THE DANGERS
OF DUAL
REPRESENTATION
IN EB-5
By Austin Fragomen and Chad Ellsworth
The Model Rules of Professional Conduct
The ABA Model Rules provide the ethical guidelines to
On December 7, 2015, the SEC filed a complaint in the
ensure professional and ethical standards of conduct
U.S. District Court for the Central District of California
for all U.S.-licensed attorneys. These rules, or a varia-
against Hui Feng, and the Law Offices of Feng & Associ-
tion of them, have been adopted by most states and
ates P.C. The SEC’s complaint alleged violations, including
are enforceable against the attorneys in each respec-
SEC Rule 10b-5 and Section 15(a)(1) of the Exchange Act.
tive state. The rules relating to an attorney’s fiduciary
SEC Rule 10b-5, codified at 17 C.F.R. 240.10b-5, makes
duties, especially the three duties of loyalty, confidenti-
it unlawful to employ any device to defraud, or make any
ality and competent representation, are especially rele-
Dual representation in
untrue statement of a material fact, or to omit to state a
vant to an immigration attorney’s consideration of dual
the EB-5 context usually
material fact in the purchase and sale of a security. Feng
representation. In every instance prior to engagement,
arises when an immigration
allegedly violated these two SEC regulations amongst oth-
an immigration attorney must evaluate whether dual
attorney represents both
ers by offering and selling EB-5 investments to clients as
representation will conflict with their legal duty to act
the interests of a regional
an unregistered broker and by defrauding clients without
solely in the client’s interest.
center and the individual
disclosing his commissions from the regional center in con-
investor.
nection with individual investor subscriptions, according to
the SEC complaint. Further, Feng’s alleged conduct
as an attorney also violated the ABA Model Rules of Professional Conduct (“ABA
Additionally, there are specific limitations on dual representation where a conflict of interest may arise.
Per ABA Model Rule 1.7, immigration attorneys should not engage in dual representation when:
Model Rules”) in his failure to meet his
fiduciary duties of loyalty, disclosure,
and competent representation to his
1. The representation of one client
clients.
would presently be directly adverse
to another client; or
2. There is a significant risk that the
representation of one or more cli-
W
ents will be materially limited by the
hile most other types of business immigration cases
to issue civil penalties and cease and desist orders, com-
lawyer’s responsibilities to another cli-
allow a client to consent to dual representation with a
pel disgorgement of illegal profits, bar a firm from acting as
ent, a former client or a third person or by a
proper waiver, given the EB-5 industry’s heavy scrutiny in the
an investment advisor, or bar a professional from practice
media, by congressional leaders, and by regulatory bodies
before the commission for failure to comply with SEC reg-
such as the Securities and Exchange Commission (“SEC”),
ulations.1
we caution against dual representation in the EB-5 context.
personal interest of the lawyer in the future.
The ABA Model Rule 1.7 also provides a limited circumstance where a conflict may be waived:
Recently the SEC has found regulatory violations involving
Immigration attorneys who engage in dual representation
immigration attorneys. On December 7, 2015, the SEC an-
1. The lawyer reasonably believes that the lawyer will
in the EB-5 context may expose themselves to serious risks
nounced a series of enforcement actions against lawyers
be able to provide competent and diligent representa-
and potential sanctions by the SEC and their state bar.
and their law firms across the country for violating Section
tion to each affected client;
Therefore, we advise regional centers and individual inves-
15(a)(1) of the Exchange Act by offering EB-5 investments
2. The representation is not prohibited by law;
tors to obtain separate immigration counsel to navigate
to investors as unregistered brokers. Therefore, immigra-
3. The representation does not involve the assertion of
through the complicated EB-5 regulatory and immigration
tion attorneys should be especially wary of receiving any
a claim by one client against another client represented
terrain when at all possible.
transaction-based compensation or of any appearance that
by the lawyer in the same litigation or other proceeding
a broker-dealer relationship exists with a regional center.
before a tribunal; and
As demonstrated by several recent cases such as American
Further, the SEC has regulations pertaining to the standards
4. Each affected client gives informed consent, con-
Life Inc., and Hui Feng and the Law Offices of Feng & As-
of professional conduct for lawyers appearing and practic-
firmed in writing.
sociates P.C., the SEC has increased its scrutiny of the EB-5
ing before the commission. Although Part 205 of the SEC
program and made it an enforcement priority to penalize
regulations only pertains to lawyers representing issuers of
If all of the above factors are not met, even a client’s
anyone, including immigration attorneys, who may not be
public registered securities, it demonstrates that a lawyer’s
informed consent in writing will not allow an attorney
complying with SEC regulations. The SEC has the authority
professional conduct can be scrutinized by the SEC.
to represent both clients.
1: https://www.sec.gov/about/offices/oia/oia_enforce/overviewenfor.pdf
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