There seems to be a lot of confusion in the marketplace about who needs to be an accredited investor within the framework of the U.S. securities laws. Within the United States, EB-5 offerings rely on an exemption from registration with the Securities and Exchange Commission that limits the investor pool primarily to “accredited investors,” as that term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933 (the “Securities Act”). This exemption is found in Rule 506 of Regulation D under the Securities Act.
Outside the United States, EB-5 offerings need not be offered or sold to any accredited investor. Rather, the EB-5 offerings need only be made in compliance with applicable foreign securities laws and Regulations S under the Securities Act. Regulation S requires that each investor satisfy the following criteria: (i) the investor is not a “U.S. Person” (defined, in part, to mean any individual that is not a permanent resident of the United States) and is not acquiring the securities for the account or benefit of any “U.S. person”; (ii) both at the time the investor is offered (or offers) to purchase the subject securities and at the time the investor executes and delivers his or her subscription agreement to purchase those securities, the investor is physically located outside of the United States; and (iii) the investor agrees not to engage in hedging transactions with respect to the securities purchased unless in compliance with the Securities Act.
Accordingly, an issuer of securities need not limit the offer and sale of securities to accredited investors if that offer and sale satisfies the requirements of Regulation S. It is good practice to design and conduct the offer and sale of securities to comply with both Regulation S and Rule 506 of Regulation D of the Securities Act to maximize the pool of available investors for your project.