you can find you can do that afterwards with the so just to begin with our primary argument is these are not securities i understand why the f c c wants to regulate this area but not all eighty five programs are securities they know this and it's ironic you've had the f c c who often accuse others of elevating form over substance in our opinion are doing exactly that here if this isn't a pooling feature of this i mean i think i might agree that if somebody just invested in the united states company that wouldn't necessarily be a security but it isn't a pooling feature of this program if you will turn it into a  security and that may be under that portion of the analysis the portion that we're focused on for why it isn't a security is because there can be no profit ok let's put i'm just assume for a nd there can i want just to if there can be a profit there wouldn't a puling turned it into a security i think it likely would so you so your entire argument turns on the absence the absence of the ability to get a profit that and that and a an extension of  think that there is precedent for that but it doesn't mean they're all securities and you have to look at each particular investment and the subjective situation around each one to decide counsel when you focus on expectation or profit or are you talking about because you see the point in your brief to be doing this to be talking about the subjective expectations of your clients as opposed to an objective analysis of the applicable documents and you talk about how they're they were interested in getting the visas they really didn't care about making money and so they did they really did not have an expectation of profit is that what you're focusing on there they're subject to be kitchens essentially subjective expectations this works the entire thing hinges on is it a five hundred thousand dollars minimum investment or is it a five hundred thousand dollars plus forty five dollars or fifty thousand dollars minimum investment and that's it because if you include  administrative or marketing fear however it's designated the required feet which is required in every single one of these as part and parcel of the invested amount in order to participate for any immigrant investor that amount makes it mathematically impossible i thought there was evidence that i thought there was evidence in this case that one at least one vester major where there was there was one so then it's not mathematically impossible and i just point that out he's mathematically unlikely but not impossible right in that instance for that one investor it is not mathematically impossible and we noted that as you know you were you know you disclosed it but up but then why is it mathematically impossible for all or just unlikely because they're going to pull out sooner it is mathematically impossible you cannot do it and there's money why why not what it shows why what if the venture becomes wildly successful as a matter their rate of return is limited over five years to an amount that makes it absolutely impossible mathematically to do any better and to actually make a profit above and beyond the five hundred dollars plus whatever that market so if the fee charge was lower this would be security you know if the fee charged if  position is that whether it's a security or not depends on the amount of administrative fee charged it can depend on that yes and it also can depend on the amount of interest absolutely ok so and you know if you're simple math shows you that over the five year duration of all of these you cannot possibly make a profit on all but the one that we footnoted so if i sell stock in a company to somebody that has no business and i and it's doomed to fail is that it's that's not a security because they couldn't possibly have made a profit you know because you don't have an absolute certainty of that isn't a mathematical impossible what if there's an absolute certainty there's absolute certainty i'm selling i'm selling stock in the air company you know give you the right to breathe the air you have sued certainty that no profit will be received because it's the stupidest idea in the world and maybe there's no liability because the misrepresentation is material but it's not a security it could be in that instance so therefore the fact that it can't possibly give a return i don't know what the subjective motivation of the investor is in that in that setting and that's why the five hundred thousand b the part that has the possibility of return in the context the normal context of a p p m that says your investment is five hundred and fifty thousand dollars and we're going to use fifty thousand dollars of it as marketing and administrative that's with my broker recommends a stock to me and i expect to make money on it he charges me so much in fees that as a practical matter i never would that's not a securities transaction it again it's you're talking about something that happens potentially by accident as opposed to something that is by design here by design you cannot make a profit that's the problem here and that's why we think it isn't a security you're giving a an example that might make money but there might be a tax reason you know the tax advantages are things that can also qualify as the profit piece there's no tax aspect to this at all there is no benefit at two parts of it one is the port to get you the green card the other part is that we invest in a company the investment a company is going to turn out to be profitless to you but you will get the green card and you're saying we should separate the transaction into those t says in a canadian analog to this be five system where you can't get a profit it is not a security they have that guidance out there i mean it's says the rd element of the how we test the investors expectation of profit again is not met by the facts which characterize the program the sole motivation of an individual participating in the program is to secure a favorable immigration status in canada and an immigrant investor who would participate in the program with the goal of maximizing his or her return on investment would effectively behaving in an economically irrational manner what is this case really about this is not a simple securities law enforcement case this case threatens the founding principles of this country free enterprise individual liberty and  limited government i'm speaking here not just for myself i'm speaking here for hundreds of solo immigration attorneys who have been investigated or accused by the i c c for being overseas immigration agencies are now you joining a monopoly over even a five advisory business without competition from us licensed attorneys now overseas clients do not know whether they can hire or i wonder when they will get it it is not a securities program it is an immigration program due to the promise of cheap and easy money there are hundreds of programs populated all across the not for the purpose of mixing my thing in their