The investors are appealing a trial court decision that protects the law firm that prepared the private offering memorandum for their investment. They maintain the firm either knew of or should have known that the supposed investment in the southern California cancer treatment center was a scam.
54 Chinese nationals invested in the Pacific Proton EB-5 fund, which they were told would pay for the construction and operations of a southern California cancer treatment center. Instead, the regional center’s founder, Charles Liu, and his partner, Dr. John Thropay, misappropriated $21.1 million of the investor capital. The center was never built. The Securities and Exchange Commission (SEC) ordered that Liu and his wife pay back the investors’ money and also pay $8.2 million in penalties; the couple were also barred from ever working in EB-5 again. This decision was appealed but affirmed.
The investors sued both the law firm who filed their petitions, en masse, Wolfsdorf Rosenthal, and the firm that prepared the offering documents, Miller Mayer. The investors’ argued that each firm should have known the project was a scam.
The Superior Court of Los Angeles, however, released each firm from culpability because of the state’s Anti-Strategic Lawsuit Against Public Participation law that protects firms from litigation when submitting client applications.
The investors have affirmed the decision against Wolfsdorf Rosenthal and state: “There is nothing in plaintiffs’ pleadings or accompanying documents that ties Wolfsdorf to the wrongdoing alleged in the first amended complaint or demonstrates that the firm was aware of the scam.”
But the investors refuse to let Miller Mayer off the hook. They don’t agree that that firm is shielded from liability by their constitutional right of petition or free speech.
While they accept that Miller Mayer “advising Liu and submitting applications to the USCIS might be conditionally privileged, creating documents that an attorney believes will be used to commit a fraud and turning a blind eye to that fraud are not protected.”
Immigration law firm liability: what EB-5 investors need to know
Wolfsdorf Rosenthal, exonerated from any liability, celebrates that decision as a protection of their right to petition for their clients. And the firm’s attorney in this case, Valerie A. Moore, offers some additional words that should be heeded by EB-5 investors everywhere: “[The decision] affirms that immigration attorneys are not guarantors of an EB-5 investment or the success of an underlying EB-5 project.”
Future EB-5 investors would be wise to understand this fundamental principle that they cannot rely on their immigration attorney when choosing an investment —due diligence is necessary but not the responsibility or expertise of immigration lawyers.