2013 Wolfsdorf Immigration Law Group (all rights reserved) The contents of this document are proprietary and should not be duplicated or shared

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1 2013 Wolfsdorf Immigration Law Group (all rights reserved) The contents of this document are proprietary and should not be duplicated or shared without express permission from Wolfsdorf Immigration.

2 WOLFSDORF IMMIGRATION LAW GROUP Full service immigration law firm with offices in Santa Monica, CA and New York, NY Who s Who Legal Corporate Business Immigration Lawyer of the Year for 2013, 2012, 2011 and 2010 (Official research partner of ABA and IBA) 18 lawyers and over 20 years of EB-5 practice, including setting-up and representing regional centers and individual investors with large Chinese-speaking staff Bernard Wolfsdorf is past President of the 13,000 lawyer American Immigration Lawyers Association (AILA) Bernard Wolfsdorf presently serves on AILA s EB-5 committee California Licensed Chinese speaking Real Estate Broker on staff EB-1A (extraordinary) EB-1C (managerial) EB-2 (NIW) & (L-1 company transfer) O-1(extraordinary) F-1 Student and all other Visas Global Mobility Visa services providing one-stop shoppping in over 50 countries. U.S.: bernard@wolfsdorf.com

3 EB-5 Basics EB-5 category created in 1990 for foreign nationals who invest in a new commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs. Congress set aside 10,000 immigrant visas annually for investors and their immediate family members. Immigrant Investor Pilot Program enacted in 1993, providing for regional centers due to sunset on September 30, Proposal to make Regional Center Program permanent? Foreign nationals can get a green card if: Invest $500,000 or $1,000,000 (depending on geographical area); and Investment creates full-time jobs for 10 U.S. workers Green cards conditional for 2 years Conditions removed if investment sustained and jobs created

4 Regional Center v. Individual Eb-5 Individual EB-5 Petition Investor buys business or starts new business Must be 10 direct full-time, W-2 employees who are USCs or LPRs Few applications Regional Center EB-5 Petition Investment into a business associated with a USCIS Approved Regional Center (currently 388 centers) 90-95% of all applications Main advantage Indirect employment counts through the use of an economist report to predict project job creation.

5 I-526 Petitions General requirements INA 203(b)(5) and 8 CFR New commercial enterprise $500,000 or $1 million from a lawful source At risk investment Investment will create at least 10 full-time jobs Investor must be engaged in the management of the enterprise

6 I-526 Petitions Actively in the process of investing $1 million or $500,000 if the investment is in a targeted employment area Targeted employment area A rural area of less than 20,000 in population; or An area which as unemployment of at least 150% of the national average Evidenced by submitting a letter from the state s agency confirming that the area has high unemployment and defining the statistical area USCIS may disagree with the state s calculation, but generally will defer to the geographic area Matter if Izummi 22 I & N Dec. 169 (1998) and EB-5 Adjudications Policy (May 30, 2013)

7 I-526 Petitions Investment must be at risk Matter of Soffici, Matter of Izummi, Matter of Hsiung, 22 I & N Dec. 201 (1998), Matter of Ho 22 I & N Dec. 206 (1998) Must be an equity investment Debt instrument prohibited/no guaranteed repayment Personal funds or loan secured by personal assets

8 Webinar Los Angeles, CA August14, 2013 JOBS Act Influence on EB-5 Prepared by: Jor Law, Esq.

9 Disclaimer This presentation is designed to provide practical and useful information on the subject matter covered. However, it is provided with the understanding that no legal, tax, accounting, or other professional services are being rendered or provided. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

10 Securities in a Nutshell Two goals of Securities Laws adequate disclosure (tell the truth) prevent fraud (don t lie) Means to goal full disclosure of all material facts Many Laws state, federal, foreign Common Exemption at FEDERAL level: Reg D; specifically, Reg D, Rule 506

11 Rule 506 4(2) [now 4(a)(2)] exempts transactions by an issuer not involving any public offering Reg D, Rule 506 is safe harbor guidance Rule 506 requirements: Limitation on non-accredited investors Non-accredited investors must be sophisticated Filing of Form D No general solicitation and advertising Resale restrictions Others

