The Reform and Integrity Act puts many new requirements on promoters, but the RIA never defines the term “promoter,” and USCIS has yet to offer clarity on who a promoter is. Securities attorney Catherine DeBono Holmes advises that until the Secretary of Homeland Security defines the term, “it would be wise to assume that all persons who receive any form of compensation in connection with an EB-5 offering should be considered promoters.”
EB-5 vs. SEC definitions of ‘promoter’
Section K of the RIA, "Direct and third-party promoters,” refers to the rules that “direct and third-party promoters (including migration agents) must follow. Yet the RIA does not define these terms. DeBono Holmes notes that as the RIA is meant to regulate compliance with securities laws, one would expect the definitions of “promoter” to follow the definition used by the Securities and Exchange Commission (SEC). But DeBono Holmes points out that it is likely that Congress did not intend to mirror the SEC’s definition of promoter.
There are two fundamental reasons for not following the SEC’s definition: the threshold of compensation the SEC uses (equal to or ownership of 10 percent or more of a class of securities) and the SEC’s exclusion of persons from being a promoter if they have not taken part in the founding or organization of the enterprise.
Since the RIA references “direct and third-party promoters (including migration agents)” DeBono Holmes infers this to mean that Congress intended promoters to include independent (non-founding and non-organizing) persons.
Promoters must comply with rules prescribed by the Director of Homeland Security and applicable securities laws that include:
Registration with USCIS
Certification that each promoter is not ineligible under subparagraph (H) “Bona fides of persons involved with regional center program”
Accurately representing the visa process to investors
Permissible fee arrangements according to securities and immigration laws
It should be noted that as of now, no guidance or standards for the above rules have been issued by the Director of Homeland Security.
Regional centers, new commercial enterprises, and job-creating entities must have a written agreement with each promoter that outlines the rules and standards that have prescribed by the Secretary of Homeland Security. Again, as of now, no such rules and standards have been prescribed by the Secretary.
Additionally, each investor petition must include a disclosure, signed by the investor, that includes “all fees, ongoing interest, and other compensation paid to any person that the regional center or new commercial enterprise knows has received, or will receive, in connection with the investment, including compensation to agents, finders, or broker dealers involved in the offering to the extent not already specifically identified in the business plan filed under subparagraph (F).”
How can regional centers ensure promoter compliance with rules and standards that have not yet been prescribed?
Promoters have to follow rules that have not yet been issued and this presents a conundrum for regional centers who strive to be in compliance with the RIA.
DeBono Holmes offers some prudent advice. First, until the Secretary of Homeland Security defines the term “promoter,” consider anyone receiving any compensation in connection with an EB-5 investment to be a promoter.
She also counsels regional centers, NCEs, and JCEs to have a written agreement with each promoter that includes:
The amount of compensation to be paid to the promoter, by whom, and when
Confirmation that the promoter is not ineligible according to the RIA’s section (H) “Bona fides of persons involved with regional center program”
A requirement that the promoter’s compensation is to be disclosed to any investors that compensation is associated with
A requirement of promoter compliance with the rules and standards prescribed by the Secretary of Homeland Security, including registration with USCIS as soon as the agency issues a registration form
The right of the regional center, NCE, or JCE to terminate the promoter agreement, without compensation, if the promoter does not comply with the requirements
“This is admittedly an imperfect solution,” says DeBono Holmes, given that regional centers and promoters must comply with rules and standards that have yet to be issued. But proceeding with caution seems to be part of the EB-5 program.
See Catherine DeBono Holmes article “Who Are ‘Promoters’ And What Requirements Apply To Them Under The EB-5 Reform And Integrity Act?”