2016 New York EB-5 & Investment Immigration Convention EB-5 - - PDF document

7/12/16 1

2016 New York EB-5 & Investment Immigration Convention

EB-5 Attorney Workshop

Ethical Considerations in EB-5 Practice

Bill Gresser, EB-5 New York State Regional Center Cyrus D. Mehta, Cyrus D. Mehta & Partners PLLC Moderated By: Chad Ellsworth, Fragomen Worldwide

Structuring Engagement Letters

• When structuring engagement letters, be mindful and clearly

express to the client that as their immigration attorney, you have not and will not advise:

– Which Regional Center or project to invest in (you have and will advise, if requested, information regarding the immigration approval history of I- 526 and I-829 petitions for specific Regional Centers or projects if available) – On rate of return on client’s investment, security of client’s investment, timing of return of client’s investment, or any tax or financial aspects of client’s investment – U.S. or Foreign Country Securities Law Issues – Foreign Country Currency Laws and Restrictions – Whether any Regional Center is a better investment than any other Regional Center or investment the client will make

Source: AILA Model Legal Services Fee Agreement for EB-5 Clients

7/12/16 2

Referral Fees to Attorneys

• The SEC’s recent enforcement actions against attorneys across the

country centered on the major issue when attorneys steer individuals to specific Regional Center projects and receive referral fees without registering as brokers in violation of Section 15(a)(1) of the Securities Exchange Act of 1934.

• Various EB-5 regional centers or their managers paid commissions

to the attorney or law firm for each new investor they successfully sold limited partnership interests to.

• These payments were separate from legal fees received to provide

legal services to the same clients. The lawyers and firms engaged in activities necessary to effectuate the transactions, such as recommending one or more EB-5 investments, acting as a liaison between the regional center and the investor, or facilitating the transfer or documentation of investment funds to the regional center. ( See SEC Press Release, SEC: Lawyers Offered EB-5 Investments as Unregistered Brokers, Dec. 7, 2015)

Referral Fees to Attorneys (cont’d)

• In the Matter of American Life, Inc. and Henry G.

Liebman, File No.: 3-17285 (June 13, 2016) – respondents

• rdered to cease-and-desist and pay civil penalties over 1.2

million in violation of Section 15(a)(1) of the Securities Exchange Act

• Securities and Exchange Commission v. Hui Feng, et al.,

Civil Action No. 2:15-cv-09420 (Central District of California, Complaint filed December 7, 2015) – complaint seeking permanent injunction, disgorgement, and civil penalties in violation of Section 15(a)(1) of the Securities Exchange Act, and other regulations

• Be wary of receiving any transaction-based compensation

and th the appearance of any broker-dealer relationships

7/12/16 3

What About Attorneys Who Are Registered SEC Brokers?

• NYSBA Ethics Opinion 1015 (8/4/2014) in the context of

lawyers who are also real estate brokers may provide some guidance:

• The Opinion affirms it would be a non-consentable conflict if the

broker’s fees are contingent

• However, if the broker’s fees are fixed, it might then be a

waivable conflict

• Therefore, if the SEC broker charges a fee from the client for

independently evaluating EB-5 investments along with a fee for immigration services – probably okay

• If the SEC broker relies on the EB-5 Regional Center project to

pay a commission, and the broker also represents the client as an immigration attorney – more problematic

Referral Fees to Others

• The SEC’s enforcement actions against others who are

unregistered broker-dealers in violation of Section 15(a)(1) of the Exchange Act

• Cease-and-desist orders, disgorgement, civil penalties and potential

criminal liability

• In the Matter of Wisteria Global , Inc. and Hiroshi Fujigami, File

No.: 3-16675 (July 6, 2015) – respondents ordered to cease-and- desist and pay disgorgement around $1.7 million with prejudgment interest

• In the Matter of Ireeco, LLC and Ireeco Limited, File No.: 3-

16647 (March 24, 2016) – respondents ordered to cease-and-desist and pay disgorgement around $3.1 million with prejudgment interest

7/12/16 4

Conflicts of Interest – Dangers of Dual Representation in EB-5

• Dual representation arises when an immigration

attorney represents both the Regional Center and the individual investor

• Limitations on dual representation where conflict of

interests may arise per ABA Model Rule 1.7:

Immigration attorneys should not engage in dual representation when: (1) the representation of one client would presently be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer in the future.

Conflicts of Interest – Dangers of Dual Representation in EB-5

• ABA Model Rule 1.7 provides a limited circumstance where a

conflict may be waived: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client; (4) each affected client gives informed consent, confirmed in writing.

• If the above factors are not met, even a client’s informed

consent in writing will not allow a lawyer to continue representing both clients and representation must be terminated

7/12/16 5

Conflicts of Interest – Dangers of Dual Representation in EB-5

• Conflicts are not aligned at the outset – Regional

Center’s main objective is to obtain financial funding for its projects while Investors’ main interest is to obtain immigration benefits

• The lawyer’s duties of loyalty, confidentiality, and

competent representation may be compromised: – Regional Center project’s weaknesses – Timing of release of EB-5 funds – Disclosure of facts – Age-out considerations – Project fall-out or fraud

When to Withdraw As Counsel

• Attorney-Client Relationship
• ABA Model Rule 1.16 – Declining or Terminating

Representation

• Consult your respective state’s version of the ABA’s

Rule 1.16

• Rule 1.6 of New York Rules of Professional Conduct is

even more extensive

7/12/16 6

When to Withdraw As Counsel

• It is always easier to decline

representation before the start of the case than to terminate representation after case has started

• Considerations to consider before

taking on a case – Fraud, case duration, and client’s ability to pay, etc.

