What Is The SEC’s Role In The EB-5 Industry?

The U.S. Securities and Exchange Commission (SEC) was created in the 1930s, and according to their website, the SEC’s role is primarily to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” With the growing popularity of the EB-5 Immigrant Investor Program and its impact on the U.S. markets, the SEC has taken an increased interest in the EB-5 industry.

One of the SEC’s goals, in regard to the EB-5 Program, is to ensure that companies that are offering securities for sale to the public are properly licensed and open and honest about their business, the securities they are offering, and the associated risks involved.

Although not limited to the following, the SEC investigates these issues surrounding the EB-5 industry:

Fraud and Misrepresentation

The SEC investigates fraud and misrepresentation in offering documents. If they find any fraud or violation of Rule 10-b(5) under the Securities Act of 1933, they enforce it and refer charges to the Justice Department.

Violations of Escrow

The SEC investigates issues of misrepresentation and discrepancy involving EB-5 escrow arrangements. The SEC makes sure the escrow truly does exist and the EB-5 investor isn’t directly distributing funds to the EB-5 project. EB-5 investors use escrow and follow certain pre-conditions to add a level of protection to their investment. The SEC looks at escrow and these pre-conditions very carefully.

Lawful Use of Funds

The SEC investigates EB-5 project funding to ensure that the funding is used in accordance to the offering documents and business plans. The SEC has no tolerance for EB-5 projects that take the funding and use it for purposes other than that project, essentially stealing EB-5 investors’ funds. If the project developers breach their offering documents and apply the funding to other purposes then the SEC takes action.

Unregistered Broker-Dealers and Unlicensed Investment Advisers

The SEC investigates any cases of unlicensed parties and unregistered broker-dealers offering investment advice. This applies to any person who offers, recommends, or facilitates EB-5 offerings to EB-5 investors.

To learn more about the SEC’s role, click here.