The Importance of Retaining Separate Representation
To protect the interests of both investors and regional centers, it is recommended that each party retain their own immigration attorney for advisement during the EB-5 Program process. The Securities and Exchange Commission (SEC) has recently responded with severe consequences any actions by parties involved with the program, including attorneys, project developers, and regional centers, that do not adhere to the program regulations, emphasizing the need for separate representation. The following article describes how dual representation (one attorney representing both parties) can negatively affect the EB-5 process.
Regional centers and other securities issuers are strictly prohibited from any form of misrepresentation during their involvement with investors. Misrepresentation can include both providing false information and leaving out important information, and regional centers engaging in these practices can face serious consequences imposed by the SEC. Conflicts of interest created by dual representation can lead to misrepresentation, specifically lack of disclosure as attorneys try to protect the interests of their clients.
One method of minimizing the possible negative outcomes of dual representation is to have each investor sign a waiver that states his or her acknowledgement of possible conflicting dual representation.This is not the best solution for EB-5 investors, however, since many may not be fluent in English legal terms and may not fully understand what they are acknowledging. If the attorney of both parties becomes aware that one party is engaging in improper practices, he or she would no longer be able to represent either party, leaving both parties in need of new representation.
Complications may still emerge during the EB-5 process if dual representation exists, even if both parties are in complete compliance with regulations. This is simply because the goals of investors and regional centers do not always align. Some of the situations that may create such complications are as follows:
- Information disclosure: Prior to the selection of a regional center, immigration attorneys must investigate various possible options to be able to advise their investors appropriately. If the investigating attorney is also retained by the regional center, he or she cannot disclose information to the investor that would negatively affect the regional center, even though the attorney is bound to disclose information if it is in the investor’s best interest. This same conflict about disclosing information applies throughout the investment process.
- Timelines: Ideal timelines for the release of investment funds and filing of petitions differ for investors and regional centers. This also may create conflict if the same attorney is retained by both parties since their interests do not align in this matter.
- Misuse of funds: If the investor’s funds are misused in any way by the regional center, this can create conflict as well if the same attorney represents both parties. For this reason, the American Bar Association (ABA) has specifically stated that attorneys are not permitted to represent both parties in legal action due to the misuse of investment funds. Since this is something that may not become apparent until later on in the EB-5 process, it is best if investors and regional centers select separate attorneys from the very beginning to avoid potential future conflicts and possible delays by changing attorneys mid-program.
Because the goals of EB-5 investors and regional centers differ, engaging dual representation can be precarious for all parties involved, including the attorneys. In the future, federal legislation may even terminate the option of dual representation for EB-5 parties in an effort to protect the interests of foreign investors.
Conflicts of Interest and Dual Representation
Dual representation has been prohibited by the ABA in all cases where it limits the ability of the attorney to effectively represent the best interests of either party. While there are certain exceptions to this guideline, those exceptions are only made when both parties have similar, if not identical, interests. Since this is not true for the parties involved in the EB-5 program, dual representation is not recommended.
When a conflict of interest between a regional center and investor emerges during the EB-5 process, any attorney representing both parties is required to withdraw his or her representation. The attorney is then subject to financial liability for damages to one or both parties if new representation is not able to be found. Other legal consequences apply if there have been any unethical practices conducted during the duration of dual representation.
For these reasons, it is strongly recommended that all parties involved in an EB-5 investment retain their own expert counsel. If an investor retains his or her own attorney, the attorney will be able to ensure proper disclosure by the regional center and also make sure that the investor’s interests are addressed in the loan agreement, especially in regard to the repayment of the loan. On the other hand, an attorney hired solely by the regional center will be able to make sure that the investment funds are released on schedule in order to avoid project delays. Separate counsel protects the regional center, the investor, and the attorneys.
An attorney’s reputation can be easily damaged by a mere rumor of malpractice. In addition, a regional center’s reputation can also be negatively affected if legal issues come up due to dual-representation. Thus, it is recommended for the sake of all parties to retain separate representation.