The EB-5 Program Continues to Be a Bonanza for Litigating Lawyers

By David North on March 28, 2016

Never let it be said that the EB-5 (immigrant investor) program does not create jobs in the American economy.

It may not do much for factory workers or hotel employees, but it is a bonanza for lawyers, and yet another expensive legal dispute came into view recently.

This time the dispute is not between alien investors and a regional center, as we have seen so often in the past, nor is it between aliens and the government; this time it is an intra-mural squabble between two rival U.S. entities, each wanting more of the profits from the construction of a 91-story condo project near Wall Street.

The real scandal, of course, is that EB-5 funds are supposed to bring capital into rural and depressed areas of the United States — and the Wall Street area hardly qualifies.

The development is located at 125 Greenwich St. One of the middleman entities, the Carlton Group, is suing law firm Bizzi & Partners and the developer, Michael Shvo. According to The Real Deal, a trade paper, Carlton said it was paid only part of the $3.48 million commission it was expecting for raising $174 million in EB-5 funds.

According to the Real Deal account, the "terms of the 2014 agreement between Bizzi, Shvo, and Carlton specify commission fees of 0.8% for raising the project's first mortgage plus 2% for lining up mezzanine financing." Mezzanine financing, which usually is in the form of loans, often uses EB-5 funds; typically EB-5 investors get much, much lower rates than commercial lenders, which thereby adds to the developer's profits and causes them to be big backers of those lobbying for a continuation of the controversial program.

Meanwhile, a West Coast lawyer who was sued by an EB-5 investor — both have Chinese names — has struck back.

We reported the investor's side of the story some months ago; she charged fraud and breach of contract in connection with a $500,000 investment in a California real estate deal; subsequently the federal judge in the case secured control of the money, and most recently the lawyer, John Hu, has charged the investor, Shoumin Zhang, with "the misuse of the judicial process" and making "multiple misrepresentations and misstatements to the court".

The lawyer's brief, which can be seen in the PACER file in the Central California U.S. District Court as case 2-15-cv-09583, said that the investor's "true intent for the EB-5 petition was for the purpose of getting a green card for her daughter who was studying in the United States at the time. After the Department of State announced that Chinese investors petitioning for EB-5 visas need to wait for more than two years to get the immigrant visa or green card, Zhang began to worry about the aging-out issue for her daughter. Thereafter, she requested Mr. Hu to change the applicant's name on the petition that had already been filed" and the complexities set in motion by that request brought on the lawsuit.

"Aging out" is immigration speak for an alien's passage of his or her 21st birthday, which eliminates benefits that are available to people under that age.

It is well known that many of the EB-5 investments are made so that the children of the investors can secure permanent legal status in the States. The program's years-long backlog complicates things for would-be EB-5 investors with college-age children.