The SEC recently announced enforcement actions against several lawyers across the country for acting as securities brokers without being registered with the SEC. All of the lawyers cited were involved with clients conducting EB-5 investment offerings. One lawyer and his firm were also charged with defrauding foreign investors in connection with an EB-5 offering.
The EB-5 Immigrant Investor Program provides non U.S. persons with a quicker path to obtaining U.S. citizenship through investments in a U.S. program that is intended to create or preserve at least 10 jobs for workers in the United States.
Generally, persons who are engaged in the business of effecting transactions in securities and receive a commission or other remuneration directly or indirectly for raising investor funds in connection with such transactions are first required to be registered as a “broker” with the SEC under the Securities Exchange Act of 1934.
In the cases brought by the SEC against these lawyers involved in EB-5 offerings, the SEC found that:
- Certain EB-5 regional centers across the United States and their managers paid commissions to attorneys or their law firm for each investor who invested in the EB-5 offering sponsored by the center
- Such payments were apart from the legal fees paid to the lawyers for their clients
- The lawyers, in addition to receiving a securities commission, also conducted other broker-like activities such as recommending EB-5 investments to investors, and otherwise facilitating the transaction by transferring the funds as payment for the transactions
One of the lawyers and his law firm are the subject of a criminal complaint filed in federal district court in Los Angeles, in which the New York-based lawyer and law firm are accused of acting as an unregistered broker and defrauding clients by failing to disclose the commissions they were receiving by selling securities to such clients.
Each of the attorneys and law firms charged by the SEC agreed to settle the enforcement matters by agreeing to the issuance of cease and desist orders and, in some cases, payment of disgorgement and penalties.
These actions serve to further spotlight the SEC’s concerns in general about the conduct of EB-5 securities offerings across the country which has been the subject of a recent number of SEC enforcement actions.as