The role of a broker-dealer in the new regulatory environment

Many others have already written about the importance of using a broker-dealer in EB-5 offerings. [1] Broker-dealers are more than migration agents who mostly introduce investors to issuers. [2] In major EB-5 markets such as Vietnam, India, South Korea, Brazil, Russia, Hong Kong, and Taiwan, EB-5 investors are highly educated and appreciate the difference between unlicensed and unregulated migration agents versus broker-dealers who are licensed and regulated by the SEC and FINRA. [3] [4] These investors realize that they can make their initial investment decisions, on a fully informed basis, by working with broker-dealers. [5] They know that broker-dealers are required to provide transparency, and make sure that the investment is suitable for their clients. [6]

There is a strong possibility that the Biden administration will clear the backlog for all retrogressed applicants. For EB-5, this could mean that many Chinese and Vietnamese applicants might be getting their green cards much sooner than expected. In that case, if we see a resurgence of new mainland China-born applicants, they will be well-advised to work with licensed broker-dealers who can provide full disclosure and protect their rights.

It is a requirement for broker-dealers to offer investors a menu of investment options. If regional centers ask them to represent projects that seem quite risky, they are under no obligation to include them in their offerings. Broker-dealers with expansive portfolios perform rigorous due diligence of each project before they even present them to the potential EB-5 investors. [7] Although not guaranteed, this due diligence exercise may protect the investors from getting involved with projects that will either most likely fail by not fulfilling the requisite minimum job creation requirement or experience capital loss. By keeping these kinds of riskier projects off the EB-5 market, broker-dealers may also help the issuers mitigate their litigation risk. They could also offer these issuers alternative-funding methods with a different risk-return profile, in case the EB-5 market is not a suitable one to complete their projects. As a result, everyone wins.

Broker-dealers also have to adhere to strict know your customer (KYC) rules. This way, they make sure that the potential risk of the transaction is suitable for the investor. Unless there are exemptions, the broker-dealers will ensure that they are not breaking any security laws. Again, as a result, everyone wins.

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