EB-5 Visa Investor Lawsuit Alleges Fraud & Deceit in New Orleans Regional Center Investments

Source : EB5News as of 18th April, 2012.

Tim Milbrath (near poster on left) and William Hungerford (middle right) working it hard in the Big Easy

A lawsuit alleging fraud and misconduct brought forth by 27 EB-5 visa immigrant investors against New Orleans Regional Center operators William Hungerford and Tim Milbrath is seeking an immediate accounting of the whereabouts of their investments as well as relief and answers to their questions concerning the status of their residency in the United States.  As first reported by Greenberg Traurig attorney Kate Kalymkov, the suit alleges the following:

• Plaintiffs bring this action on behalf of the Fund, a limited partnership, by way of derivative action for the benefit of the Fund against the defendants identified herein for gross mismanagement, breach of fiduciary duty, intentional interference with contract, conversion of Fund assets, and unjust enrichment.

• Upon information and belief, Hungerford and Milbrath formed NobleReach-NOLA and the entities through which Hungerford and Milbrath own, operate, and control NobleReach-NOLA for the sole purpose of creating a vehicle through which to perpetrate fraudulent schemes to divert Fund assets and convert such assets for their own ultimate personal benefit.

• Upon information and belief, NobleReach-NOLA has no legitimate and/or independent business activities outside of its involvement in the fraudulent schemes of Hungerford and Milbrath to divert Fund assets.

• Upon information and belief, NobleOutReach Original Partners LLC is a sham company formed by Hungerford and Milbrath solely for the purpose of serving as a vehicle to convert money from the Fund and funnel it to Hungerford and Milbrath for their own ultimate personal benefit.

• In addition to failing to provide accurate, non-misleading financial statements and other information that would have demonstrated that they were, in fact, converting the Fund?s money for their ultimate personal benefit, Hungerford and Milbrath otherwise intentionally misled Plaintiffs regarding the profitability and viability of the Fund?s projects.

Among a litany of misconduct, Noble-RealEstate-GP, through the actions of Hungerford and Milbrath, acting in concert and collusion with each other and entities that they control:

• diverted at least $6 million of Fund monies to themselves for excessive and unwarranted ?consulting services;?
• diverted approximately $3 million of Fund monies that were specifically dedicated and reserved for investment in job-creating enterprises to pay excessive and unwarranted operating expenses of the New Orleans Regional Center?s operations, including financing the purchase of real estate in Maryland that benefitted Hungerford and Milbrath;
• grossly mismanaged the construction of certain projects situated in New Orleans;
• grossly mismanaged the Fund?s investments by causing the Fund to pay
  exorbitant fees for minority ownership interests in sham companies formed, owned and controlled by Hungerford and Milbrath that do not generate any revenues or provide any legitimate services;
• breached fiduciary duties owed to the Fund; and
• unjustly enriched Hungerford and Milbrath to the detriment of the Fund.

Also:

1. The principals of Noble-RealEstate-GP are Hungerford and Milbrath, the same individuals who have conducted the bad acts alleged herein resulting in the depletion of the Fund?s assets.
2. The alleged transactions at issue were not products of any valid exercise of business judgment.
3. To the contrary, the alleged transactions were part of a scheme orchestrated by Hungerford and Milbrath to defraud the Fund by diverting its assets into sham companies and ultimately converting Fund monies for their own ultimate personal benefit.

The investors are mostly from China (over half) but the rest do come from all over the world: UK, Jamaica, Iraq, Singapore, New Zealand, Iran, Turkey, Saudi Arabia & Korea. 

The defendants are homegrown and have long, distinguished bios:

The resumes of both Bart and Col. Tim must have been extremely impressive and may have been one of the factors in placing all of their faith into the Noble enterprises without conducting much, if any, due diligence on the actual operational activities of the investments. 

