We are pleased to welcome Jor Law as our guest blogger today. Jor is a founding shareholder of Homeier & Law, P.C., where he practices corporate and business transactional law. As one of the leading securities attorneys in the industry, Jor is also the co-founder of VerifyInvestor.com, a beneficial resource for verification of accredited investors.
On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act). On September 23, 2013, a fundamental part of the JOBS Act officially became law. Specifically, the decades-old ban on general solicitation or general advertising was lifted for certain private securities offerings.
It is now common knowledge that most EB-5 capital raises involve securities, and the securities typically have to be registered with the SEC unless an exemption is found. One of the most common exemptions used in EB-5 transactions is the Reg D exemption. Prior to the September 23, 2013, this exemption, however, also banned the use of public solicitation or general advertising when raising capital. For a company solely relying on the Reg D exemption, it would have been illegal, for example, to solicit funds through a website that was not password protected, distribute offering brochures at events, or solicit investors at open conferences.
These restrictions made it difficult for companies to find investors and for investors to find deals. The JOBS Act changed all that. As of September 23, 2013, one could publicly solicit and generally advertise their Reg D offerings and still qualify them under the exemption so long as certain conditions were met. One of the conditions is that the company must take “reasonable steps” to verify that each of their investors is an “accredited investor.” An investor questionnaire, investor representation letter, or subscription agreement whereby the investor certifies that he or she is an accredited investor is not compliant under a publicly solicited Reg D offering.
There are certain advantages and disadvantages to pursuing a generally solicited Reg D capital raise. On one hand, it is easier to conduct a capital raise when one is able to broadly solicit and advertise, and it does give investors greater access to deals. On the other hand, many companies may not like the increased burden of verifying investors, and investors might come across more undesirable deals. One thing is clear though. For any company seeking to raise funds by public solicitation, they must comply with the new laws. As with all securities matters, the stakes are too high to risk doing it alone. It is strongly encouraged that you consult with an attorney that is skilled in securities law as well as the EB-5 industry. It is also important when choosing a partner, to go with a proven leader and expert in the field.
NES Financial’s focus is on providing value to their customers. They recently entered into an agreement with VerifyInvestor.com to help issuers meet the additional responsibility of the JOBS Act in an efficient manner. VerifyInvestor.com is a unique online investor verification platform that effectively helps issuers ensure their investors are accredited, thereby meeting the compliance requirement of the JOBS Act. For more information, visit VerifyInvestor.com.
NES Financial welcomes your questions and opinions. Allow us to address your business needs by contacting us. We look forward to hearing from you!