New Disclosure Rule for Foreign Agents Takes Effect

Posted on: August 26th, 2015
by Greg Siskind
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The Financial Industrial Regulatory Authority (the successor to the National Association of Securities Dealers) has issued a new rule regarding finder’s fees paid to foreign agents. Michael Gibson does an excellent job summing up the changes:

Effective today all issuers of securities offerings are required to disclose to investors the amount of fees paid to foreign agents (finders) and receive written acknowledgement from the investors of  the fees paid.   A document disclosing the total compensation paid by the issuer to the finder, and each investor’s acknowledgement of the same, must be retained and available for inspection by FINRA.

This regulation could transform the EB-5 visa industry from one of non-disclosure and non-transparency concerning agent compensation agreements if complied with, the question is, how many Regional Centers and Direct issuers will comply with this new regulation?  

Gibson’s post then goes on to look at how the regulation is likely to play out with investors, the regional centers and the foreign agents who are the subject of the new requirements. He sums up the dilemma for regional centers:

The issue is that overseas agents dictate who gets funded in these EB-5 transactions, so if the issuer chooses to disclose these payments to the investors they will most likely jeopardize their relationship with the foreign agent and lose their source of funding, not to mention anger potential investors by disclosing these lopsided nonsensical compensation agreements.   

Noncompliance however, could place the issuers into bigger problems with the federal agencies including having to possibly rescind the offering, refund investor’s capital, civil and criminal penalties.   It will be interesting to see how their counsel guides them, and the overseas agents, into compliance or non-compliance.  Up until now the Centers have been able to hide by not disclosing these compensation agreements to investors or regulators, however starting today, that is no longer an option.

It’s going to get interesting…

[Correction: Apologies readers, but my post should clarify that the new rule applies to FINRA-regulated individuals and not the regional centers directly  (who are regulated by various state and federal authorities). However, the impact on the regional centers may still be the same since the information being supplied by the FINRA-regulated individual is still likely to rile some investors]