The SEC has continued its flurry of EB-5 activity with its announcement today of fines and a cease and desist order against American Life and its President, Henry Liebman. At the heart of the SEC’s order against American Life and Liebman, “certain EB-5 Agents were paid transaction-based compensation for the activities which effectuated the investor’s transactions in EB-5 securities…. As a result of the conduct described above, certain EB-5 Agents violated Section 15(a)(1) of the Exchange Act.” You can find the full order at this link on the ILW.com site: http://discuss.ilw.com/content.php?6…tion-Attorneys
It is interesting to note, that the premise of American Life and Libman’s culpability was derivate in this case. It is the EB-5 Agents who were the primary violators of the Exchange Act, “Respondents paid transaction-based compensation to unregistered broker-dealers,
causing the broker-dealers to violate Section 15(a)(1) of the Exchange Act.” [emphasis added].
This case is in contrast to the recent cases Ponzi scheme/fraud cases brought by the SEC against Jay Peak principals (see http://discuss.ilw.com/showthread.ph…rthern+kingdom) or the California Cancer Center case (see https://www.sec.gov/news/pressrelease/2016-105.html). In the current case, there is no allegation of fraud, simply the violation of the Exchange Act caused by the use of unregistered broker dealers.
The SEC had already marked unregistered broker-dealers as targets worthy of their crosshairs, even where there was no allegation of fraud or harm to investors in the transactions. For some recent cases see: http://discuss.ilw.com/content.php?4…Matthew-Gordon, http://discuss.ilw.com/content.php?6…By-Matt-Gordon.
The SEC noted specifically that the agents were ‘mostly immigration attorneys’. Lawyers breaking the law, or at least the SEC’s interpretation of what constitutes action requiring broker dealer registration, is something that is high on the priority list of the SEC. In December, the SEC announced settlements with many immigration attorneys and charges against one firm who did not settle. See, http://discuss.ilw.com/showthread.ph…Matthew-Gordon.
The key lessons to be learned is that the SEC continues to apply its transaction based (success fee) compensation test to determine broker dealer registration requirements despite district court decisions to the contrary. (See SEC v. Kramer, 778 F. Supp. 2d 1320, 1336 (M.D. Fla. 2011). Secondly, immigration attorney should not be taking fees for referrals from sponsors, especially in the context where the lawyers were acting as counsel to the very investors they were referring.
It will be particularly interesting to see if and how DHS implements new rules related to regional centers in light of the SEC’s activity. On June 10th, DHS announced that it was (finally) engaging in rulemaking with respect to long needed updates to EB-5 regulations. See: http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201504&RIN=1615-AC07
All that we know for now are the general topics: “Unique EB-5 program issues which will be addressed in the updated regulation are: the designation of Targeted Employment Areas; indirect job creation; the required investment amount; material changes effect on conditional residency; the regional center designation process; and monitoring for regional center compliance.” Hopefully while compliance was mentioned last, it will not be least.
© 2016 Matt Gordon.
About The Author
Matt Gordon is a noted policy expert in the visa-based investments field and is an authority on structuring visa-based investments. Mr. Gordon’s career spans business operations, finance and law. He is the editor of the EB-5 Book, the legal treatise on the EB-5 program and a frequent lecturer to immigration attorneys. Mr. Gordon has participated in policy events, including those hosted by the White House and Harvard University’s Kennedy School of Government. Prior to founding E3iG, Mr. Gordon was an investment banker for a decade and ran the US division of a Swiss multi-national corporation. Mr. Gordon is a licensed attorney, having practiced mergers and acquisitions law at the beginning of his career with the largest and most reputable Wall Street firms including Fried Frank and Sullivan & Cromwell. Mr. Gordon received his B.S. in Policy Analysis from Cornell University and his J.D., cum laude, from the University of Pennsylvania School of Law.