• Make sure you clearly c

communicate when you decline to represent a client

Continue to Represent?

• Mandatory Grounds of Withdrawal –

ABA Rules 1.16(a)(1)-(3)

• Permissive Grounds of Withdrawal –

ABA Rules 1.16(b)(1)-(7)

• Seeking Permission of the Tribunal

Before Withdrawing – ABA Rule 1.16(c)

• Safeguarding the Interests of the Client

– ABA Rule 1.16(d)

7/12/16 7

Mandatory Grounds of Withdrawal ABA Rules 1.16(a)(1)-(3)

(a) Except as stated in paragraph (c), a lawyer shall not represent a client, or where representation has commenced, shall withdraw from the representation

• f a client if:

(1) the representation will result in violation of the rules

• f professional conduct or other law;

(2) the lawyer’s physical or mental condition materially impairs the lawyer’s ability to represent the client; or (3) the lawyer is discharged.

Permissive Grounds of Withdrawal ABA Rules 1.16(b)(1)-(7)

(b) Except as stated in paragraph (c), a lawyer may withdraw from representing a client if: (1) withdrawal can be accomplished without material adverse effect on the interests of the client; (2) the client persists in a course of action involving the lawyer’s services that the lawyer reasonably believes is criminal or fraudulent; (3) the client has used the lawyer’s services to perpetrate a crime or fraud; (4) the client insists upon taking action that the lawyer considers repugnant or with which the lawyer has a fundamental disagreement; (5) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled;

7/12/16 8

Permissive Grounds of Withdrawal ABA Rules 1.16(b)(1)-(7) (cont’d)

(6) the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client; or (7) other good cause for withdrawal exists.

Seeking Permission of the Tribunal Before Withdrawing – ABA Rule 1.16(c)

(c) A lawyer must comply with applicable law requiring notice to

• r permission of a tribunal when terminating a representation.

When ordered to do so by a tribunal, a lawyer shall continue representation notwithstanding good cause for terminating the representation.

7/12/16 9

Safeguarding the Interests of the Client – ABA Rule 1.16(d)

(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. The lawyer may retain papers relating to the client to the extent permitted by other law.

Withdraw from Case and/or From Representing All Parties?

• “Thrust Upon Conflicts” – a conflict between two clients that:

(1) did not exist at the time either representation commenced, but arose only during the ongoing representation of both clients, where, (2) the conflict was not reasonably foreseeable at the outset of the representation, (3) the conflict arose through no fault of the lawyer, and (4) the conflict is of a type that is capable of being waived, but

• ne of the clients will not consent to dual representation.
• See e.g. New York City Bar Formal Opinion 2005-05

7/12/16 10

Withdraw from Case and/or From Representing All Parties? (cont’d)

• NYC Bar Op. 2005-05 further requires the lawyer to

apply a balancing test in deciding whether to withdraw from the representation of one client and continue representation, with the other client.

• The opinion requires the lawyer to factor in whether

there would be any prejudice that will be caused to the client due to confidences being placed at risk, and whether representation of one client over the other would give an unfair advantage to the client.

Withdraw from Case and/or Representing All Parties?

• Other factors to consider:

– Origin of the conflict – Whether one client has manipulated the conflict to force the lawyer off the matter and is using the conflict as leverage – The costs and inconvenience to the party being required to

• btain new counsel, including the complexity of the

representation – Whether the choice would diminish the lawyer’s vigor of representation toward the remaining client, and – The lawyer’s overall relationship to each client.

(NYC Bar Committee Report Formal Opinion 2005-05 Unforeseeable Concurrent Client Conflicts, June 1, 2005)

7/12/16 11

Business Arrangements with Non-Legal Organizations (NLO)

• Is the Lawyer’s Conduct Governed by the Professional

Responsibility Rules of New York or Another Jurisdiction? – NY Rule 8.5(b), Rule 8.5(b)(2)

• Does the Lawyer’s Conduct Constitute the Unauthorized

Practice of Law in Another Jurisdiction? – NY Rule 5.5(a)

• Is the NLO Engaged in the Unauthorized Practice of Law?

– NY Rule 5.5(b)

• Does the Lawyer’s Contemplated Arrangement with the NLO

Constitute an Impermissible Multidisciplinary Practice? – NY Rule 5.8(a), NY Rule 5.8(b)(1)

Business Arrangements with Non-Legal Organizations (NLO)(cont’d)

• Does the Contemplated Payment Structure Constitute Improper

Fee Splitting? – NY Rule 5.4(a)

• Does the Contemplated Payment Structure Constitute the

Payment of a Referral Fee? – NY Rule 7.2(a), NY Rule 7.2(b), NY Rule 7.2(b)(4)

• Who is the Lawyer’s Client?

– NY Rule 1.1(a), NY Rule 1.2(c), NY Rule 1.4, NY Rule 1.2(a), NY Rule 1.5, NY Rule 1.6(a), NY Rule 1.7(a), NY Rule 1.8(f)

7/12/16 12

Disclaimer

This presentation outline and the presentation itself are for general education purposes only and are not intended to provide specific guidance or legal advice about what to do or not to do in any particular case. You should not rely on this general information to make decisions about specific immigration matters. If you are not yourself a lawyer, you should seek the assistance of an immigration lawyer to help you resolve these issues. Thank you.