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Accredited Investor: for Unregistered EB5 Visa Project Securities Offers!

Accredited Investor: for Unregistered EB5 Visa Project Securities Offers!

Accredited Investor: For unregistered EB5 Visa Project Securities Offerings!

Help educate Accredited investors about investing in Unregistered Securities Offerings, or Private Placements, under Regulation D of the Securities Act for EB5 Visa Program.  

Dear Readers, 

The Office of Compliance Inspections & Examinations (OCIE) at Securities and Exchange Commission (SEC) has named EB5 in its list of Examination Priorities for 2016. OCIE promises that they will review Private Placements, including Offerings involving Regulation D of Securities Act 1933 or Immigrant Investor Program (EB5 Program) to evaluate whether legal requirements are being met in the area of Due Diligence, Disclosure and Suitability. 

As EB5 Program grows with its popularity over years, as on date there are approx 1000 Regional Centers, who get access to Low Interest Capital, and also for the Foreign Investor who may be principally seeking the non-monetary return to become Permanent Lawful Residents U.S. through the Immigrant Investor Program (“EB5”). Most EB5 offering are into New Commercial Enterprise (NCE) which gives investing opportunities in Unregistered Securities Offerings, or Private Placements, under “Regulation D” of the Securities Act.  

  • In order to be eligible to file an I-526 Petition, the Foreign National’s Investment must be “At-Risk” in the commercial sense. Meaning, Investor’s Petition will be denied, if USCIS determines that the Investor’s Investment is not at Risk. 
  • Certain securities offerings (EB5) that are exempt from registration may only be offered to, or purchased by, persons who are Accredited Investors

One principal purpose of the Accredited Investor concept is to identify persons, who can bear the Economic Risk of investing in these unregistered securities


Sophisticated person means the Person must have, or the Company or Private Fund offering the securities reasonably believes that this person has, sufficient Knowledge and Experience in Financial and Business Matters to evaluate the Merits and Risks of the Prospective Investment. 

An Accredited Investor: 

An Accredited Investor, in the context of a Natural Person, includes anyone who: earned income that exceeded $200,000 (or $300,000 together with a Spouse) in each of the prior Two Years, and reasonably expects the same for the Current Year, OR has a Net Worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence). 

Calculating Net Worth involves adding up all your assets and subtracting all your liabilities. The resulting sum is your Net Worth. The value of your primary residence is not included in your Net Worth calculation

 The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to educate investors about investing in Unregistered Securities Offerings, or Private Placements, under Regulation D of the Securities Act.  

A Private Placement: 

  • A securities offering exempt from registration with the SEC is sometimes referred to as a Private Placement or an Unregistered Offering.  Under the federal securities laws, a company may not offer or sell securities unless the offering has been registered with the SEC or an exemption from registration is available. 
  • Generally speaking, private placements are not subject to some of the laws and regulations that are designed to protect investors, such as the comprehensive disclosure requirements that apply to registered offerings.  Private and public companies engage in private placements to raise funds from investors. 
  • As an individual investor, you may be offered an opportunity to invest in an unregistered offering.  You may have seen an advertisement regarding the opportunity.  The securities involved may be, among other things, common or preferred stock, limited partnerships interests, a membership interest in a limited liability company, or an investment product such as a note or bond.  Keep in mind that private placements can be very risky and any investment may be difficult, if not virtually impossible to sell. 
  • Unregistered offerings often can be identified by capitalized legends placed on the offering documents and on the certificates or other instruments that represent the securities.  You should read the offering documents carefully to understand the risks involved. 

Regulation D: 

When reviewing Private Placement Documents, you may see a reference to Regulation D.  Regulation D includes three SEC rules—Rules 504505 and 506—that issuers often rely on to sell securities in unregistered offerings.  The entity selling the securities is commonly referred to as the issuer.  Each rule has specific requirements that the issuer must meet. If you have reason to believe that an unregistered offering claiming to rely on one of these rules does not satisfy the applicable requirements, consider this a red flag about the investment. 

  • Rule 504: Rule 504 permits certain issuers to offer and sell up to $1 million of securities in any 12-month period.  These securities may be sold to any number and type of investor, and the issuer is not subject to specific disclosure requirements.  Generally, securities issued under Rule 504 will be restricted securities (as further explained below), unless the offering meets certain additional requirements.  As a prospective investor, you should confirm with the issuer whether the securities being offered under this rule will be restricted. 
  • Rule 505: Under Rule 505, issuers may offer and sell up to $5 million of their securities in any 12-month period.  There are limits on the types of investors who may purchase the securities.  The issuer may sell to an unlimited number of accredited investors, but to no more than 35 non-accredited investors.  If the issuer sells its securities to non-accredited investors, the issuer must disclose certain information about itself, including its financial statements.  If sales are made only to accredited investors, the issuer has discretion as to what to disclose to investors.  Any information provided to accredited investors must be provided to non-accredited investors.  
  • Rule 506: An unlimited amount of money may be raised in offerings relying on one of two possible Rule 506 exemptions.  However, unlike Rule 505, the non-accredited investors in the offering must be financially sophisticated or, in other words, have sufficient knowledge and experience in financial and business matters to evaluate the investment.  This sophistication requirement may be satisfied by having a purchaser representative for the investor who satisfies the criteria.  Any information provided to accredited investors must be provided to non-accredited investors. 


