FBI investigating Everett developer accused of defrauding investors

The FBI is working with federal civil authorities to investigate an Everett developer accused of defrauding foreign investors by diverting millions of dollars for his own use, court papers show.

FBI agents on Aug. 24 served a search warrant at Lobsang Dargey's business offices, according to documents filed Tuesday in U.S. District Court in Seattle.

The FBI's visit came the same day the U.S. Securities and Exchange Commission filed a federal civil lawsuit, alleging Dargey misused $17.6 million of investor money to buy a new house in Bellevue and bankroll two apartment buildings.

The new court pleadings say the FBI has since supplied securities regulators with business documents seized from Dargey. Among other things, the paperwork shows him taking a $15.8 million loan from money put up by investors. Investor funds also paid “for such extravagances as the $212,237.29 purchase of a Bentley” luxury automobile, government attorneys allege.

The record is clear that Dargey and his companies have engaged in “rampant misuse and misappropriation of investor funds,” wrote Bernard B. Smyth, the SEC's senior counsel at its regional office in San Francisco.

The court documents referencing the FBI's involvement in the case are the first public acknowledgement that Dargey, 41, also is getting attention from federal criminal investigators. He's the CEO of Path America and the force behind several projects around Everett, notably a downtown hotel and Potala Place and Farmer's Market, an apartment building with ground floor retail space.

The federal lawsuit brought with it a court order that has frozen assets for companies Dargey operates. That stopped work on his biggest project, the 40-story Potala Tower skyscraper in downtown Seattle.
FBI spokeswoman Ayn Dietrich referred all questions to the U.S. Attorney's Office.

“It is (Department of Justice) policy that we can neither confirm nor deny an investigation unless or until a case is filed in court — the SEC filing speaks for itself,” U.S. Attorney spokeswoman Emily Langlie said via email.

Dargey did not respond immediately to a phone call or an email query.

Dargey names most of his projects to include the name Potala, a nod to Potala Palace, the Dalai Lama's historic winter home in Tibet.

Dargey's Path America company last month released a statement saying that he did nothing wrong by soliciting millions of dollars from Chinese investors to fund various real estate projects in Snohomish and King counties. The money was raised under a federal program called EB-5 that rewards certain foreign investors with green cards, allowing them to live in the U.S.

In addition to using investor money for personal spending, Dargey is accused of shifting money raised for EB-5 projects like Potala Place and Potala Tower to other developments.

Doing so places residency applications by those Chinese investors in jeopardy.

Dargey's lawyers have asked the court to unfreeze his companies' assets so work can continue.

“These projects are real. This is definitely not a Ponzi scheme and it is not alleged to be,” Seattle attorneys Daniel J. Dunne, George E. Greer, David S. Keenan and Charles J. Ha said in court papers.

At the same time, the lawyers said federal securities regulators have raised valid questions about the multimillion-dollar loan. Dargey “acknowledges the SEC's concerns and is working to facilitate immediate repayment of 100 percent of the borrowed funds with interest to the respective projects,” they said in court documents.

The SEC, meanwhile, has asked the court for an Oct. 9 hearing to consider appointing a neutral receiver to oversee Dargey's companies and to determine whether the projects he has under way are still viable. They allege he has been mishandling investor funds and misappropriating money from the outset.

Government attorneys filed documents that show money was moved between Dargey projects. For example, a $1 million down payment on property for the Seattle tower project came from the account set up for the farmer's market project.

“Defendants make much of the fact that their projects are ‘real,'” Smyth wrote. “The reality of the projects is the Defendants have raised hundreds of millions of dollars from other persons and treated the money as though it were their own.”

As more information surfaces, the attorney wrote, “It increasingly appears that Defendants raised EB-5 funds for a particular project, misappropriated and misused much of the funds raised, and then started new projects to raise new EB-5 investor funds in order to cover the gap in funds for the prior projects cased by Defendants' misappropriation.”

In Everett, Dargey and Path America developed the large mixed-use Potala Place building using the EB-5 program.

The project, at 2900 Grand Ave., is still under construction. Lanie McMullin, the city's executive director of economic development, said about half of the ground floor retail space and 25 percent of the apartments are leased.

McMullin said she didn't think potential receivership would affect Potala Place's completion.

“There is a construction loan on the project. I believe the bank intends to pay that out to completion of the project,” McMullin said.

She would not speculate on the potential for criminal charges.

Paperwork gathered to date not only documents the loan made to Dargey, but also millions of dollars in questioned payments, including credit card purchases allegedly made at Bloomingdales, Neiman Marcus, Nordstrom and Whole Foods.

In their complaint, federal regulators also allege Dargey withdrew more than $200,000 at 14 different casinos in Washington, Nevada, California and British Columbia.

Dargey's attorneys highlighted the casino spending as an unfair swipe at their client.

“We address this allegation only because the effect is to suggest that Mr. Dargey has a personal gambling addiction and is a spendthrift,” the lawyers wrote. Instead, those were costs associated with travel, lodging, meals, gifts and entertainment for investors during visits to Path America projects, “consistent with Chinese customs and expectations,” they said.

http://www.heraldnet.com/article/20150924/NEWS01/150929438

Mentions

• Lobsang Dargey
• DARGEY
• Path America
• Potala Farmers' Market
• Potala Tower Seattle
• U.S. Citizenship and Immigration Services
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Litigation Cases

• UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Path America & Lobsang Dargey & Path America Sonoco

States

• Washington