YING LIU, HUI LUO, WEI QIANG, LINYU WANG, YIREN SUN, WENBIN XU, TAO XUE, and XIAOYAN ZENG vs ADC Downey, LP and ADC Downey GP, LLC

Filing Date:November 20, 2018

Case:Yicong Gan, et al. Vs. ADC Downey, LP and ADC Downey GP, LLC

Jurisdiction:Federal District Court for the Central District of California

Status:Pending

Civil / Criminal:Civil

Breach of Contract

Plaintiffs are nine Chinese foreign investors who participated in the U.S. Government’s EB-5 investor immigration program (“EB-5 Program”) to obtain lawful permanent resident status in the United States, i.e., a green card. Under the EB-5 Program, an investor is entitled to receive a green card if he or she invests $500,000 into a project in the United States and his or her investment is used to create at least 10 jobs for the U.S. economy.

The EB-5 Program has created tens of thousands of jobs for the U.S. economy but it has also seen a fair share of abuse and fraud by the businesses making use of EB-5 capital. The risks of such abuse are heightened since the investors typically are overseas, speak little or no English, and often are unable given the distance involved of meaningfully protecting their own interests from overreaching managers. 

3. This case presents a textbook example of EB-5 fraud. 

4. The Partnership is an investment vehicle created by the General Partner to solicit funds from EB-5 investors. Plaintiffs each subscribed to become investors in the Partnership by signing a Subscription Agreement and paying a subscription price of $555,000 to Defendants.

5. In soliciting investments from Plaintiffs, Defendants omitted a critical EB-5 visa backlog issue, known as “retrogression,” which creates a substantial delay of 10 years or more for investors from China to get a green card. 

6. Defendants were fully aware when they solicited investments from Plaintiffs in 2014 and 2015 that Plaintiffs’ capital would need to be reinvested into a different project beyond the term of the Partnership’s initial investment.

7. Rather than disclose the substantial delay for getting a green card and the certainty of reinvestment, Defendants misled Plaintiffs into believing that their EB-5 investment was simply a 6 to 8-year term loan made by the Partnership to finance a mixed-use shopping center at Downey, California (“Downey Project”). Defendants misled Plaintiffs into believing they would get their investments back and receive their green cards when the initial investment loan by the Partnership was repaid. 

8. Defendants also failed to disclose the possibility, since realized, that if the loan was repaid early, Plaintiffs would be required to reinvest their capital into another risky investment project even after the Partnership’s initial investment has created sufficient jobs to satisfy the EB-5 requirement for getting a green card. 

9. Plaintiffs were not told until September 2018 that they would need to reinvest their capital into an investment project other than the Downey Project to preserve their EB-5 immigration applications.

10. Compounding this bait-and-switch scheme, Defendants recently told Plaintiffs and the other investors that they have no right to oppose Defendants’ unilateral decision to reinvest their capital in a transaction in which Defendants are self-interested and conflicted, even though Plaintiffs have decided to forgo their EB-5 immigration applications and seek a return of their investments.

11. Had Defendants provided truthful and non-misleading information about the investment term, the retrogression delay, and the expected need to reinvest the Partnership capital into a different project, Plaintiffs would not have signed the Subscription Agreement and paid the subscription price of $555,000. 

12. For these reasons, as elaborated below, Plaintiffs seek judicial relief from the fraudulent and overreaching actions of Defendants.