EB5 AND THE SEC

WHO CAN GET PAID AND HOWAREAA conference

San Francisco CA| October 24, 2015

Presentation by:

Cheryl A. Lane, CPA, FINRA principal and investment banker

Chrysalis Capital Group LLC, member FINRA/SIPC/MSRB

CHRYSALIS CAPITAL GROUP LLCFull-Service FINRA broker-dealer &

Investment Banker Since 2005

Specializing in Private Placements: Mergers & Acquisitions Securitized Real Estate

Foreign Investment into the USA

FINRA designated EB5 broker-dealer Since 12/2014

EB5 Capital Raises Tax Exempt portfolio debt instruments for foreign investors

CHERYL A. LANE, CPA, MBA, FINRAPRINCIPAL & INVESTMENT BANKER, CTA, RIA, REALTOR, PRESIDENT, FOUNDER, CHRYSALIS CAPITAL GROUP LLC

Cheryl A. Lane, founder and president of the Lane Group of Companies, focuses on pre-immigration tax planning, underwriting EB-5 investment products and identifying business prospects for foreign investors wishing to move to the United States. She has 35 years experience as a private investment banker, financial advisor and professional trustee serving business owners, property owners and family estates.

Cheryl and her team are experts in developing complete and tax effective financial strategic plans for inbound foreign investment to the USA.

She is the author of “How to choose a Regional Center Project” chapter of the book “Invest in the USA”. (Page 22)

DISCLAIMERChrysalis Capital Group LLC is not licensed to provide legal advice. The materials herein are intended to provide general information about the subject matter covered. They are not meant to provide legal opinions, offer advice, or serve as a substitute for advice by

licensed, legal professionals. Chrysalis Capital Group, LLC does not warrant that the information is complete or accurate, and does not

assume and hereby disclaims any liability to any person for any loss or damage caused by errors, inaccuracies or omissions, or

usage of this information. Laws and interpretations of those laws change frequently. If not understood, legal, tax, or other counsel

should be consulted.

EB-5 MATURES EB5 has become widely recognized as an inexpensive source of capital

Sophisticated Developers with syndication experience are moving into EB5 Space

New players recognize the dangers of inappropriate management of capital raises

Existing EB5 developers begin to heed the warnings of their security attorneys

Professional Investment Bankers enter EB5 space to legitimize the marketing

EB5 projects re-examining the price of “do it yourself” working directly with foreign agents

ACQUIRING EB-5 CAPITAL LLCs Partnerships and other shared ownership interests are considered

securities under the 1933 & 1934 Securities and Exchange Acts, the Investment Act of 1940, state securities laws and a long history of state and federal court cases

Only SEC and FINRA registered broker-dealer may be compensated for finding investors for a securities offering.

With few exceptions

HOW TO DEFINE A SECURITYThe Securities Act of 1933 and 1934 provides a LONG laundry list of what is a security, including:

any note stock bond evidence of indebtedness (Loan) certificate of interest or participation in any profit-sharing agreement (ie. LLC membership

interest) investment contract; any interest or instrument commonly known as a “security”, or any certificate of interest or

participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

1946 Supreme Court case of the SEC v. WJ Howey determined that

an investment contract is a security if investors purchase with

(1) investment of money due to

(2) an expectation of profits arising from

(3) a common enterprise that

(4) depends solely on the efforts of a promoter or third party

CLEARLY THE EB-5 PROGRAMS INVOLVE THE SALE OF SECURITIES

SIMPLER DEFINITION OF A SECURITY

SEC VS. FINRA The SEC regulates who is required to register as a broker-dealer and

FINRA regulates those who are registered as broker-dealers

SEC has enforcement authority for those required to register

FINRA is a self-regulatory organization to those who are members

Both FINRA and the SEC work together to identify unregistered persons performing broker-dealer activities

WHO CAN SELL SECURITIES?

Section 15(a)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”) provides that “it shall be unlawful for any broker or dealer, defined as a person other than a natural person , to make use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security... unless such broker or dealer is registered with the SEC

DEFINITION OF BROKER-DEALER?

