Transcript Best Practices When Dealing with Securities

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 32801
(407) 244-8004
www.ruden.com
[email protected]
Introduction and Background
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Federal, State and Foreign Laws
U.S. Securities Laws
• What is a Security?
• Registration or Exemption
• Antifraud
• Broker-Dealer
Regulation
U.S. Exemption
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Regulation D (a.k.a. Private Placement)
• Rule 506 Safe Harbor
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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
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Regulation S
• Applies to funds coming or going
overseas to purchase securities
• No cap on amount raised
• Offer and sale must occur outside of US
• Burden on issuer to
prove compliance
• Safe Harbor
• No state preemption
U.S. Exemption
• Reg. S Safe Harbor
Offer and sale must be in an offshore
transaction
 No directed selling efforts in US
 Investor certify specific facts in
purchase documents
 Securities contain a restrictive legend
 Issuer must be prohibited from
recognizing invalid transfers
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U.S. Exemption
• What is an “offshore transaction”?
• Offers and sales must only be made
to non-“US Persons”
 Based on residency,
not citizenship
• Investor must not be
in the US at time of
offer or sale
 Passport stamps?
U.S. Exemption
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What is a “directed selling effort”?
• Marketing efforts in US to induce sales of
securities
• Mailing printed materials to US investors
• Conducting 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 US
• Advertising on radio or television stations
broadcasting into the US
U.S. Exemption
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What is not a “directed selling effort”?
• Tombstone ad published in the US
Less than 20% circulation in US
 Limited information: issuer name,
securities offered, deadlines, etc.
 Must contain securities legend
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• Bona fide visit to the US to tour facility
• Press conferences outside of the US
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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 securities
• Lawful activities conducted outside of US
• Websites
Disclaimer that no US
purchasers are allowed
 Stricter requirements
if offering materials
posted online
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are
U.S. Exemption
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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”
State Exemption
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a.k.a. Blue Sky Laws
State preemption for Rule 506
No state preemption for Regulation S
• Register or be exempt under state law
• Most states do not have an exemption
identical to Regulation S
• Consider state ULOE
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Limit of 35 purchasers
Offering Documents
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Private Placement Memorandum or
Confidential Offering Document
Entity Governing Document
• Limited Partnership Agreement,
LLC Operating Agreement,
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Subscription Agreement
Escrow Agreement
etc.
Offering Documents
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PPM / Offering Document
• Offering details
• The developer and the project
• Projections, maps, charts, demographics
• Risk factors
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Entity Governing Document
• Management, funding requirements,
distributions, restrictions on transfer, etc.
• USCIS requires that investors have
“control”, or at least set policies
Offering Documents
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Subscription Agreement
• Irrevocable offer to buy
• Investor representations
• Offering period and payment terms
• Risk factors
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Escrow Agreement
• Will funds be returned if offering
results in 1 investor?
Broker-Dealer
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Federal and state law compliance
US Securities Exchange Act of 1934
definition:
• “any person engaged in the business of
effecting transactions in securities for
the account of others”
• Can include issuers and its employees
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Must register or be exempt
Finders
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Finders Fees
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Transaction-based fee?
How involved?
How often?
Previous securities sales experience?
None of these factors is dispositive!
Safest if a finder merely
provides names and
contact information
Finders
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Penalties
• Criminal
• Fines 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
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