There's a previously undisclosed EB-5 dispute, a civil one, which carries with it, as in weddings, something old and something new.
Old. A badly misled, 60-ish Chinese investor, Kewu Zhan, who reads little English, sent $550,000 to a Midwestern regional center, not knowing that it would bring him the green card he sought only after the passage of a dozen years. He wants his money back. The regional center is wrapped in a series of other inter-locking entities, and apparently will not receive a summons from the court, much less return his money. His U.S.-based lawyer has sued.
Zhan made his decision to invest, his lawyer states, based on documents in Chinese that were much more alluring in their promises than the ones he signed in English. One of the lawyers involved was an "attorney disbarred by the SEC" and the main defendant, Patrick Hogan, "failed to register the Fund as an investment company under the Investment Company Act of 1940," according to the complaint in the case.
These charges and the element of "enslaved money" from investors in the EB-5 queue are all too familiar, as we reported earlier.
New. The lawyer — and this is all too unusual — writes lively prose and makes a particularly telling case for his client. He is Douglas Litowitz of Deerfield, Ill. (near Chicago).
Further, the controversial regional center (the Illinois Regional Center LLC) is located in an unlikely place, the Mississippi River town of Rock Island, Ill., perhaps better known as the locus of the "Rock Island Line", so often sung about by Johnnie Cash and Lead Belly.
Regarding the intricate corporate structure, "a deliberate attempt to obfuscate the real parties in interest", Litowitz writes:
To make matter worse, the offering memorandum reads like a Rube Goldberg contraption of circular companies:
The Borrower is CPMB LLC.
The Owner of the Borrower is CP Holding Group LLC.
The Project Owner is Next Century LLC.
The Owner of the Project Owner is CPMB LLC.
This means the Owner of the Project Owner is also the Borrower.
The Guarantor is CP Holding Group LLC.
This means that the Guarantor is also the Owner of the Borrower who — you will recall — is different from the Project Owner or the Owner of the Project Owner.
We are now going to skip 22 lines of copy similar to the above, and close with:
The Swiss corporate registry leads from CMB Swiss Co GmbH back to Hogan as manager.
It should be noted that this is a civil, not a criminal matter. The case was brought by the investor and not by the Securities and Exchange Commission that so often acts as the cop in other EB-5 disputes.
It will be interesting to see — perhaps years in the future — what happens to this case, but in the meantime the filing (although intended to rescue Zhan's money) is a searing indictment of the entire EB-5 program.
For those wanting more details, the federal courts' electronic records system, PACER, has all the documents at Case 4:18-cv-04126-SLD-JEH (the source of the quotations above). The dispute is before the U.S. District Court for the Central District of Illinois, Rock Island Division.