The last few months have seen a number of developments in the securities area relating to the EB-5 program. Under the EB-5 program, overseas investors can obtain visas to live in the U.S. if they make sufficiently large investments in the U.S. which in turn generate a certain number of jobs in the U.S. While the program has been in effect for some time, the program has received little scrutiny from regulators on the securities (as opposed to immigration) area. Presumably, foreign investors select EB-5 compliant investments in substantial part for the immigration benefits -- the investments themselves and their performance might be thought secondary. In recent years, the EB-5 program has grown significantly, and many of the investments made by EB-5 investors over the past several years are now at the stage that those investments should start paying returns. On the civil side, we have successfully defended companies who raised EB-5 money against litigation brought by EB-5 investors who were disappointed with their investment returns. In early 2013, the SEC brought its first ever enforcement action relating to EB-5, bringing suit to halt an alleged fraudulent scheme relating to securities sold to allegedly raise money to build a hotel in Chicago. We have heard that the SEC has issued a number of subpoenas to other companies that have raised capital from EB-5 investors, and we expect that trend to continue. Even though EB-5 investors may be motivated substantially by immigration benefits, companies that raise money through the EB-5 mechanisms are not excused from compliance with their obligations to comply with U.S. securities laws.
Now, FINRA has weighed in on EB-5. A broker-dealer requested FINRA guidance as to whether broker-dealers advising foreign investors on EB-5 investments were required to comply with FINRA's suitability rules. The broker-dealer argued that EB-5 investments are made primarily for immigration benefits, not for investment purposes, and therefore should not be subject to the same scrutiny as other more traditional securities. FINRA rejected this argument, making clear that the suitability rules apply with equal force to EB-5 investments. This interpretative guidance from FINRA makes it clear that broker-dealers now also face scrutiny in the EB-6 arena from regulators and may be subject to liability from disgruntled investors if EB-5 investments they recommend do not produce investments returns or turn out to be unduly risky.
We expect the coming months to be quite active on the regulatory and civil litigation fronts with respect to EB-5 investments, as investors are going to be increasingly looking for returns from EB-5 investments made over the last several years and as some of those investments do not perform.