Broker - any person engaged in the business of effecting transactions in securities for the account of others.

Dealer - any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.

A security sold in a transaction that is exempt from registration under the Securities Act of 1933 (the "1933 Act") is not necessarily an "exempted security" under the Exchange Act. For example, a person who sells securities that are exempt from registration under Regulation D of the 1933 Act must nevertheless register as a broker-dealer. In other words, "placement agents" are not exempt from broker-dealer registration.

WHO CAN LEGALLY PROVIDE

ADVICE ON SECURITIES:Under the Investment Advisors Act of 1940 and corresponding state laws, only Investment Advisers may advise on the sale of securities. Investment Adviser is: any person or group that makes investment recommendations or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications.

Required to be registered with the SEC or the appropriate State Administrator

WHERE DO FINDERS FIT IN?

The term “finder” is also not defined in the Exchange Act or the rules promulgated thereunder, and the finder exemption from broker-dealer registration has been carved out largely in response to a series of SEC no-action letters.

It is generally recognized that an individual or entity will come within the finder exemption if they do nothing more than provide the contact information of a potential investor to an issuer, however, because the finder exemption is not codified and its application often unclear, any activities beyond this can raise issues associated with acting as an unregistered broker-dealer.

Moreover, because the finder exception is merely a product of the interpretation of a number of no-action letters, the SEC is free to narrow the scope of permitted finder activities at any time.

REVIEW OF SEC NO ACTION LETTERS SUGGESTS THAT THE FOLLOWING FACTORS ARE INDICATIVE THAT A FINDER IS A BROKER-DEALER REQUIRED TO REGISTER:

conducting or assisting with sales efforts

participating in negotiations between the issuer and investors

receiving commissions or transaction-based compensation

holding investors’ funds or securities

previous involvement in the offer/sale of securities for other issuers

WHAT ARE THE POTENTIAL CONSEQUENCES OF USING OR ACTING AS A FINDER?

Issuers bear the burden of establishing compliance with applicable federal securities laws, rules and regulations. An issuer using the services of a finder who is determined to have engaged in activities that require broker-dealer registration may also be subject to a number of consequences, including payment of civil and criminal penalties and civil injunctions prohibiting future violations of the securities laws. In addition, contracts made in violation of the provisions of the Exchange Act are void; allowing purchasers of securities placed with the assistance of an unregistered finder a right of recession for the duration of the statute of limitations—the later of three years from the date of the violation or one year from the date of its discovery. Federal securities law violations can also create disclosure and accounting problems, and problems with prospective purchasers in the context of an acquisition which may constitute fraud.

WAYS TO ATTRACT EB-5 CAPITAL

Do it Yourself FINRA Broker-Dealer

Issuers Exemption Not Restricted

Regulation S Not Restricted

Jobs Act Rule 506 (c)

Available only within above listed restrictions

Regulation D Rule 6

The Issuers of the units that will be marketed as investments to EB-5 immigrants may only pay a FINRA broker-dealer to bring investors to his project. Otherwise he/she must raise the capital themselves under one of 3 exemptions.

ISSUER’S EXCEPTION• Issuers and the associated persons of an issuer, such as officers, directors

or employees, who participate in a sale of the issuer’s securities are generally exempt from registration & generally excluded from the definition of “broker”, because they only sell securities for their own account (i.e. NOT OTHERS).

• However; three key conditions (i) are not paid a commission or other transaction-related compensation; (ii) Is not at the time of his participation an associated person of a broker or dealer; and (iii) must have other substantial responsibilities other than the sale of the security.

• There are no exceptions for payment to Immigration attorney’s, regional centers, or other consultants claiming to be EB5 experts with overseas connections.

REG. S OFFERING REQUIREMENTS All sales activities must occur outside the US to persons located outside the US

No “directed selling efforts” in the US Non-compliance with Reg. S requirements generate:

Investor right of rescission Will make issuer and its directors and executive officers personally liable Subject to State or SEC investigation

Can only pay commissions to offshore agents following the rules

Does not apply to Americans conducting activities outside the United States. Including attorneys, regional centers, or other EB5 consultants, including foreign agents with a U.S. presence.

