Prolific EB-5 investment broker Nicholas Mastroianni II is accused of duping 78 Chinese investors into putting up $99.5 million for a mixed-use development in Jupiter under false promises their loans would be secured.
The money directed to Mastroianni went into the completed Harbourside Place on the northwest corner of U.S. Highway 1 and Indiantown Road along the Intracoastal Waterway.
He structured the deal so he wouldn't have to repay the investors in case of default, foreclosure or if the project wasn't profitable enough, the attorney for the Chinese investors said.
"The point is to get the money for free," said Jeffrey Schneider, a founding partner of Levine Kellogg Lehman Schneider + Grossman in Miami. "His objective was to get $99.5 million and, if the project is fabulously successful and he can pay back some of it or all of it, terrific, then I am sure he would pay it back. But if not, he positioned this thing so he could then wipe out the $99.5 million and not pay them back at all."
The investors on Thursday sued Mastroianni, New York attorney Richard Yellen, Palm Beach County attorney R. Bowen Gillespie, Mastroianni's Jupiter-based regional EB-5 center U.S. Immigration Fund LLC, another EB-5 regional center run by Mastroianni and Yellen, Mastroianni's development company Allied Capital and Development of South Florida LLC, site owner Harbourside Place LLC and the Harbourside limited partnership with shares distributed to Chinese investors.
Mastroianni didn't return a request for comment by the deadline at his U.S. Immigration Fund and Allied Capital and Development.
Yellen's law firm Richard L. Yellen & Associates declined comment.
A man named Gillespie who answered at law firm Gillespie & Allison in Boca Raton said he isn't the right Gillespie and declined comment. Schneider said it was the same Gillespie named in the complaint.
Mastroianni and Yellen started soliciting EB-5 investments into Harbourside in 2010. Mastroianni told investors his goal was to secure $100 million from 200 investors, but if he fell short, he would secure a senior loan. The amount would be limited so the total financing wouldn't exceed $110 million. However, the Palm Beach Circuit Court lawsuit claims the loan would trump the investors' priority position in case of default, and Mastroianni intentionally failed to meet his goal by falling one investor short.
"It is inconceivable to me that he was unable to find another investor to invest in this project. Inconceivable," Schneider said. "He stopped at $99.5 million on purpose so he can bring in another lender to be the first secured lender on the project."
Instead of taking out a $10.5 million loan to complement the EB-5 investors' financing, Mastroianni took out an $18 million line of credit, and the senior loan grew through more financial maneuvering to $60 million, according to the complaint. That senior loan then was assigned to a Mastroianni affiliate. Schneider said the details of that relationship remain unclear.
Mastroianni made himself the EB-5 investment conduit, developer, borrower, and lender to cut out oversight over the EB-5 money.
"The way this story is going to end is either through a foreclosure or bankruptcy. That is unfortunately the way this is going to end. In either, the objective is going to be to wipe out the EB-5 investor," Schneider said. "This was a fraud from the very beginning."
Harbourside Place has nine restaurants, more than 13 shops and boutiques, the Wyndham Grand Jupiter Hotel, and a waterfront amphitheater.
This is at least the fourth EB-5 fraud case involving South Florida real estate that has been filed in recent months.