If you see an unlicensed “due diligence” or “regional center selection” firm on the internet promising to help you select the best regional center for free, or for a fee they will later rebate to you after they receive a referral fee from the regional center, you can be virtually certain that the firm can not fall within the “finder’s exception” to broker/dealer registration, and therefore the firm is violating U.S. securities laws. There may be some disagreement among securities attorneys about the size of the finder’s exception in securities law, but you won’t find a securities attorney in the entire U.S. who’d say that a firm 1) soliciting EB-5 clients in the U.S., and 2) providing investment advice about which center to select, and 3) accepting finder’s fees from the issuer (regional centers) may do so lawfully without first obtaining a Series 7 or Series 79 license and becoming registered as a broker-dealer, or representative of a broker-dealer firm.
So what does it mean your advisor is not licensed? Simply, the multiple protections of the securities laws to ensure that brokers are both competent and honest are not in place to protect you. The first thing to understand about the securities law of the U.S. is that they are designed to protect the investor. Recognizing that investors may be misled by incompetent of dishonest sellers of securities, U.S. securities laws, combined with the rules of the financial industry’s self-governing organization FINRA, ensure that sellers of securities (including investments such as those offered by EB-5 regional centers) have been tested and are periodically re-tested to demonstrate the appropriate competency in financial matters, that they have disclosed relevant background information such as the seller’s employment history, criminal history, history of investment related complaints, fines, and sanctions, that they have submitted to strict oversight of their professional activities and that they must conform with FINRA and securities law rules which include, among many others, prohibitions against –
- Engaging in any manipulative, deceptive or fraudulent behavior
- Making an untrue statement of a material fact, or even fail to state a material fact necessary in order to make the statement made not misleading
- Guaranteeing a result
- Engaging in behavior that constitutes a conflict of interest with the client/customer
If your advisor is unlicensed, you basically just have to trust the advisor to do the right thing.
You can easily check to see if a finder is registered on FINRA’s BrokerCheck.
The EB-5 Pilot Program is particularly susceptible to abuse because the referral fees that regional centers pay to finders vary from center to center, with some centers refusing categorically to pay finder’s fees to unlicensed consultants, while other centers paying fees that are far higher than the standard. Given the powerful incentive for the advisor to steer the client to the center offering the advisor the highest financial reward, unregulated advisors can be a source of abuse in the EB-5 field.
Another problem is that unlicensed finders naturally send their clients only to regional centers that are willing to pay them, despite the securities law violation. This subjects the center to the risk of an SEC enforcements action or rescission action in state court by an investor that can have dire consequences for the center’s ability to carry its projects forward. When you consider that it’s not just you money at stake in one of these projects, but also the future of your family, you can see why a cautious approach with such firms is strongly recommended.