This promotional video produced by NobleOutReach emphasizes the Katrina disaster and the purpose of the funds tohelp rebuild New Orleans (hence the name Noble Outreach as was explained to me in 2007 by Tim and Bart in a meeting we had in Washington DC). "After Hurricane Katrina, the worst natural disaster in U.S. history, struck the region on Aug. 29, 2005?flooding 80 percent of the city, dispersing the city?s 450,000 inhabitants and causing more than a billion dollars in damages to residential property in Orleans Parish alone?the two men shifted their focus to New Orleans and the U.S. Gulf Coast."

According to this news story, the objective of the Noble fund was  ?...unique in that they would come into a venture fund. It?s a typical mutual fund where investors pool their dollars. Normally, they?d invest directly in a project, and if it?s successful, that?s great. We?ve set up the venture fund to allow investment to be pooled with U.S. investment, and the businesses that are created from within that fund produce the jobs.?

"'We?re giving these people an option,' explained Milbrath, a retired Air Force colonel who was chief of staff of the White House Military Office during three presidential administrations and worked in the United Arab Emirates before joining NobleOutReach. 'You can live in Moscow, for example, and still invest in the New Orleans recovery effort. The city was totally devastated, so this is a good time to get in there and share in the profits. This is not a charity. We?re going in with private equity.'

?'Our objective is to market internationally and get the word out. Then, once those investors have been identified, we would bring them into an LLC' Hungerford told The Washington Diplomat in a lengthy interview last month.  The advantage of being in a fund-based investment was explained: "The fund pools investment dollars and allows the partners to diversify their investment risk, collectively share financial rewards, and, where required for EB-5 immigrant investors, benefit from the job creation and economic benefits of the entire portfolio of investments.

Describing his relationship with the City of New Orleans and how they would be compensated, "Hungerford and Milbrath could also make a sizable amount of money for themselves, too."

?When the immigrant makes his $500,000 investment, there?s a service fee of 12 percent, which we collect to cover our marketing and travel costs,? Milbrath explained. ?We don?t pay New Orleans, and the city doesn?t pay us. We collect it directly from the investor, because the city cannot be in a conflict of interest with the investor. That?s why they need a private company like us.?

And an interesting footnote: Added Milbrath: ?The government takes great pains to make sure this program works. Each state has specific securities laws that have to be complied with.?

A web of Deceit?

Among other claims, the EB-5 visa investor lawsuit claims the following:

• Hungerford and Milbrath carried out a scheme to defraud the Fund by diverting the monies invested with the Fund by these investors into separate corporate entities that Hungerford and Milbrath ultimately control.

• Hungerford and Milbrath set-up a complex web of companies to aid and abet them in their scheme to defraud the Fund, including over thirty (30) separate corporate entities formed under the laws of Louisiana, Maryland, and Delaware.

• The fraudulent scheme of Hungerford and Milbrath consisted of systematically misappropriating and/or converting Fund assets by diverting investment money in the Fund to themselves and/or entities that they control.

• Hungerford and Milbrath, with the assistance of others, formed over thirty (30) limited liability companies organized under the laws of three different states, namely, Louisiana, Maryland, and Delaware, between 2008 through 2010. These limited liability companies are named Defendants in this action and the nature in which Hungerford and Milbrath used these entities to carry out their fraudulent scheme is described in detail herein below.

• These are exhibits describing how the funds were moved from one entity to another in what the attorneys for the plaintiffs claim was an effort to cover-up the deceit and fraud

• The web of companies created by Hungerford and Milbrath was devised such that the Fund (and ultimately, the Plaintiffs) contributed all or nearly all of the financing for various enterprises and projects that Defendants Hungerford and Milbrath received the majority of ownership interests with virtually no capital contributions to the new entities. A chart depicting the complex organizational structure of the Fund?s investments is attached hereto as Exhibit ?E?.

• Hungerford and Milbrath never disclosed to Plaintiffs that the Fund?s investments would be structured in such a complicated and non-transparent manner.

• Hungerford and Milbrath who contributed little or no money for the capital needs of the foregoing entities or projects acquired majority ownership interests in the foregoing entities and projects through the web of companies that they formed.

• Hungerford and Milbrath purposefully and knowingly concealed and suppressed the truth about their ultimate ownership interests in and control of the companies and projects to which they caused the Fund to direct Plaintiffs? investments in order to mislead Plaintiffs as to the disposition of those funds and to conceal these Defendants? scheme.

