FINRA Rule Regarding Payments to Foreign Agents

FINRA Rule Regarding Payments to Foreign Agents

 Earlier this week, FINRA Rule 2040 (the “Rule”) went into effect. The Rule requires all FINRA members to disclose to investors all fees and commissions paid to foreign agents and to receive written acknowledgement by investors that they are aware of these fees. This will have an impact on EB-5 projects. As a result of the Rule, any Regional Center that is registered as a broker-dealer will have to receive written acknowledgement by investors of fees that they pay to migration agents. The Rule will ensure that Regional Centers registered with FINRA are operating in an open and transparent manner with EB-5 investors.

The payment of fees to migration agents is already disclosed to investors in the private placement memorandum distributed to investors as part of the investment process, and is something that EB-5 investors are aware of. However, the Rule will shine a spotlight on the issue to ensure that investors are focused on the specific issue of the migration agent compensation for their individual investment. While the Rule applies to FINRA members, Regional Centers that are not registered as broker-dealers should also comply. Receiving written acknowledgement from investors regarding the exact fee paid to their migration agent should be standard practice as the industry comes under increasing regulatory scrutiny. This practice will protect both Regional Centers and migration agents from claims that they were not acting in EB-5 investors best interests.

The Rule was issued by FINRA and approved by the Securities and Exchange Commission. Approval of the Rule may indicate that the payment of fees to foreign finders is the next area that the Securities and Exchange Commission intends to take aggressive action in, and Regional Centers and migration agents should not just rely on disclosures in the private placement memorandum to protect themselves. With a written acknowledgement of the exact fee paid to each individual EB-5 investor’s migration agent for their referral, there can be no question that Regional Centers and migration agents were fully transparent with investors.

 Omar Hakim is an attorney at Mona Shah & Associates in New York City. The firm is an established source for EB-5, assisting numerous Regional Centers/EB-5 Projects and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Omar offers clients years of experience in corporate finance, the financial regulatory system, securities matters and in general corporate governance matters. Additionally, he is able to draw on his experiences at major federal regulatory agencies and bodies, which includes work at the SEC, the United States House of Representatives Committee on Financial Services, and the CFTC. He earned his J.D. at the University of Virginia; his Master of Laws in Securities and Financial Regulation at the Georgetown University Law Center; and his B.A. in Economics at Georgetown University.

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