12 JOBS Act Jumpstart Our Business Startups Act April 5, 2012 Title II - Section 201(a)(1) Lifts ban on general solicitation or general advertising in offerings made under Rule 506 provided that all purchasers of the securities are accredited investors Requires reasonable steps to verify that the purchasers of the securities are accredited investors, using such methods as determined by the SEC

13 SEC Adoption SEC Final Rules adopted July 10, 2013 SEC Final Rules effective September 23, 2013 Bad Actors cannot use Rule 506 Reasonable steps to verify take into account: the nature of the purchaser and the type of accredited investor that the purchaser claims to be; the amount and type of information that the issuer has about the purchaser; and the nature of the offering

14 Non-Exhaustive List Non-exhaustive list of processes that would constitute reasonable steps to verify: Income method Net worth method Third party verification Rep from existing purchaser in a deal that they are still an accredited investor

15 Proposed Amendments Form D filed 15 days before offering, not after first sale Form D amended 30 days after closing Penalties for not filing Form D Additional language/legends File materials with SEC

16 Biography Jor Law Homeier & Law, P.C. is a law firm devoted exclusively to corporate and business transactional law, including securities, for clients ranging from established and publicly traded companies, to startup businesses and entrepreneurs in a wide range of industries. The firm s practice includes finance, secured lending, mergers and acquisitions, licensing, securities, venture capital, new media, technology, e-commerce, and other general transactions. Homeier & Law, P.C., is a leader in EB-5 related corporate and securities transactions, and represents a number of regional centers as well as private EB-5 clients. Jor Law is a founding shareholder of Homeier & Law, P.C. As part of his regular corporate and securities practice, Jor routinely advises on EB-5 related transactions. In that capacity, Jor represents both investors looking to invest through the EB-5 program as well as businesses seeking capital through the EB-5 program including through regional centers. Jor frequently presents at EB-5 industry events, including those held by the American Immigration Lawyers Association, State Bar of California, and Los Angeles County Bar Association. Jor received his J.D. from Columbia University and his B.A. from UC Berkeley. Jor is a member of the California and New York State Bars. In December 2008, Mr. Law was named a "Best Lawyer" by LegalForce. For three years in a row, in each of 2009, 2010, and 2011, Jor was recognized by Super Lawyers magazine as one of Southern California s Super Lawyers Rising Stars, placing him among the top 2.5 percent of the best up-and-coming attorneys in Southern California who are 40 years old or younger, or who have been practicing for 10 years or less.

17 Contact Michael G. Homeier, Esq. (818) (direct); Jor Law, Esq. (818) (direct); Clem Turner, Esq. (646) (direct); L.A. - Tel: (818) Fax: (818) N.Y. Tel: (646) Fax: (646) Corporate Law -- Securities Law -- Business Transactions EB-5

18 What is a Regional Center? A Regional Center ( RC ) is not merely a defined geographic area but rather it is a business entity that coordinates foreign investment within an approved geographic area in compliance with the EB-5 statutory, regulatory and precedent decision framework Regional Centers do not hold sole jurisdiction over their geographic region several RC s may cover the same area(s) and/or have partially overlapping boundaries Purpose of the RC: Promotes economic growth through increased export sales, improved regional productivity, increased domestic capital investment, and job creation

19 Regional Center v. Direct EB-5 Over 90% of I-526 petitions filed annually are Regional Center-affiliated. Perceived benefits of investment through RC may include: A particular RC-affiliated investment project may be preapproved by USCIS; Less restrictive job creation requirements based upon creation of indirect as well as direct jobs Investors take less active role in the day-to-day policy formation and management of the business

20 RC Affiliated Projects may count both Direct and Indirect Jobs Regional Center affiliated projects may count direct jobs of full time, W-2 employees, as well as indirect jobs in meeting the ten jobs per investor requirement: notwithstanding the requirements of 8 CFR 204.6, the Attorney General shall permit aliens admitted under the pilot program... to establish reasonable methodologies for determining the number of jobs created by the pilot program, including such jobs which are estimated to have been created indirectly (Section 610, 1993 Act)

21 What is an Indirect Job? Indirect Jobs: Jobs shown to have been created collaterally or as the result of the economic stimulus of the EB-5 investment Indirect Job Creation resulting from an EB-5 investor s capital investment is based upon a business plan and detailed economic analysis demonstrating creation of indirect jobs through reasonable methodologies (economic forecasting tools): Multiplier tables Feasibility studies Market analyses Other economically or statistically valid forecasting devices

