The Investor Petition and the Evidence It Must Carry

The petition is an assembly job. Almost nothing in it is argument; nearly all of it is documents arranged so that an adjudicator can follow a chain from an earning event to a bank account to an enterprise to a set of jobs. What that chain has to contain depends on which of two petitions is being filed.

Which petition, and what has to precede it

A standalone investor — one investing outside the regional center framework — files the standalone petition and carries the entire case. A regional center investor files a different petition that sits behind a project application already filed by the center. The statute requires the center to file that application for each particular investment offering before any investor files on it.

Approval of the project application is binding for the adjudication of later petitions by investors in the same offering, and for their petitions to remove conditions. It ceases to bind only where there was fraud, misrepresentation or criminal misuse; where approval would threaten public safety or national security; where a material change affects eligibility; where undisclosed evidence affecting eligibility emerges; or where the earlier adjudication involved a material mistake of law or fact.

Proving the enterprise and the investment

The enterprise must be a for-profit entity formed for the ongoing conduct of lawful business. Formation documents, the operating or partnership agreement, evidence of registration and, where applicable, the subscription agreement establish it. The investment is proved by movement of money: wire confirmations, bank statements at both ends, capital account entries and, where relevant, escrow release documentation.

Two points recur. The investor must have invested their own capital, so the path of funds has to run to the investor rather than merely to the enterprise. And the full amount must be made available to the business most closely responsible for creating the employment, which in a lending structure means documenting the transfer from the enterprise to the job-creating entity, not only the subscription.

Lawful source, and the disclosure that travels with it

The statute requires the investor to show that the capital and any funds used to pay associated administrative costs and fees were obtained from a lawful source and through lawful means. The records named are business and tax records over a seven-year period, evidence of monetary judgments and pending proceedings anywhere in the world, and the identity of every person who transfers funds into the United States on the investor's behalf. Where any of it was gifted or lent, the additional requirements in the treatment of gifted and borrowed capital apply to the donor or lender too.

Separately, every petition must include a disclosure signed by the investor reflecting all fees, ongoing interest and other compensation paid to any person the center or enterprise knows has received or will receive it in connection with the investment, including compensation to agents, finders and broker-dealers, to the extent not already identified in the project application. That disclosure is the investor's own document, and it is the point at which an undisclosed commission arrangement becomes visible.

The business plan standard

The plan must be comprehensive rather than indicative. The standard applied is a familiar one in this area: a plan that describes the business, its products or services, its market and competitors, the personnel it needs with a hiring timetable and job descriptions, its marketing strategy, and financial projections including sales, costs and income, with enough detail that an adjudicator can assess credibility rather than take a conclusion on trust.

Timing is part of it. The plan must show that the required employees will result within a two-year period, which the regulation treats as beginning six months after the petition is adjudicated. Where the jobs come from a build, the constraints in how construction jobs are counted and prorated have to be reflected in the plan rather than left to the economist, and the modeling questions run through the methodology behind an indirect job count.

What a complete filing looks like

Read the assembled petition as an adjudicator would: start at the receiving account and work outward. Is there a document for every transfer? Does every named person appear in the disclosure of transferors? Do the amounts reconcile, including the administrative fee? Does the enterprise's own accounting show the money arriving and moving to the job-creating entity? Does the business plan's hiring timetable match the economic analysis?

Gaps are usually structural rather than accidental. The commonest are an administrative fee paid from an undocumented account, a relative's transfer with no gift instrument, a business plan that describes a project the economic analysis does not model, and a subscription document containing a repayment right that defeats the requirement that capital be at risk.

Because the petition is decided on the record filed, the marginal value of getting it right at filing is high. A request for evidence arrives with a deadline and often lands when the person holding a missing document has stopped answering. Most investors therefore have an investor petition evidence lawyer audit the assembled bundle against the statutory list before filing rather than treating the list as a formality to be satisfied later.