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The Act defines a “broker” as “any person engaged in the business of effecting transactions in securities for the account of others.” A “dealer” performs the same function for their own securities. As they have the same requirements whether selling for themselves or others, they are referred to as “broker-dealers”.
In an attempt to prevent fraudulent or misleading sales, broker-dealers are required to pass licensing exams and register with the Securities and Exchange Commission (SEC) and the states in which they conduct business. The SEC designated Financial Industry Regulatory Authority (FINRA) to manage individuals and firms in the securities business. As registered broker-dealers and FINRA members, broker-dealers are subject to extensive requirements and oversight.
When EB-5 Regional Centers properly offer investments as licensed broker-dealers, it removes a number of risks to the EB-5 investor, including:
All EB-5 investments offered by a licensed broker-dealer must be filed with FINRA under Rule 5123. Simply require a FINRA Rule 5123 Filing Receipt as a required due diligence item before engaging with an EB-5 promoter.
In 1992, Congress created an additional component of the EB-5 program, the Regional Center Pilot Program. A Regional Center is a private or public entity designated by USCIS that is authorized to coordinate with multiple immigrant investors and to pool their investments for greater economic impact. Regional Centers are authorized to operate within defined geographic regions and within specific industry sectors.
There are several primary differences between the direct EB-5 program and the Regional Center Program. The Regional Center Program allows for the use of economic modeling to calculate the indirect and induced job creation related to all spending for each project. This means that in the Regional Center Program, the EB-5 investor can rely upon direct, indirect, and induced jobs to meet the job creation requirement of the EB-5 program.
The prospective EB-5 investor requests information about CMB Regional Centers and current EB-5 offerings. Once a confidentiality agreement is signed, the prospective EB-5 investor is sent the Private Placement Memorandum, Subscription Agreement, Limited Partnership Agreement and Escrow Agreement.
EB-5 investor executes the subscription documents and returns them to CMB. The EB-5 investor then transfers their subscription fee to an escrow account established by the partnership on behalf of the investor where funds are held by the escrow bank. The release of funds from escrow can only occur according to the terms of the Escrow Agreement. CMB's Administrative Placement Agent reviews the EB-5 investor's subscription for suitability and compliance with securities laws. Once processed, the EB-5 investor is formally accepted as a limited partner in the partnership.
Once the EB-5 investor is accepted as a limited partner into a LEEB5 partnership, the investor's immigration attorney files the I-526 petition with the USCIS.
If the I-526 petition is approved, the EB-5 investor applies for a conditional green card through a consulate interview or an adjustment of status (if he or she is already in the U.S. on another visa). If the I-526 petition is denied, the investor's capital contribution would be returned to the limited partner in accordance with terms of the partnership agreement.
Once the EB-5 investor is approved for a visa and a visa is available, the investor and qualified family members are issued conditional green cards that are valid for two years. The EB-5 investor must enter the U.S. within 180 days if they are not already in the U.S. This entry into the U.S. then begins the 24 month period of conditional permanent residency.
Between months 22-24 of the EB-5 investor's conditional permanent residency period, the investor's immigration attorney files the I-829 petition to remove the conditions on the green card.
Once all investments of the partnership are repaid, the limited partners can vote to liquidate the partnership and distribute the balance of each capital account according to the Partnership Agreement.
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