U.S. and he is the highest listed corporate/securities

attorney on www.eb5investors.

Clem received his B.A. from Princeton University and his J.D. from Georgetown University Law

Center. He is a member of the New York State Bar and California State Bar.


http://www.eb5investors/





EB-5 MARKET FORCES:

OPERATING A REGIONAL CENTER

April 2, 2014

NES FINANCIAL

KEVIN WRIGHT | FOUNDER, WRIGHT JOHNSON

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Mr. Wright is considered one of the foremost experts on the EB-5 program.As an accomplished researcher, analyst and professional author, Kevin has assisted more than 70 applicants in receiving Regional Center designation and subsequent approval of the specific projects that are developed and put into operation through the Regional Center mechanism.

As a featured speaker on the EB-5 program on 3 continents Kevin regularly speaks to foreign agents and US based project developers to further their understanding of the role the economic analysis plays within the EB-5 context and helps project developers to craft their projects in a way that best suits them for EB-5 purposes.As a member of the American Dream Fund, team which recently raised in excess of $300 million dollars for the SLS Casino, Mr. Wright also has firsthand knowledge of the day to day interworkings of marketing a project in multiple countries around the world.

WHAT ARE THE 2 QUESTIONS THAT EVERY

PROJECT DEVELOPER MUST ANSWER?

Marketing Success

Jobs

Exit Strategy

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“I-829 BUBBLE” CAUSED BY THE INCREASE IN

I-526 APPROVALS FROM LATE 2012 AND 2013

Construction of the Hotel

-2012 saw 3002 I-526s

approved

As the large volume of I-526

approvals come 21-24 months

after the applications were

initially submitted, project

developers need to be

prepared to prove job creation

as the I-829s become due.

-2013 saw 3699 I-526s

approved

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I-829 FILING REQUIREMENTS?

Provide evidence to your investors attorneys -Prove the investment has

been sustained through k1

-Prove the jobs were

created, and if not will be

created within one year

-Prove funds were deployed

-Audited financials and

receipts

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Proper Tracking of Expenditures

Construction of the Hotel

Proper Accounting of revenue or W2 tracking

Operation of the Hotel

Updated Economic Analysis based upon actual numbers

Verification of Inputs

HOW CAN A REGIONAL CENTER PREPARE FOR

I-829 SUBMISSIONS?

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WHAT ARE SOME OF THE OPERATIONAL

CHALLENGES IN MANAGING A SUCCESSFUL

REGIONAL CENTER?

Managing Process

Tracking Documents

Managing Investors

RFEs, NVC, Consular Interview, Proof of landing, Addresses, SS#

Tracking Documents Tracking Construction Expenditure

and Revenue

Tracking Funds Deployment of funds, Quarterly

reports, K1s, W8BEN,

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WHAT ARE THE PROJECT MARKETABILITY

CHALLENGES AND HOW CAN PROPER

OPERATIONAL SETUP IMPACT SALES RESULTS?

Good Team Proving to Agents that you

can drag a project over the

finish line is as important

as having a good project!

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QUESTIONS

[email protected]

www.wrightjohnsonllc.com

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mailto:[email protected]

New Solutions:

Streamlining EB-5 Operations

Executive Vice President, Reid Thomas

NES Financial

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Market Trends Forcing Operational Excellence

Confidential

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Job Creating Project Overview

Immigration Workflow

I-526 Visa

Processing I-829

Fund Administration

Expense Tracking

Document Management

Audit Trail

Escrow Subscription

Escrow Construction

Escrow Capital Return

NE

S F

inancia

l S

olu

tions

Subscription Deployment Return Investor/

Immigrant Citizen

Up To 5 Years

Escrow Structure Impacts Marketability

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Finding the right balance is critical

Escrow Structures in EB-5

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Investors’ funds can have a 4-5 year journey through 4 different entities

EB-5 Fund Administration Life Cycle

EB-5 Fund Administration Requires Specialized

Expertise

• Investor motivation is different

• Stakes are high and personal

• Regulations are unique and evolving

• Tracking requirements extend beyond the financial

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Success for investor is I-829 removal of conditions

Today’s EB-5 Immigration Tracking

• Multiple sources of information

– Law firms, agents, banks, investors

• Stored in multiple locations

– Paper files

– Virtual data rooms

– Computer disk

• Managed with multiple & disparate tools

– Salesforce.com

– Email

– Dropbox

– Excel

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The NES Financial Difference

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NES Financial Solutions

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Master account at bank

Project Level Documents

Investor sub-accounts hosted on NES Financial’s eSTAC®

platform

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Administrative fees tracked separately

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KYC Requirements Investor Documents

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Life cycle of settlement account

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Documents for I-829 filing preparation

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Flow of funds evidence

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EB-5 Immigration Workflow Dashboard

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EB-5 Immigration Workflow Dashboard

Project funding status

Capital raise progress against target

Immigrant/ investor status

indicators

Timeline of funding to I-526 filing

Why NES Financial?

• Only solution specifically built for EB-5

• Unique technology combines financial tracking & document storage

• Automated audit trail & summary reports consistent with USCIS requirements

• Permission-based web access for all stakeholders

• Scalable, cost effective, and best time to market option

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50 West San Fernando Street

Suite 300

San Jose, CA 95113

p: 800.339.1031

Contact Us: [email protected]

www.nesfinancial.com

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Panelist Q & A

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