General Advertising.  Issuers relying on the Rule 506(c) exemption can generally advertise their offerings.  As a result, you may see an investment opportunity advertised through the Internet, Social Media, Seminars, Print, or Radio or Television Broadcast.  Only Accredited Investors, however, are allowed to purchase in a Rule 506(c) offering that is widely advertised, and the issuer will have to take reasonable steps to verify your Accredited Investor status.


Be Well Informed before Investing: 

Private placements may be pitched as a unique opportunity being offered to only a handful of investors, including you.  Even if the deal is “unique,” it may not be a good investment.  It is important for you to obtain all the information that you need to make an informed investment decision.  In fact, issuers relying on the Rule 505 and 506(b) exemptions from registration must provide non-accredited investors an opportunity to ask questions and receive answers regarding the investment.  Unlike registered offerings in which certain information is required to be disclosed, investors in private placements are generally on their own in obtaining the information they need to make an informed investment decision.  Investors need to fully understand what they are investing in and fully appreciate what risks are involved. 

Things to be taken into consideration: 

  • What do the financial statements, if provided, tell you about the business? 
  • Are the claims and expectations reasonable? 
  • How reasonable is the issuer’s reliance on a particular technology, customer, product or natural resources claim? 
  • Who are the issuer’s competitors? 
  • What is the experience and background of management? 
  • How long has the issuer been in business and has the issuer conducted prior offerings? 
  • How does the issuer plan to use the money raised? 
  • If the securities you are investing in have transfer restrictions, when will and how may the restrictions be lifted? 
  • Because you may not be able to resell your investment easily, are you comfortable holding it indefinitely? 

In practice, issuers often provide a document called a Private Placement Memorandum or Offering Memorandum that introduces the investment and discloses information about the securities offering and the issuer.  However, this document is not required and the absence of this document or similar disclosure may be a red flag to consider before investing.

Moreover, Private Placement Memoranda typically is not reviewed by any regulator and may not present the investment and related risks in a balanced light

All issuers relying on a Regulation D exemption are required to file a document called a Form D no later than 15 days after they first sell the securities in the offering.  The Form D will include brief information about the issuer, its management and promoters, and the offering itself.  If the offering you are considering has prior sales, you can search for the Form D filing on the SEC’s website at http://www.sec.gov/edgar/searchedgar/webusers.htm 

What if Any broker recommends the Investment: 

  • If your broker recommends the investment, you should know that your broker, along with his or her firm, has a duty to conduct a reasonable investigation of the investment and the issuer’s representations about it.  The scope of the investigation depends on the circumstances of the investment, including its complexity and the risks involved.  For example, the Private Placement of shares by a large public company may warrant less investigation than a start-up with little or no track record.  Generally, a broker should not just rely blindly on the issuer for information but should separately investigate and verify an issuer’s statements and claims. 
  • In addition, your broker must determine whether an investment in the private placement is suitable for you.  This means your broker will have to consider factors such as your age, financial situation, current and future needs investment objectives and tax status. 
  • Your broker’s duties, however, should not substitute for your own judgment in making the investment.  Your broker can assist and enable you to better understand the opportunity and risks, as well as investigate and gather additional information, but it is your money, your risk and your decision whether to invest.

Restricted Securities: 

Generally, most securities that you acquire in a Private Placement will be restricted securities.  You should not expect to be able to easily and quickly resell your restricted securities.  In fact, you should expect to hold the securities indefinitely

There are two principal things to think about before buying restricted securities

  1. The first is that unless you have made arrangements with the issuer to resell your restricted securities as part of a registered offering, you will need to comply with an exemption from registration to resell.  One rules commonly relied upon to resell requires you to hold the restricted securities for at least a year if the company does not file periodic reports (such as annual and quarterly reports) with the SEC.  You may wish to hire an attorney to help you comply with the legal requirements to resell restricted securities.  Issuers may require a legal opinion that you satisfy an exemption to resell your restricted securities. 
  2. The second thing to think about is whether they are easy to sell.  This issue primarily affects the sale of restricted securities in private companies.  Information about a private company is not typically available to the public, and a private company may not provide information to you or your buyer.  The restricted status of your securities may also transfer to your buyer.  For these reasons, it may be difficult to attract buyers. 

In addition to these considerations, specific contractual restrictions that you may enter into when investing may prevent you from freely transferring the securities.

What else one should know: 

Despite not being subject to the same disclosure obligations as registered offerings, private placements are subject to the antifraud provisions of the federal securities laws.  Any information provided must be true and may not omit any material facts necessary to prevent the statements made from being misleading.  You should be aware that it may be difficult or impossible to recover the money you invest in an offering that turns out to be fraudulent.  In addition, even though the offering may be exempt from SEC registration, the offering may have to separately comply with state securities laws, including state registration requirements or a state exemption from registration. 

Private placements may offer great opportunity.  However, the attractive potential rewards often come with high risks of loss


Note: Information provided herewith, is for educational purpose of Investment based Immigrant investors to help make informed investment decision.



Sagar Jalgaonkar

Investor Visa Consultant in India | Investor Immigration Visa | EB-5 Visa Program for US Immigration | EB-5 Visa Projects by Aemetis Inc | US Green Card | US Citizenship | CEIC Regional Center | Quebec Investor Visa Program | Canada PR | Permanent Residence Visa | Canada Investor Visa | Canada Immigration | Citizenship by Investment |