What happened?

It remains to be seen what the truth is behind the alleged fraud, but it should provide a cautionary tale to not only investors who simply believe the claims being made by the promoters, but, more importantly, by those investors' attorneys and advisors. 

NOBLE was a frequent fixture at EB-5 conferences handing out Mardi Gras beads and large checks.  Their $40,000 - $60,000 finders fees paid to attorneys and others was at the time the highest in the program.  Many immigration attorneys took Bart and Tim up on their offer and now their clients are probably wondering who was keeping an eye out for their interests. 

List of fees and expenses as outlined in the Noble PPM

In this quote from the Washington Post's piece Foreigners Invest Greenbacks in Return for Green Cards, Martin Scherer and Pamela Dance, Britons who live in Sarasota, FL, are in the process of investing in Noble Outreach's fund. For seven years, the couple, who own properties in Britain and Florida, had to leave the United States every three months to renew their temporary visitor visas.

They hope their investment will allow them to travel between Britain and the United States more freely. But beyond the promise of a green card, they also see an upside in their investment. "We have the chance to invest in New Orleans on the ground floor," Scherer said. "It could be a chance of a lifetime."

Now what? The Plaintiffs' Immigration Status

The suit alleges that the first I-829 was filed around May 2010 on behalf of Terrence Sumpter and that USCIS responded with a Request for Evidence (RFE) on May 2011. The agency "requested additional information regarding the status of construction of the Fund?s Value Place hotel project in order to verify that the job-creation requirement was met," to which Hungerford and Milbrath responded.  No further notice on the response was reported by the plaintiffs.

The suit brings up the following points:

• The ability of all Plaintiffs to complete the foregoing process and receive permanent residency in the United States is now in serious jeopardy as a result of the gross mismanagement and conversion of Fund assets by defendants Hungerford and Milbrath.

• Specifically, if an immigrant investor does not file his or her I-829 Petition before the 2-year conditional residency period expires, the immigrant investor?s conditional residency is automatically terminated and the individual is barred from seeking permanent residency under the EB-5 Immigrant Investor Visa Program.

• Seventeen (17) of the named Plaintiffs still need to file their I-829 Petitions.

• For example, the following identified Plaintiffs, among others, must submit their I-829 Petitions on or before the corresponding date or they will face deportation proceedings: (1) Tianyi Liu ? I-829 Petition due on or before June 17, 2012; (2) Shuangmei Ge ? I-829 Petition due on or before August 5, 2012; (3) Wenjie Zhan ? I-829 Petition due on or before September 29, 2012; and (4) Xiao Tong Zhang ? I-829 Petition due on or before November 2012.

• In order to complete and submit their I-829 Petitions in a timely fashion, Plaintiffs will require, among other things, access to information currently in the defendants? possession.

• Unless Plaintiffs are granted access to information in defendants? possession and control, it is likely that Plaintiffs will not be able to complete their I-829 Petitions and/or USCIS will ultimately reject such petitions.

• If USCIS denies any of Plaintiffs? I-829 Petitions, such Plaintiffs will become deportable, and thus forced to return to their country of origin.

• Alternatively, such Plaintiffs will have the option of investing an additional $500,000 or $1,000,000 (depending on area of investment enterprise) in a different investment enterprise and filing a new I-526 petition and re-immigrating.

• Significantly, any children who turned 21 after their parents? original I-526 Petition filings would not be able to avail themselves of the option of re-immigrating based on their parents? new investment.

This is only one side of the story and we have invited Tim and Bart to give us their account to present a balanced portrayal from their perspective.

Sources and further reading:

docs/New-Orleans-Complaint1.pdf

docs/MOU NOLA Noble.pdf

docs/Noble LPA.pdf

docs/dhs_approval_letter.pdf

docs/nor_brochure(1).pdf

docs/Web of Companies.pdf

Litigation Cases

• TERENCE SUMPTER, et al. vs City of New Orleans Regional Center-NobleOutReach & NobleOutReach, LLC

States

• Louisiana