FINRA broker-dealers may pay foreign agents without adherence to Reg S restrictions

JOBS ACT RELIEF• Since passing of the Jobs Act, • can engage in general solicitation to

Accredited Investors only• must file advertising with SEC 15 days

prior to publishing• Higher standards for verifying accredited

investors• Must choose between Jobs Act or Reg D

WHY A FINRA BROKER-DEALER

OR INVESTMENT BANKER No Requirement to work within the restraints of Reg S. BD’s are granted much more flexibility to recruit foreign agents as long as we work within in the guidelines and keep the required disclosure described in NTM 95-37

No Requirement to conduct activities overseas, can bring investor candidates who already reside in the United States under other types of visas, but wish to obtain a green card.

Can sell investor units to large population of foreign students who are attending University in the United States.

Can build an expanded U.S. sales channel by inviting other FINRA broker-dealers and Registered Investment Advisors to join a syndicate for the marketing of EB5 projects.

Can expand sales channel by co-operating with licensed securities firms in other countries that have approved methods to work with U.S. securities firms.

LEGAL WAYS TO EARN COMPENSATIONWORKING WITH EB5 PROJECTS

Get registered with a broker-dealer for transaction based commission

Introduce EB5 projects to a FINRA broker-dealer. FINRA broker-dealers are not allowed to share compensation with unregistered persons (except foreign finders under limited circumstances). But they are allowed to compensate experts who assist them in identifying projects.

Become a registered investment advisor for advice-based compensation

Work with a Registered Investment Advisors. Under very limited and strict rules RIAs are the only Registered person who are allowed to share fees with non-Registered persons

Work with project developers as their Real Estate professional. The EB5 project generally must acquire the property or enterprise that it intends to syndicate for EB5 investors and can pay a commission for to the real estate broker that asssts them with the acquisition.

STEPS TO BECOME REGISTERED

REPRESENTATIVE Find a firm that will sponsor you.

Agree to undergo a rigorous criminal background and credit check.

Complete the Uniform Application or Form U4 (detailed personal information, work history,

Submit Social Security number and a fingerprint card

Securities professionals must pass qualifying tests which FINRA administers to demonstrate competence in the areas in which they will work, prior to engaging in the activity

HOW TO FIND A LICENSED PERSON

www.finra.org

BROKER CHECK

Licenses allowed to sell DPP’s (EV5) units for a commission

Series 22, 7, 39, 24

License required to perform investment banking (deal structuring and due diligence services)

Series 79

Licenses allowed to advise on EB-5 investments for a fee

Registered Investment Advisors: Series 65 or 66

BE CAREFUL WHO YOU ASSOCIATE WITH

FINRA has only approved a very few broker-dealers to market EB5 offerings. Check their FINRA membership agreement for evidence of their EB5 approval.

FINRA licensed registered representatives may only sell investments that have been pre-approved and put on their broker-dealer’s approved product lists.

Before working with a FINRA Registered Representative, Check the broker-dealer website to find out if their firm offers EB5 Investment services.

Make sure all of the documentation for the sale of an EB5 investment is processed through the representative’s broker-dealer and never directly with he issuer or regional center,

LEGAL CONSEQUENCESPOTENTIAL CLAIMS

Failure to Disclose: Material information and risks Antifraud violations, use of unregistered placement agents Elements of Violation, Ponzi SchemesSecurities Registration: Failure to file required forms, relationships and marketing

materialsBroker dealer registration: Required if raising capital for compensationInvestment Advisor Registration: Providing Investment Advice for a fee

SANCTIONS & REMEDIES State & Federal Regulators

Cease and Desist Orders Disgorgement Substantial Fines and Penalties Possible Criminal Charges

Private Remedies Damages Awards Recission Statutory Interest and Attorneys fees