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Best Practices When Dealing With Securities & Investments

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 stefan.rubin@ruden.com. www.ruden.com. Introduction and Background.

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Best Practices When Dealing With Securities & Investments

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  1. Best Practices When Dealing With Securities & Investments For EB-5 Foreign Investor Seminar Orlando, FloridaOctober 25, 2008 Stefan A. Rubin, Esq. 420 S. Orlando Ave., Suite 920 Orlando, Florida 32801 (407) 244-8004 stefan.rubin@ruden.com www.ruden.com

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

  3. U.S. Exemption • Regulation D (a.k.a. Private Placement) • Rule 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

  4. U.S. Exemption • 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

  5. 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

  6. 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? What is an “offshore transaction”? U.S. Exemption

  7. U.S. Exemption • 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

  8. U.S. Exemption • 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 • Bona fide visit to the US to tour facility • Press conferences outside of the US • Not favoring US over foreign, and not intended to induce US purchasers

  9. 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 are posted online

  10. U.S. Exemption • 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”

  11. State Exemption • 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 • Limit of 35 purchasers

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

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

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

  15. Broker-Dealer • 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 • Must register or be exempt

  16. Finders • Finders Fees • 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

  17. Penalties Criminal Fines and penalties Rescission Principals may also be liable Finders

  18. 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.

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