Palm Beach Companies Urge Court To Toss $50M EB-5 Suit

Three companies behind a botched Palm Beach real estate project urged a Florida federal court on Friday to toss a suit brought by foreign nationals who allege they were fraudulently duped into investing $50 million into the project in the hopes of gaining U.S. residency, saying the investors were aware of the project’s risks when they signed up. 

The companies — Palm House Hotel LLLP, South Atlantic Regional Center LLC and USREDA LLC — argued in a motion to dismiss filed Friday that the investors signed multiple agreements that explicitly outlined the risks associated with the project, so they shouldn't be allowed to move forward with their claims.

“Distilled to its essence, plaintiffs’ suit essentially seeks a refund of the investments they made in a limited partnership in the face of numerous and explicit disclosures of the very risks about which they now complain,” the hotel said.

More than 50 Chinese nationals and five citizens of Iran filed the suit in November alleging 28 counts against 33 defendants, including the Palm Beach immigration center South Atlantic Regional Center and United States Regional Economic Development Authority, which the suit says acted as a law firm hired to provide legal immigration services to the Chinese immigrants.

The suit claimed Joseph Walsh, a general partner of Palm House Hotel and owner of the South Atlantic Regional Center, and his accomplices coerced the foreign nationals into investing $500,000 each, plus a $40,000 “administrative fee,” into the purported “Palm House” real estate project.

Their funds were supposed to be held in escrow until the U.S. government approved their I-526 petitions for the EB-5 visa program, which provides green cards to foreign residents who invest significant money in a U.S. business and create jobs for American workers. But instead, the suit alleged their money was improperly transferred to other accounts and pillaged by Walsh and his co-conspirators.

The investors claim Walsh and his fellow conspirators stole their money and used it to purchase multiple private homes and investment properties, a $6 million yacht, luxury cars and vacations and to pay off millions of dollars of personal debt.

On Friday, Palm House Hotel, South Atlantic Regional Center and USREDA urged the court to toss the suit, arguing that Palm House Hotel had already filed multiple lawsuits against the responsible parties seeking to recover loans that were misappropriated and those suits are currently pending in Florida State Circuit Court.

Additionally, the companies argued that many of the investors’ claims are “flatly contradicted” by either the escrow agreements or subscription agreements the investors signed when they made their investments. The plaintiffs’ additional common law fraud claims aren’t sufficiently pled, because the plaintiffs fail to differentiate the fraudulent conduct by each defendant, the companies said.

The companies also argued that the investors’ securities fraud claims fail because the investments in question do not involve “securities” as defined by state and federal securities laws. If the primary motivating factor for the investment is something other than direct economic profit, then the transaction is not a security, the companies argued. In this case, the plaintiffs were seeking residency, and not purely economic profit, so their investments weren’t securities, the companies said.

Earlier this month, named-defendant KK-PB Financial LLC, which holds a $27.4 million mortgage on the Palm House Hotel, urged the court to dismiss it from the suit, arguing that the plaintiffs failed to explain how it had direct contractual obligations to them and why it should be implicated.

Counsel for the investors declined to comment Tuesday.

Counsel for South Atlantic Regional Center, USREDA and Palm House Hotel did not respond Tuesday to requests for comment.

The investors are represented by Devin Sean Radkay, Gerard Joseph Curley Jr. and Keith E. Sonderling of Gunster.

South Atlantic Regional Center, USREDA and Palm House Hotel are represented by Henry B. Handler and David K. Friedman of Weiss Handler & Cornwell PA. KK-PB is represented by Larry Allen Zink of Zink Zink & Zink Co LPA.

The case is Li et al. v. Walsh et al., case number 9:16-cv-81871, in the U.S. District Court of the Southern District of Florida.

--Additional reporting by Kelcee Griffis and Kelly Knaub. Editing by Jack Karp.

https://www.law360.com/securities/articles/881308/palm-beach-companies-urge-court-to-toss-50m-eb-5-suit

Mentions

• South Atlantic Regional Center (SARC)
• Palm House Hotel
• United States Regional Economic Development Authority (USREDA)

States

• Florida