Broker dealer issues, SEC compliance issues
Mar 23, 2015
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Kurt Reuss
Kurt Reuss
Kurt Reuss is a registered securities broker who has been specializing in EB-5 since 2012. He offers advice on investment structuring and market conditions related to EB-5 investments.

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Should EB-5 Regional Centers Have Their Employees Register with a Broker Dealer?

Robert Cornish: Having an employee register with an EB5 broker-dealer has its benefits and its drawbacks. Having supervised workers in the past and other registrants from far away, one thing people need to understand is that once your employees register with a broker-dealer firm they have obligations that may not jive with the ones that you have.

For example, email retention. Broker-dealers are required to retain email communications. You're going to have to facilitate some way for the broker-dealer to retain your employee’s emails. Correspondence coming in and out of your office regarding that employee’s business activities needs to be reviewed on a periodic basis. That can be a difficult thing to handle. Clearly there has to be supervision of what that person is doing. 

And then there's the issue of having somebody being supervised from somewhere else, which is probably not very close to where your employee is sitting. The broker-dealer is going to have different obligations in terms of how they communicate, how they review things and when they talk with their people. And of course that person in your office is now registered and they are just as likely to be inspected by FINRA and the SEC as anyone else. 

You should also be aware that FINRA has imposed very strict rules on broker-dealers in terms of how often they are required to inspect what are called 'remote offices' or 'satellite offices' of registrants. At least once a year somebody from the broker-dealer firm is going to come to your office and do an inspection to try to ascertain what kind of business is going on and whether the registered agent is complying with the rules. 

Another issue you have in running the EB-5 visa program is what happens if the broker-dealer asks this person to leave. They're probably going to say this person failed to comply with some rules, which of course is going to follow them around on their license. But now you have a whole host of new issues to deal with. 

On the other hand you are being regulated and there's a lot of comfort to people overseas to understand that someone is overseeing this activity. You can't underestimate that. 

Jackie Prester: I’d like to point out that just because an employee of a regional center is associated with a broker-dealer firm, that person's license does not mean the entire EB5 regional center as an entity can all of a sudden start charging commissions, or that the unregistered people that work for the regional center can start selling and soliciting like a broker-dealer. Its only the person who has that registration who can actually engage in the sales activity and can receive compensation as a salesperson.

Robert Cornish: If you have a bunch of people funnelling business to a registered person, that is a recipe for disaster because you're opening yourself up to unregistered broker dealer activity. 

If you look back at FINRA enforcement proceedings in the late 80's, early 90's dealing with the Wolf of Wall Street type boiler rooms, you’ll see lots of people just phoning people and then having a single broker with a license do all the business so nobody could figure out what was going on. There are reasons these rules are in place.

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