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Some immigration attorneys have accepted, and continue to accept, finder/referral fees for placing EB-5 investors with projects. Let us set aside the issue of whether this practice is ethical, and presume, arguendo, that it is ethical. Let us also set aside the issue of whether this practice is lawful, and presume, arguendo, that it is lawful. Regardless, it is a lousy business idea for the following reasons.
When something goes wrong with one of the projects an attorney has placed a security for, the project fails, as is inevitable in a capitalist system - failure is a feature, not a bug, given enough time, some projects will always fail. Under long standing securities statutes and case law, rescission rights may well be triggered for the failed investment. The attorney who placed the security can be held liable to the investor for the $500K investment and be asked to cough up the entire amount to make the investor whole. Accepting a finder's fee by a person not licensed by SEC/FINRA is the same as underwriting insurance on the $500K investment. This is the same as writing a put option on the investment without being adequately compensated for it. Writting the multi-year protective put option on $500K for a mere $20K does not make any business sense (once again setting aside ethical/legal issues).
We understand that some attorneys label the fees as consulting fees, which are paid to a third party and/or in a third country. While these practices may be new to USCIS, these are not new to SEC. Banks provide sufficient information to SEC for them to be able to see right through such devices. If SEC decides to seek rescission rights on behalf of investors, it will, as a practical matter, be able to enforce these against attorneys, regardless of subterfuges that law firms may have resorted to. Furthermore, piercing corporate veils is business as usual in the securities world, as some law firms are now finding out, to their surprise.
It has come to our attention that SEC has begun serious enforcement against some law firms in connection with EB5. We expect SEC actions to be expanded further in the near future. Please stay tuned to Immigration Daily for the latest on this and other immigration law news.
This article is quoted in its entirety and was originally published in a blog by ILW.com The Leading Immigration Law Publisher on January 14, 2014. A link to the original article can be found here.