IIUSA Day 2 (Congress, Markets, Securities, Impacts)

Additional notes from the IIUSA EB-5 Advocacy and Leadership Conference in Washington D.C. April 12-14…

Congressional Update
We heard from three members of Congress: Senator Ron Johnson (R-WI), Hon. Zoe Lofgren (D-CA19), and Hon. Darrell Issa (R-CA49). Senator Johnson encouraged us to fight the cultural tendency to cartoonishly villainize business and success, but he didn’t seem as eager to support the immigrant part of immigrant investment. As chair of the Senate Homeland Security and Government Affairs Committee, he has formulated a strategic plan that is all about securing borders and defending against threats, with no bullet points related to the welcome mat aspect of immigration. Lofgren and Issa did promise to support Regional Center Program reauthorization, with changes, and referred back to their respective (now dusty) IDEA Act and Skills Act proposals. Lofgren and Issa agreed that the qualifying investment amount needs to be increased and that it would be nice, if tough, to increase the visa cap. IIUSA’s advocacy panel discussed the climate in Congress generally and opined that program reauthorization is likely, but that it will likely be another extension rather than permanency, and will likely involve changes to the minimum investment amount, TEA process, and additional oversight provisions. Apparently the executive actions on immigration quelled Congress’ appetite to discuss immigration issues, especially across the aisle, and many members are unwilling to consider any other immigration measures until the executive action issues have been dealt with.
Markets Update
Panel discussions suggested that mainland China is still basically the only choice for large EB-5 capital raises (e.g. over about $20 million), because it’s the only country with infrastructure in place, though an increasing variety of other countries have supplied EB-5 investors in recent years. A change to the licensing procedure for migration agents in China has resulted in a proliferation of new agencies (over 2,000). However agencies dealing with immigration in China do still need to be licensed, and foreign parties cannot obtain such a license or legally do their own advertising or seminars in China. Provincial Entry & Exit associations continue to help oversee and organize migration agencies. The Guangdong association for example, provides training and screening and even publishes rankings for member agencies. The panel of representatives from Chinese migration agencies noted that the market for EB-5 investments in China is still strong, and that they do not anticipate demand reduction in response to the China EB-5 cut-off date or the possible increase to the EB-5 investment amount. For additional info on the China market, note recent posts on the Klasko Law Blog.
Securities Law
If only the panel with Catherine DeBono Holmes, Michael Homier, Ozzie Torres, and Lili Wang had lasted another hour or so. Such timely and critically important information! Homeier discussed the SEC’s crackdown on receipt of broker fees by unlicensed persons. The SEC has reached settlement agreements with a number of attorneys (with an announcement naming 15-25 firms expected soon), and the likely next step is SEC cases against any Regional Centers that paid impermissible finders fees. Torres reminded the audience that our SEC panelist from the previous day basically said that there is no such thing as a finders exemption. (From my notes: C. Joshua Felker called the so-called finder’s exemption “a popular belief.” He stated that somebody called a “finder” is actually a broker assuming his activity matches the defined activity of a broker, and that foreign “finders” can only be compensated as such if they provide a name only and give no investment advice.) Of course attorneys can get paid for legal services, but they cannot get paid to refer a client to a Regional Center, and they’d be wise to generally avoid transaction-based compensation, which attracts SEC attention. The panelists discussed possible exemptions to broker-dealer registration and ways to involve broker-dealers in the process of selling EB-5 investments. For better summary than I can give of the securities law details, see Catherine DeBono Holmes’ articles on the Investment Law Blog. Here is the PDF copy of the booklet Regional Centers & Sponsors and U.S. Securities Laws that Cathy was giving away at the conference.
Economic Impact
IIUSA unveiled an economic impact study of EB-5 Regional Center investments from 2010 to 2013. The report was prepared by David Kay of the Alward Institute for Collaborative Science, and uses a comprehensive data set thanks to the FOIA process, which allowed IIUSA to obtain redacted copies of Form I-924a filings for all Regional Centers. I’ll link to the summary report and charts when IIUSA posts information. The short story is that during FY2013, spending associated with Regional Center investors contributed $3.58 billion to U.S. GDP and supported over 41,000 U.S. jobs. Not bad! The impact study breaks down impacts by spending category and by geography, down to the Congressional District level.