A CLOSER LOOK AT THE LAW
On this point , the court stated that the defendants had cited no authority to support the proposition that there can be no expectation of profits where investors pay fees in excess of their profits . Despite being rejected by the court , the defendants ’ arguments in Feng have a certain appeal . After all , it seems pretty clear that EB-5 investors are motivated by permanent residency status rather than making a profit . However , the potential for a profit is likely enough to satisfy the Howey test and litigants will likely have an uphill battle convincing courts to rule against the SEC on this issue under similar facts and circumstances .
That said , it is possible that a court may reach a different conclusion under the Howey test in a scenario where an investment cannot objectively return a profit , for example because the maximum theoretical return is less than the administrative fee . Of course , EB-5 investments also need to satisfy the EB-5 program ’ s requirement that investor funds be placed “ at-risk ” for the purpose of generating a return and an investment without an objective possibility of a return may not meet the latter requirement . Accordingly , based on recent cases , including Feng , practitioners should assume that EB-5 investments will be treated as securities subject to state and federal securities laws .
UNREGISTERED BROKER-DEALERS
The federal securities laws prohibit someone acting as a broker from effecting securities transactions unless registered . The purpose behind the registration requirement is to make sure that securities are sold by someone knowledgeable about the investments being sold and his or her responsibilities towards investors . The securities laws define a “ broker ” as “ any person engaged in the business of effecting transactions in
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