22 Input/Output Models Forecasting tools to predict increased employment resulting from defined changes in the economy: Employment Revenues Expenditures Types of Models RIMS II, IMPLAN, REDYN

23 Who Creates a Regional Center? Relationship to the project? Project developers may create their own Regional Center in order to raise capital for their own development projects Project developers may have a project sponsored by a non-affiliated regional center ( Rent-a-Center ) The Regional Center and the investment Project are separate entities, but are affiliated Regional Center has oversight/compliance obligations independent of the Project

24 Regional Center Investors Choosing a Regional Center Due Diligence Immigration Track Record? Number and type of Amendments? Loan or Equity projects? RFEs or NOIRs for job creation or business plan issues? How is job creation tracked? How is it allocated between investors? Where will your client fall in job allocation? TEA designation? Escrow or Refund policy if I-526 is denied? Reporting on status of investment to investors? Other successful capital raises? Affiliated with any government entity? Complied with I-924A?

25 Usadvisors.org due diligence the care that a reasonable person exercises to avoid harm to other persons or their property research and analysis of a company or organization done in preparation for a business transaction an investigation or audit of a potential investment which serves to confirm all material facts in regards to a securities offering the care a reasonable person should take before entering into an agreement or a transaction with another party the process of gathering the necessary information on actual or potential risks involved in an investment a reasonable investigation focusing on material future matters EB-5 PROJECT RISK ANALYSIS & DUE DILIGENCE Prepared by Michael Gibson USAdvisors.org CRD #

26 USADVISORS.ORG What is Fair Value? Fair Value is the price at which a transaction would take place between market participants In estimating Fair Value for an investment, the Valuer should apply a methodology that is appropriate in light of the nature, facts and circumstances of the investment and its materiality in the context of the data available and should use reasonable data and market inputs, assumptions and estimates to determine realistic Current and Projected Fair Market Values EB-5 PROJECTRISKANALYSIS & DUEDILIGENCE Prepared by Michael Gibson USAdvisors.org CRD#

27 USADVISORS.ORG The Concept of Fair Value FACT: Most EB-5 investors are ignorant of their investments current and potential Fair Value Agents & Finders make claims to potential future values which are unrealistic when compared to similar assets and ignore potential adverse markets, increased supply of inventory or competition Investors are given assurances and guarantees which are not supported by recognized industry practices or valuation methodologies EB-5 PROJECTRISKANALYSIS & DUEDILIGENCE Prepared by Michael Gibson USAdvisors.org CRD#

28 USADVISORS.ORG 1.Research and due diligence increases an understanding of the risks involved with an investment to help the client make an informed, not emotional decision 2. It is possible to quantify most risks based on market and industry data in an attempt to measure the risks and probabilities of failure across various industries and asset classes 3.Without doing a Fair Value assessment of the asset it is not possible to assign a value to the asset at either inception or estimate the potential future value at exit, thus increasing the probability of a negative outcome EB-5 PROJECTRISKANALYSIS & DUEDILIGENCE Prepared by Michael Gibson USAdvisors.org CRD#

29 USADVISORS.ORG Positive Deal Aspects 1.Low reliance on EB-5 capital in stack 2. Short time frame to development of project 3. Experienced developers, operators 4.Bank loan for oversight of development, audits, project completion and expenditure ratios 5. Developer s equity 6. Leverage to increase job creation potential 7.Having a Governor, Senator, Mayor or any other public official declaring support is NOT material and is probably misleading investors EB-5 PROJECTRISKANALYSIS & DUEDILIGENCE Prepared by Michael Gibson USAdvisors.org CRD#

30 USADVISORS.ORG Negative Deal Aspects 1. Lack of Transparency 2. Large component of EB-5 capital, long time to dev. 3. Unrealistic construction and development timelines 4. Higher than market pro-forma projections 5. Marketing featuring 526 & 829 approvals 6. Lack of independent feasibility studies 7. Shortage of document release to verify claims 8. Inexperienced operators, developers 9. High percentage of soft costs, development fees 10. Poor understanding or explanation of risks EB-5 PROJECTRISKANALYSIS & DUEDILIGENCE Prepared by Michael Gibson USAdvisors.org CRD#

