This EB-5 Program Offered Path to Fraud, Not Citizenship

The EB-5 immigration program offers a path to U.S. citizenship for those who can afford it. For and investment of $1million – or $500,000 in certain areas — in a project which creates a designated number of jobs in the U.S., the investor can secure a permanent green card. While this road to citizenship clearly offers what appears to be a better path to life in the United States than those who walk across the boarder seeking asylum, it has hazards. In many instances as the Commission has demonstrated, the investment projects are little more than a variation of its all to familiar offering fraud cases. The Commission’s latest action in this area is, unfortunately for the investors, noting but another offering fraud run by promoters who took advantage of unsuspecting investors, according to the complaint. SEC v. Palm House Hotel, LLLP, Civil Action No. 24224 (S.D. Fla. Filed August 3, 2018).

The Palmer House Hotel, LLLP, or PHH, is an entity controlled by Defendant Joseph Walsh. Defendant South Atlantic Regional Center, LLC, was a designated Regional Center by the United States Citizenship and Immigration Services or USCIS. It was managed by Defendant Walsh. Defendant Robert Matthews controlled the Palmer House Hotel (“Hotel”) and other entities. He was indicted on bank fraud and other charges in March 2018.

Over a seven year period beginning in November 2012 PHH raised almost $44 million from at least 88 foreign nationals through an EB-5 offering of PHH limited partnership interests. The offering materials, drafted by Mr. Walsh and his in-house counsel, purported to offer investors interests in a venture that would lend the investor funds to the Hotel as an EB-5 project. The offering materials told investors that their funds would be placed in an escrow account at PNC bank and held there at least through the filing of the investor’s I-526 petition in connection with the EB-5 program. Those materials also represented that the funds would only be advanced to the Hotel project under certain circumstances and that the investment would be returned in some instances. There were, in addition, representations regarding the background and experience of Messrs. Walsh and Matthews. Overall, the materials assured the foreign national investors that their funds were safe. They were not. The representations were false.

Rather than invest the funds raised from those seeking a path to citizenship in the Hotel to create jobs, large portions of the investor cash was misappropriated. For example, Mr. Walsh kept at least $8 million of the investor funds for his personal use. He also loaned about $5.5 million to Defendant Matthews who used the money to forestall foreclosure on his home in Palm Beach. Another $3.4 million in investor cash was used to obtain title to, and pay expenses associated with, a 151-foot yacht and a parcel of property located next to the Hotel. And, $4.5 million of investor cash was used to purchase Mr. Matthew’s former home in Connecticut out of foreclosure and for other expenses. The complaint alleges violations of each subsection of Securities Act section 17(a) and Exchange Act section 10(b). The case is pending. See Lit. Rel. No. 24224 (August 3, 2018).