Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
By Richard Hill
Dec. 7 — Six attorneys and three law firms from around the country settled first-of-their kind Securities and Exchange Commission allegations Dec. 7 that they acted as unregistered brokers by offering investments to foreign persons hoping to secure U.S. residency status.
One attorney and his firm—Hui Feng of New York and the Law Offices of Feng & Associates—are contesting allegations in the U.S. District Court for the Central District of California that they acted as unregistered brokers to more than 100 investors. Feng and the firm also allegedly defrauded their clients by not disclosing that they breached their fiduciary duty by receiving undisclosed commissions on the investments. They also allegedly defrauded some of the entities offering the investments (SEC v. Feng, C.D. Cal., No. 2:15-cv-09420, 12/7/15).
The SEC is seeking disgorgement, fines and a permanent injunction against Feng and the firm.
The allegations stem from an immigration program—the EB-5 Immigration Investor Program—that offers a path to U.S. residency for persons that invest between $500,000 and $1 million in a specific project that creates or preserves U.S. jobs. The investments are typically administered by regional centers in the U.S. and made through limited partnerships managed by people other than the foreign investors.
Feng and the firm allegedly offered and sold EB-5 investments to clients while also collecting approximately $1.168 million in undisclosed commissions from promoters of the investments. The alleged misconduct created a conflict of interest between the lawyers and their clients, the SEC said. The two defendants also allegedly defrauded certain promoters by using overseas nominees to receive commissions and falsely stating that those nominees would find eligible foreign investors. Feng's attorney Jeffrey Udell, Olshan Frome Wolosky, New York, didn't return a call seeking comment.
SEC Enforcement Director Andrew Ceresney told reporters on a conference call that the allegations were the first against attorneys for allegedly acting as unregistered brokers in the context of the EB-5 program. He said the cases underscore the fact that attorneys “need to be cognizant of, and need to comply with, securities laws and regulations” that govern the sale of securities.
Ceresney said the SEC has increased its focus on EB-5 investments in the last several years and will remain trained on the program.
In addition to Feng and his firm, who are contesting the allegations, nine attorneys and firms and another individual settled related SEC cases:
Hoboken, N.J.-based Allen Kaye also settled EB-5-related allegations, but the SEC waived $100,549 in disgorgement and interest based on his inability to pay (In re Kaye, SEC, Admin. Proc. File No. 3-16984, 12/7/15). In settling their cases, the respondents didn't admit or deny the allegations.
Although these are the first cases alleging that attorneys acted as unregistered brokers peddling EB-5-related investments, the SEC has brought several actions this year stemming from the program. In November, it alleged that a south Florida woman, Lin Zhong, and her company defrauded foreign investors of at least $8.5 million (224 SLD, 11/20/15). In August it obtained an asset freeze against Lobsang Dargey of the Seattle area and his companies for allegedly defrauding Chinese investors of at least $125 million (165 SLD, 8/26/15). In June, a Florida entity and its Hong Kong-based owner agreed to settle allegations they illegally brokered more than $79 million of investments by foreigners seeking U.S. residency (121 SLD, 6/24/15).
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