EB-5 Investors Try To Keep Mortgage Holder In $50M Suit

A group of foreign nationals seeking EB-5 visas who allege they were fraudulently duped into investing $50 million in a botched Palm Beach real estate project asked a Florida federal court on Friday to deny a hotel mortgage holder’s bid to escape the case, saying the holder made the fraud possible. 

The investors asked the court to throw out a motion to dismiss by KK-PB Financial LLC, which holds a $27.4 million mortgage on the Palm House Hotel LLP, claiming that KK-PB provided the hotel property where the purported project was to take place and that it kept its financial interest in the mortgage secret and out of public records as part of the fraud scheme.

“Innocent foreign investors performed their due diligence into the property and concluded that all the representations regarding adequate security for the investment appeared to be true,” the investors said. “Then, after almost all of the investors had done their due diligence and wired their investment funds, seven months later KK-PB recorded its $27,468,750 mortgage, wiping out whatever security existed in the property.”

KK-PB Financial’s Jan. 6 motion to dismiss said the immigrants from China and Iran failed to explain how the entity had direct contractual obligations to them and why it should be implicated, saying it doesn’t belong as one of the defendants in the suit.

The investors in their Friday opposition to KK-PB’s motion to dismiss alleged that while KK-PB allowed its property to be used in the criminal enterprise, KK-PB collected supposed mortgage payments on its secret mortgage “which were none other than funds stolen from the plaintiffs that it helped to induce into the purported investment.”

KK-PB took tens if not hundreds of thousands of dollars of the investors’ money that was supposed to sit in an escrow account until it could be used to create jobs in accordance with the EB-5 visa program, the investors said.

“Meanwhile, KK-PB is now in the process of formally taking its property back, and a foreclosure trial is scheduled for April 2017,” they said. “At no point in time has KK-PB offered to return these stolen funds it received unlawfully, causing plaintiffs to sue for their return.”

More than 50 Chinese nationals and five citizens of Iran filed the suit in November, claiming they were duped by Joseph Walsh, a general partner of Palm House Hotel LLP and owner of the South Atlantic Regional Center LLC, who they say was the “criminal mastermind” behind the conspiracy and the organizer of all the players in the scheme.

Specifically, they allege that Walsh and his accomplices lied to get them to each invest $500,000, plus a $40,000 “administrative fee,” into the purported Palm House real estate project, which they say is nothing more than a facade under which their money was stolen and distributed among the conspirators.

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, they say their money was improperly transferred to other accounts and pillaged by Walsh and his co-conspirators.

KK-PB in its motion to dismiss said the investors lumped them together with the other alleged “bad actors” — which include three law firms, a marketing firm and other development groups — without a specific explanation of how the mortgage-holder’s actions in connection with the supposed scheme were illicit.

Three of those companies — Palm House Hotel LLLP, South Atlantic Regional Center LLC and USREDA LLC — argued in their own motion to dismiss on Jan. 13 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.

A representative for KK-PB Financial declined to comment on Monday. Counsel for the investors did not respond immediately to a request for comment.

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

KK-PB Financial is represented by Larry A. Zink of Zink Zink & Zink Co. LPA.

Palm House Hotel, South Atlantic Regional Center and USREDA are represented by Henry B. Handler and David K. Friedman of Weiss Handler & Cornwell PA.

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.

https://www.law360.com/florida/articles/883545/eb-5-investors-try-to-keep-mortgage-holder-in-50m-suit

Mentions

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

Litigation Cases

• Chinese investors vs South Atlantic Regional Center (SARC) & United States Regional Economic Development Authority (USREDA) & Joseph J. Walsh & Kevin Wright & Herischi & Associates & David Derrico & Ali Herischi

States

• Florida