Putting the SEC’s CanAccord No Action Letter into the EB-5 Context

On January 18, 2002 the SEC issued a ‘No Action’ letter to CanAccord Capital Corporation (“CanAccord”), which was actively seeking “investments” for an immigrant investor program in Quebec, Canada. Unlike section 203(b)(5) of the Immigration and Nationality Act, the statute governing the Quebec immigrant investor program explicitly provides for reimbursement.

Act Respecting Immigration to Quebec Immigration and Nationality Act
3.3 The Government may make regulations …

(b.5) determining the conditions applicable to a person or partnership that participates in the management of an investment or deposit of a sum of money by a person who files a lawful application;

(b.6) determining the conditions applicable to an investment or deposit as well as the management and disposition of the sums invested or deposited, including their reimbursement and confiscation;

(5) Employment creation. –
(A) In general. – Visas shall be made available, in a number not to exceed 7.1 percent of such worldwide level, to qualified immigrants seeking to enter the United States for the purpose of engaging in a new commercial enterprise (including a limited partnership)–
(i) in which such alien has invested (after the date of the enactment of the Immigration Act of 1990) or, is actively in the process of investing, capital in an amount not less than the amount specified in subparagraph (C)

An “investment” is “a contribution of capital.” U.S. Citizenship and Immigration Services (“USCIS”) further limits this definition by excluding “notes, bonds, convertible debts, obligations, or any other debt arrangement between the alien entrepreneur and the new commercial enterprise.” Every immigrant investor must submit evidence showing that his or her capital contribution has been placed “at risk for the purpose of generating a return on the capital placed at risk.”

Reimburse” means “to pay back.” Under Quebec’s immigrant investor regulations the broker or trust company that works with the investor must contractually agree to reimburse the investment within 30 days of maturity. Additionally, “the investment of $800,000 CAN for a five year term is guaranteed by the Gouvernement du Quebec.” Thus, under Quebec’s immigrant investor program, an investor’s capital is not “at risk” as it is in the EB-5 program.

The “purpose of generating a return” is also absent from Quebec’s immigrant investor program. Instead, each investment must be used for the purpose of financing the “Programme des immigrants investisseurs pour l’aide aux enterprises.” Regulations for this program further provide that any return or interest generated by the invested capital must be used for the following purposes:

  • Providing financial assistance to Quebec businesses,
  • Paying fees or commissions to financial intermediaries,
  • Paying expenses for the administration of the program,
  • Funding promotion and performance measures of the Minister of Immigration.

Notably absent from these regulations is any provision authorizing the payment of a return or interest. As stated in the request for the CanAccord No Action letter “The Program and Term Note expressly provide that no interest shall be paid to an immigrant investor.” Thus, unlike the EB-5 program, “investments” in the Quebec immigrant investor program are not “for the purpose of generating a return.”

As discussed in the  CanAccord request for a No Action letter, risk and potential return are the key factors in determining whether an “investment” constitutes a “security.” Since these factors are absent from the Quebec immigrant investor program, investments offered under this program are not considered securities. By contrast, risk and potential return are regulatory requirements of the EB-5 program. As these requirements tend to characterize the instruments listed in the definition of a security, an EB-5 investment is likely included in this definition.

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