EB-5 Record Keeping


The payment of funds to agencies and agents that are selling your regional center projects is about to get put into and under the spotlight. There's no question from all the conversations at the various conferences, EB-5 meetings and business meetings where the EB-5 program is discussed and its current issues, that it is time for everyone in the EB-5 sector to keep accurate records of their activities.

There are still some regional centers around the country that profess that they are not selling securities. Hard to believe. I hate to be the bearer of this news, but you are very much selling securities and the Securities and Exchange Commission is concerned about how you pay the agencies and the agents. Where are they located, are they US residents, do they hold the correct licenses and are they approved by the country they operate within to sell US based investments?

In my opinion, the new Integrity Act that will make up part of the upcoming and changing EB-5 regulations will include the requirement for full disclosure on the payment of agency fees not only to your investors after they have made the investment but to your investors as they are making the investment. What does this mean? It's really quite simple, it's a matter of keeping a straightforward and honest account of who got paid, where they got paid, when they got paid, and how much they got paid.

It couldn't be any simpler than keeping an accurate spreadsheet on all payments that relate to the Investments and the selling of those Investments along with who sold the Investment for the regional center.

We insist that all our clients do that now. It's part of transparent compliance and just makes good and solid business sense. We keep a spreadsheet together with our clients that shows where all the payments have gone, who got paid, when they got paid, what city they got paid in, and the check numbers and/or wire number so that everyone is compliant.

We completely understand it's not mandated today. But it's just solid business practice to know the flow of funds. It also will save tremendous amounts of time in the event that you one day should need to generate this information either because of an investigation or to answer questions from your investors. And they will be asking.

Remember, the selling of EB-5 investments is the selling of US securities and if your operation has investors, your management has obligations to those investors to be completely 100% transparent on all issues that relate to the regional center and its operations, on an on-going basis. Don't get yourself into a mess by not keeping accurate records. Like I said, we currently do this for our clients and yes, they initially resisted this type of information being kept. But when they understood the repercussions of not keeping the information and being served with an inquiry from one of the regulators, they quickly saw the benefit of keeping records. You never know who when you might required to produce them.

Reprinted with permission.

About The Author

Robert K. Whyte is a Managing Partner with Whyte & Co. and oversees the EB-5 practice of the firm. He has been an investment banker for over 25 years and was a compliance officer with a Wall Street firm. He is one of the only persons in America that has completed a successful $1 million Direct EB-5 with approvals granted for one of his companies. His new book "Secret Government Approved Funding" is available at Amazon to download and enjoy.

The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.