Foreign investors sue over stalled Short Vine development

Chinese investors who contributed to a stalled Short Vine development project in Corryville as part of a federal program to gain residency are suing the developers, claiming their money was mishandled.

A group of 10 Chinese nationals is suing the Midwest EB5 Regional Center, its former principals and the landowner and developer of the project in the 2600 block of Short Vine. The lawsuit claims the defendants misspent $5 million of the investors' money. The suit was filed in the U.S. District Court Southern District of Ohio.

Neither attorneys for the investors filing the suit nor the defendants could be reached for comment.

The investments were made as part of the federal government's EB5 program, administered by U.S. Citizenship and Immigration Services, which gives foreigners and their families a fast-track to permanent residency if they invest at least $500,000 in a venture that creates 10 or more jobs.

The suit claims the fund the plaintiffs invested in and the developers misused the money, spent it on projects it wasn't intended for and used investors' cash to make themselves rich. On top of that, it claims that the investors were either denied their applications for conditional residency in the U.S., or had approved applications later revoked.

The lawsuit asks the court to find the developers guilty of breach of contract, unjust enrichment, gross negligence, breach of fiduciary duty, fraud, conversion and compensatory damages in excess of the $5 million invested as well as punitive damages of at least $15 million.

Some background: According to the lawsuit, each of the 10 Chinese plaintiffs invested $500,000 apiece and a $45,000 administration fee into the KRC Fund I for the purposes of investing that money into redeveloping the block into restaurants, retail space and offices.

According to the lawsuit, the Kentucky Regional Center – the parent company of the Midwest EB5 Regional Center – was the general partner in the fund, and Gary and Terry Chan were principals in the Kentucky Regional Center.

According to suit, the Kentucky Regional Center loaned the invested money to SV ARX, a company owned by Martin Angiulli, to purchase land also owned by Angiulli for redevelopment. A motion to dismiss filed by Angiulli states that Angiulli hired Jeffrey Jacobs to be the development's project manager.

The Kentucky Regional Center, Midwest EB5 Regional Center, the Chans, Angiulli, Jacobs, SV ARX and Angiulli Inc. – the company that owned the land on Short Vine that was to be redeveloped – have all been named defendants in the lawsuit.

According to Angiulli's motion to dismiss, in 2012, the Chans allegedly stopped loaning money to SV ARX for the development. According to that motion, and the Chinese plaintiffs' lawsuit, Angiulli sued the Chans and ultimately purchased the Kentucky Regional Center from the Chans using a company called Dante Bella. Dante Bella is also named as a defendant in the Chinese plaintiffs' lawsuit.

The Chinese plaintiffs' lawsuit claims that the Chans visited China in 2010 and 2011 to solicit investment through the EB5 program for the Short Vine development. The suit claims the Chans told the potential investors, including the 10 plaintiffs, that the state of Ohio guaranteed that if the project failed, the state would refund their money. According to the lawsuit, the investors were also told that their money would be held in escrow until the investors' applications for conditional residency under the EB5 program were approved.

The suit claims that the so-called guarantee from the state of Ohio was actually just a proposed bill that never became law and the Chans began spending the investors' money right away rather than waiting for the approval of the residency applications.

According to the lawsuit, the investors' money was all spent by 2012 and there was little to no progress on the development project to show for it. The suit claims the Kentucky Regional Center and Midwest EB5 Regional center lost its designation as a regional center in the EB5 program in 2015 and the investors – nine of whom had been approved for conditional residency in the U.S. – lost their approval to conditionally immigrate to the country.

The Chans' own motion to dismiss the lawsuit claims that the investors signed an agreement with KRC Fund I and not the Chans themselves, so the Chans shouldn't be held individually responsible for the agreement with the fund. Additionally, the Chans claim in their motion that the investors signed a private placement memorandum in order to invest in the fund that stated that the memorandum and its clauses were the only thing investors should rely on when making the investment, not any representations made beforehand, and that no warranty existed on their investment.

Angiulli's motion to dismiss claims he has no contractual relationship to the investors as his companies did not sign any contract with him and were only the recipient of loans from the Kentucky Regional Center and the Midwest EB5 Regional Center that were to be used for the development.

Angiulli and his companies and Jacobs on Feb. 1 have motioned to stay the proceedings against them, a motion that was joined by the Chans on Feb. 2. The lawsuit is before Judge Sandra Beckwith.

http://www.bizjournals.com/cincinnati/news/2016/02/03/foreign-investors-sue-over-stalled-short-vine.html

Mentions

• Midwest EB-5 Regional Center
• U.S. Citizenship and Immigration Services

Litigation Cases

• Chinese investors vs Midwest EB-5 Regional Center

States

• Ohio