return as i said if they are looking for return they are not coming for the beef i program their battery investment elsewhere because of my bilingual skills it is to meaning for me to act i'm competing with hundreds of chinese immigration agencies in china i traveled and stayed in china for several months each year and aside haps three offices in beijing shanghai and and the and opened a bank account in hong kong before i set up a b c l i don't even have a bank account in china and that's why i have to use my relatives to receive the payments from the regional centers to cover our expenses overseas industry practice for even five program operators to pay and incentive the two dollars marketing agents earth air nice overseas immigration agencies who can bring overseas clients to them they start american regional centers they don't have access to overseas markets and even if i by definition have to get investors from overseas so that there is there is a need of a rd party service the payment of such marketing cost is always disclosed in the offering documents by this regional centers subjectively do not believe there is a conflict of interest the reason is i only received these feet if they are immigration application was approved so my interest is aligned with them i have to see like the past projects for nobody gets anything that's the industry practice this way or not they get a green card depend on anything having to do with how the investment works out good question i mean i understand your point on the conflict of interest issue that you are referring to the incentives you are incentives or those of your clients are aligned you both want the application is succeed so that the visit is forthcoming but this is a conflict of a different kind if you're apparently there is some variability in the administrative fee if your clients knew that you were going to receive substantial commissions once the application is successful they could say to you well why should we be pain all those administrative fees if you're going to be getting all of these commissions we understand there is some variability in we want those fees substantially reduced yeah and that may have to that might have to come out of your commission and it might result i think so just to finish the question is isn't there cost so that people know there are some as you know and those fees will be used for some marketing costs but they may not know who gets it what would troubles me about this case i don't know the answer to it is that you could have about and not the goal you could have said that you could have said i charge a legal fee and there's also some people over here that you can you can deal with and i say i might even charge you referral fee for going to them but instead normally finish but instead you sold a package in my question is why isn't that packages secure your honor actually some smart attorney better smarter than me they did this or that they told their clients ok i'm going to get some fees from the regional centers and you would agree to say thank you very much good morning hours man please the court i'm carried in go on behalf of the securities and exchange commission now before i address some of the specific questions that the panel had i think it would be helpful to just take a step back and explain why the commission is operating in this space and why we brought this case in particular so the e p five investment program was created by congress as an immigration program and an investment program the purpose is to bring foreign capital to the u s to create jobs now a few years after the program was created a judge her it's recognized the regional centers were created which permitted pooling of investor funds now that is when the commission's interest was triggered because when you have a capital formation scheme that permits pulling of passive investor funds to be managed by someone else that's the essence of the security so the program the results on our program wasn't much used until after the financial crisis in two thousand and seven there were eleven regional centers now there are eight hundred and eighty five regional centers and that makes sense because credit dried up in this became a newly attractive source of capital now u s c i asked police is immigration fraud in the program basically ensuring that the investors and the regional centers meet the programme requirements and then no one is lying to get into the country the commission on the other hand polices the financial fraud that occurs in the program which is generally by the sellers of these investments too and investors now mr funk was immigration attorney but he wasn't just acting as an attorney he was making agreements with the regional centers to allocate him specific spots in regional center offerings to sell to his clients and he wasn't disclosing his clients that the regional centers were paying him and many cases much more than they were paying him for a legal what if he had disclosed wouldn't he still be secure oh yes so that's not the non disclosure israel i mean this is not a fraud case to disclose the commissions so there are two we actually have two theories on our fraud violation there's a rule ten b five b a mission claimed that he should have disclosed these commissions to his clients and there's also requirement is not the same as or alliance requirement and so i think that's the distinction that could be because it's an omission that's sort of hard to rely on in a mission that's what i was thinking it's really an argument that if i had said this you wouldn't have done  correct but materiality in the context of an omission just means what the information that was a minute have changed the total mix of information on which investors were relying and that doesn't necessarily mean that the investors would have made a different decision if they had the information although here there is plenty of evidence on the record that investors would have wanted to know that he was receiving a commission and he himself acknowledges that they might that they would have wanted to  of whether you look at whether he's acting as a broker or a lawyer he would have been required to disclose that now this case sits right at the intersection of someone acting as a broker who has a fiduciary obligation that the court recognized in warranty so if you were clients can you address because i'm not sure i've focused on it before this canadian no action letter i'm not sure that anything you do administratively binds us anyway but i'm interested in it now so just a that the panel had initially the administrative fee is not part of the security in this case the security is the five hundred thousand dollars capital contribution and for every one of these investments there was a rate of return associated with it  before let's assume i go to a broker that charges me enormous fees and he gives me good investments that provide a seven percent rate of return but given the fees that he charges