(Source: Homeier & Law) NEWS ALERT FOR THE EB-5 INDUSTRY
The SEC's formal announcement of its enforcement action in
the EB-5 industry concerning receipt of unlawful broker fees looks to be coming
very soon. We and fellow securities counsel practicing in the EB-5 space
have warned for some time that the SEC has been conducting a wide-ranging
investigation into the payment of fees by EB-5 regional centers to immigration
attorneys and other persons not registered as securities brokers, in return for
sourcing investors for the regional centers’ projects. This practice
appeared widespread prior to 2010; however with our arrival and that of other
securities lawyers into the industry around that time, our group advice that
receipt of such fees by unlicensed persons could likely run afoul of the broker
registration rules seemed generally to be heeded, and the practice
substantially diminished. Nevertheless, in a classic case of it being
impossible to “un-ring the bell,” the SEC is now bringing enforcement actions against
a number of those attorneys, including many who had already abandoned the
practice on the advice of securities counsel prior to the SEC’s arrival in
EB-5. It appears that the targeted lawyers are being required to disgorge
the payments they unlawfully received dating back for the five years of the
standard statute of limitations, or to January 1, 2010, plus interest (and, in
“appropriate” cases, with penalties being assessed, as well), in some cases
amounting to $1 Million or more, for each lawyer. As yet, it is unknown
whether this spate of enforcement actions will mark the conclusion, or only the
beginning, of the SEC’s enforcement actions on this issue. We understand the
SEC is investigating EB-5 issuers and regional centers for “aiding and
abetting” unregistered brokering activity by engaging and paying unregistered
intermediaries, as the SEC has done in recent enforcement actions outside the
EB-5 sphere. The agency has publicly and prominently announced that
enforcement is a top priority, and the impending formal announcement of its
action in EB-5 clearly demonstrates its resolve. Further enforcement
action should be expected, in particular as to legacy practices by industry
participants. EB-5 securities issuers (just like those outside EB-5) are
well advised of their ongoing need—and duty—to strictly comply with all
applicable securities laws and regulations, including but not limited to the
immediate broker fee issue. The assistance of experienced securities
counsel in helping accomplish this compliance should be secured as early in the
investment process as possible to avoid outcomes like this.
