Managing Conflicts in the EB-5 Arena
September 3, 2015
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As September 30th approaches and the expiration of the EB-5 Regional Center Program draws nearer, proponents and detractors alike are raising questions and offering solutions for enhancing the integrity and efficiency of the program as part of what most assume will be reauthorization by Congress. As speculation grows regarding what the program will look like post-authorization, this may be also be a good time to examine the respective roles of EB-5 parties and potential conflicts that may arise when an attorney or EB-5 actor represents multiple parties in the same transaction.
According to IIUSA statistics, between FY 2005-2014, EB-5 funds accounted for over $9 billion dollars of investment in the US supporting the creation of over 180,000 new jobs, making the EB-5 program a resounding success in terms of encouraging economic advancement and job creation under any standard. Opportunities abound in the EB-5 area for regional center principals, developers, attorneys, financial advisors, broker dealers and others to participate in this strategic area of development and commercial enterprise. It should be noted that EB-5 is generally regarded as a niche area within an already highly specialized area of law, and as a result, even with over 600 Regional Centers, relevant EB-5 players, including project principals and attorneys, form a fairly small and sophisticated group, which some might liken to a small town where the neighbors all know each other.
With this as a backdrop, it may not be surprising that some Regional Centers choose to utilize the same attorney who assisted them in forming their RC or advising their project, as a 'preferred provider', recommending them to investors to represent them in their individual I-526 filings. In many cases, the attorney may continue to have an ongoing, albeit intermittent engagement with the RC post-formation, including providing guidance and advice on potential changes to the business plan or other project related issues. Some would argue that this model has advantages. The attorney, having advised the RC from inception including filing the I-924 and any subsequent amendments, is familiar with the RC structure and/or project and has already served as a trusted advisor to the principals. The RC is familiar with the attorney's work and may feel that it is advantageous for the attorney to review or prepare and file I-526 petitions on behalf of investors as investor’s counsel. This arrangement, in and of itself, may not necessarily give rise to a conflict. The ABA model rules at rule 1.7 prohibits conflict of interest among current clients as follows;
Client-Lawyer Relationship Rule 1.7 Conflict Of Interest: Current Clients
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
- the representation of one client will be directly adverse to another client; or
- 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.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
- the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
- the representation is not prohibited by law;
- the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
- each affected client gives informed consent, confirmed in writing.
As a starting point, both the investor and project would seem to have a common goal; to have the investor sign the subscription agreement, make the investment in an immigration compliant fashion, obtain an unrestricted green card at the conclusion of the I-829 filing process, and eventually receive repayment of their loan. Assuming that the attorney is competent in all relevant areas, the matter can be viewed initially as non-adversarial, and if circumstances (1) and (2) above are not present, it would seem at first glance that the attorney may proceed without informed consent from each party. A question arises, however, regarding whether an attorney who has close knowledge of or continues in an ongoing representation of an RC or project, can reasonably be viewed as having a potential for conflict in representing an individual investor in the same transaction. For example, the attorney may come to learn certain information during the course of representing the RC or project that would give rise to concern on the Investor’s part, should they also become aware of this information. Therefore, it is possible to foresee a scenario where circumstances (1) or (2), although not present at the outset of the engagement, could potentially develop as a result of the attorney choosing not to share this information with the investor. Conversely, the attorney may come to know certain information about the Investor’s background or ultimate eligibility for permanent residence that could impact the overall approvability of the case. Does the attorney therefore have an obligation to share this information with the RC who has provided the investor with an investment slot on a project to the exclusion of others, on the assumption that the investor has a prima facie approvable case? There may be many countless other scenarios where EB-5 players may enter into transactions, agreements or legal relationships with multiple parties that could give rise to potential or future conflicts, and this article is not intended to address every possible scenario in this regard. At a minimum, it would seem that a prudent EB-5 actor should minimally insist on written waivers and disclosures in matters involving representing two current clients. In light of the present climate of enforcement and oversight by the SEC and USCIS, and general scrutiny of the EB-5 program overall, a more conservative approach may also be to simply not engage in representation of multiple parties, regardless of whether a waiver is in place.