i can never make any money on it those investments s and there security is a broker fee has never been considered in any case to outweigh the return on investment that makes it count as a security those are two those are two separate things that might both be related to the transaction but the broker fees are not part of the security just like here the administrative fee is not part of the security and let me just if i security is the investment in the  just if i may explain sort of what's at stake if you permit the administrative fee to negate the fact that this is a security you're centrally allowing the investors by offering security this is a strange case in that respect normally we get cases where something is not labeled as security and you're arguing that it is this is a case in which something is sort of label acuity and the and the other side arguing that it isn't so that these the roles are sort of reversed exactly and that's why i think that it is important to look at the purpose of the securities laws this is a capital formation scheme created by congress one of the commission's core missions is to protect capital formation so it makes all of the sense in the world that we would be enforcing to the expectation of profit your position is simply an irrelevant factor if it should not be considered at all in deciding whether the a cooked expectation of profit factor in the how a test is met you only look at the placement memorandum which describes what i gather the the range of interest and is allowed over time that's what you focus on not the administr associated with those investments and the court held that those were securities despite the fact that in that case there was an administrative fee that outstripped the rate of return such that there was no gross expectation of profit but you know i would further submit to the court that how he doesn't require an expectation of proof of profit and if you look at the supreme court subsequent decision as you see edwards it makes it clear that gross profit is just one of the things that can be considered  profit under howie you also included or other periodic payments or a return which is what you have here was there any evidence that the that the investors actually received profits from their  investments your honor i believe it's not in the record but to the extent that the investors received you know what they had bargained for than they would have you mean the green card the green card and their money back profits to be derived from the efforts of others so here there's no question that all of the other elements are met these were limited partnership interest someone else was managing the money the money was pulled from passive investors the only suppose because the interest was depended on the success of the venture yes your honor is the venture fails then investors wouldn't have received their money back with interest which is what the commission cares about they also wouldn't have received their around and if you had somebody claiming that this extra administrative fee somehow wasn't a security because it wasn't part of what was invested the f c c would be jumping all over and saying of course it's a security you're elevating form over substance you can't make that argument with a straight face they're doing the same thing here it's just in reverse let me address some of the other issues be the broker issue obviously we don't think you should be held it to be a broker in this circumstance either because among other things as we pointed out you never had custody of client funds say for one or two there were a couple of instances that we footnoted where he had custody but this is not under a c c versus kramer  vs map the kind of a case where if those were the books that were followed that he would be found to have been acting as a broker counsel why not accept the fact that he has to register as a broker and carry on his business as he is what is so objectionable about having to meet those requirements but it well if for one he would have to pay a big fine and things like that retrospectively because of what happened here you know going forward if that's what we're supposed to do and that's the law then ok then that's what you do he probably because of his action wouldn't be able to be registered because of the collateral effects but if that's the clear obligation then fine argument is it's not clear and under the gray area which is this deliberately vague system well a couple of things here a couple of things there and magically you have to reregister as a broker and that's not enough to extent that he had intimations that he might have had to be to  practice in this area i mean that that individuals who may be skirting close to the requirements to register brokerage can seek guidance as to whether they should or should not do that they i suppose they can't and that goes to the declarations from the clients there are also deposition testimony that isn't a record that says that we care about him getting a commission or anything or whatever you want to call it we've heard about a green card so that should have been in any way but regardless even if you assume materiality which i don't think you should but even if you do you still have to look at his santer and as toward line no you know if you're familiar with the van as a case you are on that panel not all conflicts are material and even the alert the cases that and designed is coming from the company the enterprise as opposed to from your client even though they really were coming from your client why doesn't that give rise to an inference of  you're talking about fraud you're talking about a subjective mental state where he's trying to do or he's a hired gun from he's hiding from the clients who may or may not care but yes i mean from the clients that they're not really getting a rebate on their investment they're getting he's cutting these fees yeah  the analogy is i decide you know i run a store i decide that you know if somebody comes in i'd like to sell something to them at a discount for that person only does that mean that i don't have to tell everybody else that ever comes in that i don't know about it although look let's let's get allergies or are a lot of fun but the representation in this case is that you get back your investment plus interest right when somebody says i want my investment back and they're not going to get it all back because the company's repeating it was no it was the it was the company with and then where did the where did the source of funds come from the company did he take did he take a haircut on his fees to the company was no that was not disclosed what's that we grow over time these are private placement memorandum this case if you've ever seen a case with private placement memorandum where it wasn't designed to be a security the case of the securities exchange commission versus this or is submitted and this current will take a brief recess before we take up the next case