The SEC alleges Path America CEO Lobsang Dargey raised at least $125 million from would-be immigrant investors in a federal visa program and siphoned off $17.6 million for his own use, including buying a home in Bellevue.
Federal securities regulators have asked a federal judge to appoint a receiver over Everett-based Path America, citing “extensive misuse of investor funds,” according to a filing this week in federal court.
The Securities and Exchange Commission (SEC) said the court needs to take control of Path America to protect investors and ensure the firm’s “remaining assets are not dissipated” or lose value as a lawsuit against Path America’s CEO, Lobsang Dargey, and the firm continues.
U.S. District Judge James Robart could rule on the SEC’s request Oct. 9.
The receivership, if approved, would affect Path America properties across the region, including Everett, Kirkland, Shoreline and Seattle. A receiver would be free to manage the day-to-day operations of the business without seeking court approval for routine transactions.
The SEC has asked the court to appoint Michael Grassmueck, of Tigard, Ore., as receiver. Grassmueck has served as a receiver in other SEC cases, including one against Sunwest Management involving hundreds of skilled-nursing facilities across the nation.
Last month the SEC filed a civil fraud lawsuit against Dargey and Path America, alleging he raised at least $125 million from would-be immigrant investors in a federal visa program and siphoned off $17.6 million for his own use, including buying a home in Bellevue.
More than 250 Chinese nationals invested in Path America projects in Everett and Seattle, hoping to get permanent U.S. residency under a visa known as EB-5.
The same day the SEC filed its lawsuit, the Federal Bureau of Investigation executed a search warrant on Path America’s offices, according to court records.
After the SEC filed suit, Robart froze Dargey’s assets as well as those of Path America. The asset freeze has temporarily halted construction of Potala Tower, Path America’s hotel-and-residential tower project in downtown Seattle, and could jeopardize another planned project in Seattle’s Rainier Valley.
The asset freeze on business accounts must be lifted, attorneys for Dargey and Path America said in a response this week. The inability to disburse cash is delaying Path America’s real-estate projects, which in turn jeopardizes the visas of Chinese nationals who invested in them, Dargey’s attorneys said.
“These projects are real. This is definitively not a Ponzi scheme, and it is not alleged to be,” the attorneys wrote.
The SEC’s allegation that Dargey made cash withdrawals totaling $350,000, including more than $200,000 at 14 different casinos across the West, unfairly paints Dargey as a gambling addict and a spendthrift, his attorneys said.
“Chinese EB-5 agents and investors would be surprised at the SEC’s suggestion because Path America provides flight, lodging, meals, gifts and entertainment when they visit Path America projects, consistent with Chinese cultural customs and expectations.”
It’s true that Dargey used money from investors to build a new home and to buy commercial property in Shoreline and Kirkland, his attorneys said.
But Dargey is entitled to developer fees for his EB-5 projects, his attorneys said, and he borrowed money from the investor funds to buy the commercial properties — loans Dargey is working to repay in full immediately with interest.
“If the SEC’s argument is that no developer’s fees were to be paid, that argument is simply implausible,” Dargey’s attorneys stated. The SEC “offers no explanation why EB-5 investors would not expect to pay customary developer fees for their passive EB-5 investments here.”
To provide an accounting of funds to the court, Path America hired Navigant Consulting at a retainer of $150,000.
In seeking a receivership, the SEC said Path America said internal bookkeeping records now show Dargey charged as “developer fees” personal credit-card purchases at Bloomingdales, Neiman Marcus, Nordstrom and Whole Foods. There’s even a $14,000 credit-card charge in January 2013 from Tourneau, a luxury-watch retailer.
The SEC also says it found that Path America’s balance sheet lists a $15.8 million loan to Dargey.
“There appears to be no one associated with the entity defendants who can assure that assets are used in the best interests of investors,” the agency alleged in court.
The SEC says Path America’s offering document to investors clearly stated that no investor funds would be used for developer fees, and that they would be used strictly for specific projects in Everett and Seattle.
“Defendants’ misappropriation has imposed serious risks to the viability and profitability of the projects, and it has also jeopardized the investors’ opportunity for obtaining United States residency,” the SEC said in the filing.
- UNITED STATES SECURITIES AND EXCHANGE COMMISSION
- Potala Tower Seattle
- Lobsang Dargey
- Path America
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