EB-5 Q&A: What is business owner responsible for when partnering with EB-5 investors?


       The EB5 partnered business is issuing some form of a security for the funds invested in the business.  As such, the business is the issuer of the security and under the laws and regulations of the Security & Exchange Commission (SEC).   To protect the public, the SEC requires issuers to register their securities before selling them or only sell them under an exemption.  A sale to an accredited investor is a most common exemption used by EB 5 businesses.  Thus, the business has a responsibility to either register its securities or ensure that the investor meets accredited investor income requirements.  


       The requirement that investment funds be traced is a material requirement of an EB5 security sale.  Tracing is required to prevent ill-gotten money from being laundered through a U.S. government program.   If the business takes funds that cannot be traced, there is a risk that it might be involved in money laundering.  Hence, there is a liability if the business does not trace money used in an EB5 investment.