31 USADVISORS.ORG what...? no discussion of past 526 & 829 approvals? No. Each project, NOT Center, must be evaluated on its own merits given the state of the economy and credit / capital markets at the time using the most recent industry data and feasibility studies deciding where to invest based on information on other projects that occurred years ago in different economic conditions is ridiculous Deciding where to invest your client s capital based solely on past USCIS adjudications is even more meaningless EB-5 PROJECTRISKANALYSIS & DUEDILIGENCE Prepared by Michael Gibson USAdvisors.org CRD#

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34 USADVISORS.ORG This report has been prepared by: USAdvisors.org a licensed Financial Advisory Firm FINRA CRD # for questions or more information please contact: Michael Gibson EB5Info.com michael@usadvisors.org Skype: usadvisors EB-5 PROJECTRISKANALYSIS & DUEDILIGENCE Prepared by Michael Gibson USAdvisors.org CRD#

35 I-526 Investors Lawful source of Investment Funds Matter of Soffici and Matter of Izummi Examples Business earnings, salary, gifts, loan, etc. Evidenced by personal tax returns, financial statements, etc. Office of foreign assets control (OFAC) must be consulted if investor is from Iran or other country against which the U.S. has sanctions

36 Common Issues in RC Investor s SOF Lack of 5 years of tax returns Sale of Property as SOF Purchased more than 7 years ago Purchased less than 7 years ago Home Equity Loans as SOF Proof Investor can make payments on loan from a lawful source Loans from Petitioner s Business Proof of payments on loan Approval by Board

37 Common Issues in RC Investor s SOF continued Salary as SOF Lack of Accurate Records of ongoing salary Proof of yearly expenses and savings Retained Earnings from Investor s Business Proof that Investor was allowed to access the funds and distribute them to himself Gift Issues Same issues, but with Giftor s source of funds Proof of payment of applicable gift tax Intent to repay the gift?

38 I-526 Investors Tracing USCIS requires the petitioner to demonstrate that the personal funds derived from a lawful source and were ultimately invested in the EB-5 enterprise Numerous transactions between investor and the EB-5 enterprise investment would require the investor to provide documentation from each transaction EB-5 Enterprise EB-5 Investor $$$ $$$ $$$

39 China Specific Issues in RC Cases Chinese currency laws restrict exchange of Chinese Yuan Renminbi to $50,000 per year Friends and Family tactic Use of a 3rd Party in Hong Kong What is the investor s burden of proof in tracing? Trace each transaction to 10 friends and family members Trace each transaction from 10 friends and family members Trace from Investor to the new commercial enterprise

40 EB-5 Economic Trends In EB5 August 14, 2013 For Wolfsdorf Immigration

41 Meeting the Requirements Changes in Output Gain in Employment Gains in Business Taxation Changes in Labor Income Statistical information on the US economy Specific Statistics on the Utilities & Business Services

42 Recent Developments RIMS II Data Discontinued Tenant Occupancy Round Two 2013 Policy Memo 1. Industry Sectors 2. Geographical Area Amendments Construction Timelines (more or less than 2 years) Verification of Inputs 1. Feasibility Studies 2. Industry Standards

43 RIMS II DATA DISCONTINUED Likely Effects of the Sequester RIMS II Will Continue Manual Deflation of the Model for current EAs Data Availability in the future

44 Tenant Occupancy The Saga Continues? Round One Prove there is unmet need and you are not tenant shifting Round Two Prove the need for possible tenants Round Two Extensive Proof & Little Response Data from USCIS

45 2013 Policy Memo Industry Sectors and Geography Industry Sectors Anything Goes Geography Not so Simple 1. Prove that the New Area Adds Benefit to the RC Area 2. Can an Approved RC in LA do a project in NYC? 3. Where we are with USCIS Stay Tuned

46 Construction Direct vs. Indirect Regulations say full time jobs but practical application centers around construction timeline How do I prove jobs where created in construction industry

47 Verification of Inputs Feasibility Studies Simply the Best Option Industry Standards 1. RS MEANS 2. Industry Reports on model inputs 3 rd Party Data Good, Your Clients Experience Not So Good By Itself

48 QUESTIONS

49 Question and Answer Session 2013 Wolfsdorf Immigration Law Group (all rights reserved) The contents of this document are proprietary and should not be duplicated or shared without express permission from Wolfsdorf Immigration.