Best Practices When Dealing With Securities & Investments For EB-5 Foreign Investor Seminar Orlando, Florida October 25, 2008 Stefan A. Rubin, Esq. 420 S. Orlando Ave., Suite 920 Orlando, Florida (407)

Introduction and Background Federal, State and Foreign Laws Federal, State and Foreign Laws U.S. Securities Laws U.S. Securities Laws What is a Security?What is a Security? Registration or ExemptionRegistration or Exemption AntifraudAntifraud Broker-Dealer RegulationBroker-Dealer Regulation

U.S. Exemption Regulation D (a.k.a. Private Placement) Regulation D (a.k.a. Private Placement) Rule 506 Safe HarborRule 506 Safe Harbor  No more than 35 investors who are not “accredited investors”  No Advertising or General Solicitation!  No cap on amount raised  Requires notice filing with the SEC  Preempts state securities registration

U.S. Exemption Regulation S Regulation S Applies to funds coming or going overseas to purchase securitiesApplies to funds coming or going overseas to purchase securities No cap on amount raisedNo cap on amount raised Offer and sale must occur outside of USOffer and sale must occur outside of US Burden on issuer to prove complianceBurden on issuer to prove compliance Safe HarborSafe Harbor No state preemptionNo state preemption

U.S. Exemption Reg. S Safe HarborReg. S Safe Harbor Offer and sale must be in an offshore transaction Offer and sale must be in an offshore transaction No directed selling efforts in US No directed selling efforts in US Investor certify specific facts in purchase documents Investor certify specific facts in purchase documents Securities contain a restrictive legend Securities contain a restrictive legend Issuer must be prohibited from recognizing invalid transfers Issuer must be prohibited from recognizing invalid transfers

U.S. Exemption Offers and sales must only be made to non-“US Persons”Offers and sales must only be made to non-“US Persons” Based on residency, not citizenship Based on residency, not citizenship Investor must not be in the US at time of offer or saleInvestor must not be in the US at time of offer or sale Passport stamps? Passport stamps? What is an “offshore transaction”?

U.S. Exemption What is a “directed selling effort”? What is a “directed selling effort”? Marketing efforts in US to induce sales of securitiesMarketing efforts in US to induce sales of securities Mailing printed materials to US investorsMailing printed materials to US investors Conducting promotional seminars in USConducting promotional seminars in US Advertising in a publication primarily distributed in US, or in past year had 15,000+ copies of an issue in the USAdvertising in a publication primarily distributed in US, or in past year had 15,000+ copies of an issue in the US Advertising on radio or television stations broadcasting into the USAdvertising on radio or television stations broadcasting into the US

U.S. Exemption What is not a “directed selling effort”? What is not a “directed selling effort”? Tombstone ad published in the USTombstone ad published in the US Less than 20% circulation in US Less than 20% circulation in US Limited information: issuer name, securities offered, deadlines, etc. Limited information: issuer name, securities offered, deadlines, etc. Must contain securities legend Must contain securities legend Bona fide visit to the US to tour facilityBona fide visit to the US to tour facility Press conferences outside of the USPress conferences outside of the US Not favoring US over foreign, and not intended to induce US purchasers Not favoring US over foreign, and not intended to induce US purchasers

U.S. Exemption Routine advertising or disseminating information in the US that does not induce the purchase or sale of securitiesRoutine advertising or disseminating information in the US that does not induce the purchase or sale of securities Lawful activities conducted outside of USLawful activities conducted outside of US WebsitesWebsites Disclaimer that no US purchasers are allowed Disclaimer that no US purchasers are allowed Stricter requirements if offering materials are posted online Stricter requirements if offering materials are posted online

U.S. Exemption Directed selling effort ≠ offer or sale Directed selling effort ≠ offer or sale Limited activity with an isolated investor in the US to induce a sale might invalidate the “offshore transaction” requirement even if that activity does not constitute a “directed selling effort” Limited activity with an isolated investor in the US to induce a sale might invalidate the “offshore transaction” requirement even if that activity does not constitute a “directed selling effort”

State Exemption a.k.a. Blue Sky Laws a.k.a. Blue Sky Laws State preemption for Rule 506 State preemption for Rule 506 No state preemption for Regulation S No state preemption for Regulation S Register or be exempt under state lawRegister or be exempt under state law Most states do not have an exemption identical to Regulation SMost states do not have an exemption identical to Regulation S Consider state ULOEConsider state ULOE Limit of 35 purchasers Limit of 35 purchasers

Offering Documents Private Placement Memorandum or Confidential Offering Document Private Placement Memorandum or Confidential Offering Document Entity Governing Document Entity Governing Document Limited Partnership Agreement, LLC Operating Agreement, etc.Limited Partnership Agreement, LLC Operating Agreement, etc. Subscription Agreement Subscription Agreement Escrow Agreement Escrow Agreement

Offering Documents PPM / Offering Document PPM / Offering Document Offering detailsOffering details The developer and the projectThe developer and the project Projections, maps, charts, demographicsProjections, maps, charts, demographics Risk factorsRisk factors Entity Governing Document Entity Governing Document Management, funding requirements, distributions, restrictions on transfer, etc.Management, funding requirements, distributions, restrictions on transfer, etc. USCIS requires that investors have “control”, or at least set policiesUSCIS requires that investors have “control”, or at least set policies

Offering Documents Subscription Agreement Subscription Agreement Irrevocable offer to buyIrrevocable offer to buy Investor representationsInvestor representations Offering period and payment termsOffering period and payment terms Risk factorsRisk factors Escrow Agreement Escrow Agreement Will funds be returned if offering results in 1 investor?Will funds be returned if offering results in 1 investor?

Broker-Dealer Federal and state law compliance Federal and state law compliance US Securities Exchange Act of 1934 definition: US Securities Exchange Act of 1934 definition: “any person engaged in the business of effecting transactions in securities for the account of others”“any person engaged in the business of effecting transactions in securities for the account of others” Can include issuers and its employeesCan include issuers and its employees Must register or be exempt Must register or be exempt

Finders Finders Fees Finders Fees Transaction-based fee? Transaction-based fee? How involved? How involved? How often? How often? Previous securities sales experience? Previous securities sales experience? None of these factors is dispositive! Safest if a finder merely provides names and contact information

Finders Penalties Penalties CriminalCriminal Fines and penaltiesFines and penalties Rescission Principals may also be liable

Questions This is provided by Ruden McClosky for informational purposes only. This does not contain legal advice, nor does it constitute an attorney-client relationship. The hiring of a lawyer is an important decision that should not be based solely upon information such as this or advertisements.