CONCERNS OF FRAUDULENT SECURITIES OFFERINGS AND UNREGISTERED BROKERS
The Division of Enforcement of the Securities and Exchange Commission continues to actively investigate the Immigrant Investor Program, also known as EB-5, and has to date brought two civil law enforcement actions alleging fraudulent securities offerings. SEC v. A Chicago Convention Center, et al (involving fraudulent sale of more than $145 million in securities to primarily Chinese investors), and SEC v. Ramirez ($5 million offering fraud involving Mexican, Egyptian and Nigerian investors).
While I expect that the SEC will continue to investigate and, where appropriate, prosecute fraud in connection with EB-5 investment program offerings, the SEC is apparently now looking more closely at whether those individuals, including immigration attorneys, who refer prospective EB-5 investors to regional centers for a fee are acting as unregistered securities brokers in violation of the Federal Securities Laws, namely Section 15(a) of the Securities Exchange Act of 1934.
The SEC has historically focused on the receipt of transaction based compensation as a key indicator of an individual improperly acting as an unregistered securities broker. However, a recent federal court decision in a SEC case explicitly rejected that proposition. Moreover, recent SEC administrative cases seem to strongly suggest that beyond the mere receipt of transaction based compensation, the individual must also be engaged in the type of conduct typically associated with that of a securities broker, i.e., marketing, soliciting and recommending the investment.
In the event the SEC concludes that an individual has acted as an unregistered securities broker, it can seek through an enforcement lawsuit the return of all referral fees paid, a civil penalty and an injunction, not to mention the bad publicity resulting from the public announcement of the case.
If you are under investigation by the SEC in connection with the EB-5 Immigrant Investor Program, call me today for a free and confidential consultation.