SEC CONFIRMS ITS AUTHORITY IN EB-5 AND TAGS IMMIGRATION ATTORNEY FOR UNREGISTERED BROKERING IN CALIFORNIA FEDERAL COURT WIN: SEC V. FENG
Charles S. Kaufman*
A U.S. District Court decision in California has strengthened the legal foundation for the Securities and Exchange Commission (SEC) in its initiative to enforce federal securities laws in the marketing of investment opportunities under the EB-5 immigrant investor visa program, and underscored the risk of ignoring those laws. In the closely watched case SEC v. Feng,1 the court issued two noteworthy holdings:
- EB-5 investments are "securities" under the federal securities laws and subject to regulation under those laws.
- An attorney who acts as a broker for a client’s investment in an EB-5 investment opportunity must register with the SEC as a broker-dealer.
In reaching its conclusions the Feng court also affirmed, in the EB-5 context, that information about the payment of referral fees or commissions to intermediaries is material to investors as a matter of law, and that an immigration attorney who participates in an offering and omits disclosure of his receipt of commissions is liable under the anti-fraud provisions of the securities laws.2 Issuers and others who omit this information "in connection with the offer or sale of a security" would face similar statutory liability.