In his article, The Investment Company Act of 1940 and Underwriting the Financial Gap Between Filing and Approval of the I-526 Petition, Steven Anapoell, a shareholder in GT’s Corporate and Securities Group, discusses the implications of the Investment Company Act of 1940 (ICA) for lenders who seek to provide bridge capital to special purpose entities known as “Lending Conduits” prior to the approval of EB-5 investors’ Form I-526 petitions.

Specifically, the article notes that the U.S. Securities and Exchange Commission (SEC) regards loan instruments between Lending Conduits and project company borrowers as investment securities. Therefore, special purpose entities formed to raise capital from EB-5 investors to loan or invest proceeds in a separate entity must register with the SEC under the INA unless an exemption or no action letter is obtained.

To avail itself of an exemption, a special purpose entity may not grant investors any voting rights – contrary to the EB-5 Program’s requirement that such rights be given in order to avoid a Form I-526 denial. Finally, the article also discusses the SEC’s heightened scrutiny of the EB-5 Program over potential violations of securities law, citing a September 2012 piece in The Daily that quotes an anonymous immigration official describing the agency’s “goal” as “…sanctions and penalties.”