One of the basic characteristics of the EB-5 (immigrant investor) program is the ever-expanding variety of the mischief it can produce.
Some aliens try to invest with someone else's money and some try to invest ill-gotten gains. Meanwhile, some of the citizen middlemen buy yachts, fancy houses, and fancy cars and others put investors' money into brokerage margin accounts. Other funds disappear into off-shore payments to entities in Hong Kong, Cyprus, and the British Virgin Islands.
The latest wrinkle involves a lawyer for the losers over-reaching, by a country mile, regarding the division of the winnings in a California case after the Securities and Exchange Commission intervened and brought order out of chaos. We previously reported on the misuse of more than $100 million in EB-5 funds by a California operator, Tom Henderson.
What happened more recently in this case is that one of the law firms in the case, Pritzker Levine LLP — not on Henderson's side — sought $3 million of the $29.2 million recovered as payment for the fact that it had helped cause the appointment of a receiver.
The SEC understandably protested, according to this article partially behind a paywall on Law360:
"But Pritzker never obtained a judgment or a settlement — whether for its client ... or anyone else," the SEC said. "Instead, Pritzker requests that this court create new law by finding that an attorney who moves to appoint a receiver should be credited with 'recovering' the value of the assets that the receiver then marshals."
Meanwhile, in another large EB-5 scandal, this one involving a never-built high-rise in Chicago, the lawyer for the investors, Douglas Litowitz, is seeking an explanation of where the money went, but the developers keep refusing to make the needed disclosures and the judge in the case keeps postponing action, according to another Law360 report.
Also, in Kentucky, the state's largest newspaper, the Louisville Courier Journal, had as its lead story on March 2, a thoughtful article titled "Kentucky is 'desperate' for wealthy foreign investors. Why does it keep getting overlooked?".
It tells of the strange mixture of minimal actual EB-5 investment in the state — which can use as much as it can get — and the maximum support the program receives from its two senators: Rand Paul and, more significantly, Mitch McConnell, the majority leader. It reported at some length the problems that the state's regional center, the Bluegrass International Fund, had raising money when seeking funding under the EB-5 rules that favored big-city investment. (The reporter did not quite recognize that the new rules, effective in November of last year, were at least intended to make investments in the "flyover states" more likely.)
How do I know that the article was the lead one on the front page of that day's paper? Because I learned of it in the traditional way: I was sent a clipping from that day's actual newspaper. (The story appeared in print on March 2, but was published online February 25.)
Sending it was an old friend, Dave Simcox, the founding executive director of CIS, now retired and living in the Louisville area.
Thank you, Dave!