Law firm Seyfarth Shaw has written about the impact of the new regulations on EB-5 offering disclosures. The firm advises that disclosures are not one-size-fits–all and must be tailored to each offering. Some of the questions a securities attorney must ask include: What risks need to be described? Should a rescission offer be made to investors? Is a supplement to current disclosures required?
The new EB-5 regulations that go into effect on November 21, 2019 are going to impact the disclosures that must be made for EB-5 investments.
Some potential factors that influence just what disclosures need to be made include: Is additional investor capital still needed? If 100% of the targeted offering amount has closed, can the company increase the size of the offering? With the project qualify under the new Targeted Employment Area (TEA) requirements? Is the offering ongoing and will it be open after the effective date of the new rule changes?
Rescission & the new rules
There are two reasons for requiring rescission:
1) a material change in the terms of the agreement 2) a material deficiency in the disclosure documents the investor received when they made their investment.
Note that if an I-526 petition was filed prior to the date of the new Rule, the general terms of the investment should not be impacted; for example, if the investment was made as a TEA offering. In general, the new rules should not enable investors to have rescission claims.
The following are three potential scenarios that will need to be treated differently once the new regulations are in effect:
Offerings that require additional funds & will probably meet new TEA requirements
The disclosure of Offering Completion Risk should be refined to state…
Offerings that require additional funds & will probably not meet new TEA requirements
Offerings that do not require additional funds but seek to increase size & will probably not meet new TEA requirements
The disclosure should state…
In general, if there is no need to raise additional funds to complete the project, the need to discuss the added risks of the new investment amounts becomes less critical.
Read the Seyfarth Shaw blog for more details & analysis
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Regulations, rules, and policies
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