Recently, the Ninth Circuit Court of Appeals issued an opinion affirming summary judgment against an attorney who acted as an unregistered broker by soliciting roughly $1.27 million in commissions from his EB-5 clients. Importance
The U.S. Immigrant Investor Program – commonly known as the EB-5 program – provides legal permanent residency to foreign nationals who invest in U.S.-based projects. Under this program, foreign nationals can apply for permanent residency if they make a required investment that creates at least ten jobs for U.S. workers. Importantly, the U.S. Citizenship and Immigration Services (USCIS) classifies EB-5 investments as investment contracts, subjecting them to U.S. securities laws.
In the case before the Ninth Circuit, an attorney represented several foreign national clients who participated in the EB-5 program. The attorney charged his clients anywhere from $10,000 to $15,000 upfront for his services which included negotiations with the USCIS. However, the attorney failed to disclose to his clients that he had entered into agreements with several regional USCIS centers, which provided that if one of the clients made the required investment to one of the regional centers, the regional center would pay the attorney “recruiter” commissions, ranging from $15,000 to $70,000.
Further, the attorney solicited his family members pose as foreign recruiters or agents to get around regional centers that prohibited paying commissions to attorneys. The attorney also provided advice to clients about which projects would likely be successful, despite never registering as a broker, in violation of Section 15(a) of the Securities and Exchange Act of 1934.
Ultimately, the Ninth Circuit found that the attorney was working as both a broker and immigration attorney. As such, he had an obligation to disclose this conflict of interest to his clients, particularly because the attorney’s judgment would likely be swayed by the promise of a commission from the regional center and conflict with the attorney’s representation of a client. The Appellate Court held that the attorney’s failure to disclose his conflict of interest was material, thus affirming the District Court’s judgement of $1.268 million against the attorney.
This case highlights the importance of a lawyer’s duty to disclose conflicts of interest to his/her clients, and the care that a lawyer must take to ensure that their own interests never have an adverse effect on representation of a client.
Read the full opinion here.
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