EB-5 SEC Compliance: What Investors Should Understand About Securities Law

Why EB-5 Investments Are Securities One of the most important and frequently misunderstood aspects of the EB-5 program is that virtually all EB-5 investments constitute securities under U.S. federal law. This classification carries significant legal implications for both the entities offering EB-5 investments and the foreign nationals investing in them. The U.S. Supreme Court established the foundational test for identifying a security in SEC v. W.J. Howey Co. (1946). Under the Howey test, an investment contract (and therefore a security) exists when there is: (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) derived primarily from the efforts of others. The typical EB-5 investment satisfies all four prongs. The investor contributes capital (usually $800,000 or $1,050,000) to a project managed by a developer or regional center, with the expectation of some financial return, and the profits are generated through the management...#