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October 2013 EB-5 newsletter

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  • 1. Joe Whalen’s EB-5 Roundup Oct. 1, 2013 New Variant of the Regional Center Designation Letter and Approval Notice I am very delighted to report an important advancement in Regional Center Approval Notices. I wrote about it in an article dated September 25, 2013.The Pangaea Regional Center straddling border counties in Tennessee and Kentucky was approved on September 13, 2013, and it included a specific project supported by a Matter of Ho-compliant business plan. The following is a summary of that Designation Letter and Approval Notice addressing the specific project. This will ensure that investors know upfront which specific project: (1) has received an advance-vetting by USCIS; (2) how many EB-5 investors are being sought; (3) how many jobs are anticipated to be created; and (4) the job buffer. In this case, 25 investor are sought which requires a minimum job count of 250. The projected job count is 318. That means there is a buffer of 68 jobs just in case the underlying “direct” or “base-level” job count is not fully realized on time. This is a good thing folks! FINRA Issued EB-5 Related Guidance FINRA (Financial Industry Regulatory Authority, Inc.) issued a guidance letter dated August 26, 2013, concerning the suitability rule (FINRA Rule 2111) in response to a request for such guidance as it should be applied to EB-5 investments. Here is what I found worth repeating: “Your main concerns center on two suitability obligations: reasonable-basis and customer-specific suitability. Under the reasonable-basis obligation, a broker-dealer must perform reasonable diligence to understand the nature of a recommended security or investment strategy involving a security, including its potential risks and rewards, and then determine whether there is a reasonable basis to believe the recommended security or investment strategy is suitable for at least some investors. See FINRA Rule 2111.05(a). FINRA provided extensive guidance on this reasonable-basis obligation as it relates to Regulation D offerings in Regulatory Notice 10-22 (Apr. 2010). FINRA stated that, when recommending a privately-placed security, a broker-dealer "should, at a minimum, conduct a reasonable investigation concerning the issuer and its management; the business prospects of the issuer; the assets held by or to be acquired by the issuer; the claims being made; and the intended use of proceeds of the offering." In the context of a private placement related to the EB-5 Program that a broker-dealer intends to recommend to foreign nationals seeking investment returns and U.S. residency, these same issues should be explored, issues that address the legitimacy and viability of the issuer's enterprise. A broker-dealer also should analyze whether the private placement is consistent with the requirements of the EB-5 Program, such as whether it constitutes an investment in a domestic project that will create or preserve at least 10 jobs for U.S. workers. As to the customer-specific obligation, a broker-dealer must have a reasonable basis to believe that a recommended security or investment strategy involving a security is suitable for a particular customer based on the customer's investment profile. See FINRA Rules 2111(a); 2111.05(b). A customer's investment profile includes, but is not limited to, the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance. See FINRA Rules 2111(a); 2111.04. In addition to these specific factors, a customer's investment profile also would include any other information the customer may disclose to the member or associated person in connection with a recommendation, such as particular goals with respect to an investment.2 For instance, when a customer is a foreign national who discloses to the member that he or she is seeking U.S. residency by investing in an EB-5 Program securities transaction, such information would become part of the customer's investment profile and must be considered when determining whether the recommended investment is suitable for the particular customer. In this situation, among other customer-specific considerations, the member should evaluate the investment in the context of the customer's goal of obtaining U.S. residency through purchasing an investment that is consistent with the requirements of the EB-5 Program.” About the Author Joseph P. Whalen Send e-mail to: joseph.whalen774@gmail.com http://www.slideshare.net/BigJoe5/whalen-service-agreement- as-of-june-5-2013 http://www.slideshare.net/BigJoe5/whalen-mutual-non- disclosure-agreement-rev-april-2013 http://www.slideshare.net/BigJoe5/eb5-irac-question-and- answer-list-2 http://www.slideshare.net/BigJoe5/lipstick-on-a-pig-in- immigrant-investing http://www.slideshare.net/BigJoe5/comparing-2012-and-2013- aao-rc-non-precedents A broker-dealer also should analyze whether the private placement is consistent with the requirements of the EB-5 Program….

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