Money without a card? New York Judge Dismisses EB-5 Lawsuit

As we move into the Biden presidency, one of the issues of concern on the immigration front is the EB-5 investor immigration program. The particular reason for concern is that the program has a sunset provision that expires on June 30, 2021, unless renewed. In other words, in June of this year, the entire EB-5 program will reach a critical period: Congress will either extend EB-5; debate changes; or end it; the possibilities are many.

EB5 has been particularly sought after by mainland Chinese investors over the last decade. The two most important concerns for immigrant investors are the green card and the return of funds. how long is the EB-5 immigrant investor battle line? What exactly is the risk of risky investments? The lengthy scheduling period has triggered many lawsuits.

“Mr. Choi put in $500,000 in 2011, and he wanted his fair share of investment returns.” Attorney David Gelfarb said by phone yesterday (March 12).

Pictured is the North Queens Medical Center project at 42-31 Friendship Street in Flushing.

Gelfar is representing Muhan Cui, a mainland Chinese investor. Cui’s investment is being used for a Northern Queens medical center project at 42-31 Youlian Street in Flushing. The medical center was scheduled to be completed and opened in 2013 and was intended to provide over 100,000 square feet of Class A office space for healthcare providers.

EB-5 immigrant investors can obtain a green card in the U.S. by investing $500,000. Muhan Cui has already received his green card.

Mr. Richard Xia, the project manager, had told Muhan Cui that “the loan will mature within five years from the date of the first advance and will be refinanced and is expected to generate revenue and create jobs as early as the third or fourth quarter of 2013, with profits and interest income to be distributed to the limited partners,” Gale Law said. “

“He said five years,” said the Gale law attorney, so Muhan Choi was fully expecting to get a return on his investment in five years. “Then he added that EB-5 limited investors cannot terminate on their own and must wait until the last investor also releases the conditions, or until three years from the filing of the Form I-829 (Application for Conversion to Permanent Green Card), before the agreement can be dissolved and the investment money recouped. He put these two things together.”

Project leader: not an investor has to wait for the last one

Project leader Mr. Xia pointed out that when the initial recruitment of mainland Chinese investors, in the project documents PPM and limited partner agreement has been exhaustively explained, EB-5 investors can not withdraw their investment alone, “we are a form of partnership, it is impossible to throw the last one away.”

He explained that Cui Muhan was the first few investors to submit an immigrant investor application in late 2011, and that by the Time the last person in the project submitted an immigrant investor application, he was already facing the increasingly serious scheduling of U.S. immigrant investors and would need a longer wait to obtain a U.S. green card, so the return time became unknown and the principal invested would always be at risk. The law of the EB-5 program states that investor funds must be invested “at risk”.

In response to Mr. Cui’s argument that he does not want a green card and only wants his money back, Mr. Xia believes that Mr. Cui has a misconception of U.S. law. “Signing a limited partnership agreement in the United States, investing in a center and project approved by the USCIS, the number of jobs promoted by this project is counted to you, you can therefore submit an immigration application as the fifth priority, but it does not mean that after you withdraw your green card application, you are automatically released from signing the limited partnership agreement. This project is not one investor, there is still a wait for the last person to get a green card, and if the project doesn’t get done because you change your mind, what about the other people?”

The general partner (regional center/business) will be responsible for the operation of the business, while the limited partner (EB5 investor) will not be involved in the day-to-day management of the business operations.

So is the EB5 investor just a lamb to be slaughtered by the business under this model? The answer is no, says Mr. Xia, because if a court decides that the limited partnership is dissolved, the investor has first priority in collecting. The order of liquidation is higher for the limited partners (EB5 investors) than for the general partners (regional centers/businesses).

Key Reason for Complication: Long Scheduling Periods

Now, EB-5 investors want more than just “investment money and a green card”; they want their investment money to be “collected on time.

The problem boils down to the fact that it used to take three and a half to four years from the time the I-526 immigrant investor petition was filed to start the EB-5 process to the time the I-829 petition for removal of conditions was filed, and less than a year to get the I-829 approved. Most loan model EB-5 programs have a five-year investment horizon. Thus, in the past, the immigration process was essentially completed within a five-year time frame, and “maintaining” the investment from start to finish during the conditional residency period was never an issue.

However, the backlog of I-526 petitions in the USCIS changed the entire landscape due to the long waiting period. Many Chinese investors did not anticipate that EB-5 immigrant investors, traditionally known as the most straightforward and easy way to immigrate, would need strong endurance to back it up.

EB-5 Involved in Fraud? Green cards can be withdrawn

Muhan Cui was told that there were 71 or 72 limited partners in the program and that the three-year deadline would not expire until mid-2020, when the last limited partner filed an I-829 petition for conditional removal (application to convert to a permanent green card), Gale Law said.

Unwilling to wait any longer, Muhan Cui sued the Regional Center in February 2019 in federal court in the Eastern District of New York, seeking “dissolution of the limited partnership” and repayment of the funds. However, after two years of trial, the case was dismissed on March 2 of this year by Federal Judge Nina Gershon of the Eastern District of New York.

In her opinion, Judge Gershon wrote: To prove fraud, a plaintiff must prove that (1) the defendant made a false representation; (2) the defendant intended to use it to deceive the plaintiff; (3) the plaintiff reasonably relied on the representation, and (4) the plaintiff suffered damages as a result of it. However, the plaintiff had no facts to show that the defendants intended to commit fraud, or even a legal theory to show that he suffered financial harm as a result of the alleged violations of the program.

Judge Gershon further noted that if the program is indeed revealed to be fraudulent, i.e., the Regional Center does not qualify, the immigrant investor’s green card will be withdrawn.

Regional Investment Center May Pay Back Investment Money This Summer

Despite the dismissal of the federal lawsuit, Gale Law said that after ten years, this is nothing like what investors heard when they first heard that “the investment would be returned at the end of the five-year investment period,” which is “not fraud, but a breach of contract. This is like a zero interest loan, you can go to the bank to ask for a zero interest loan? And take its partnership investment for 10 years?”

He said the project is not only Choi Muhan, a total of 23 people filed a lawsuit. His clients are evaluating whether to go to New York state court for “breach of contract” or wait until this August, when Mr. Xia told investors they were ready to pay back the money.

But Mr. Xia, the project manager, strongly refuted the “breach of contract” claim because the EB-5 Act requires that the investment be at risk and does not allow for a promise of repayment, so immigrant investors cannot promise to protect their capital or when they will return their money. “They all agreed at first that there was so much risk, and when they got their green cards, he turned around and said they were in breach of contract, where is the contract? If there’s a contract, they can’t even get a green card.”

The EB-5 immigration program is a very challenging endeavor for the investor, and how much more so for the developer? In the real world, there are many things that are complex and unpredictable.

From the Federal Aviation Administration’s (FAA) special approval for the building height, to the local Community Board 7, the City Planning Department, and from the community to different levels of public hearings, the developer has put in a lot of effort, Mr. Xia said. Northern Queens Medical Center is a successful project in terms of I-829 permanent green card acquisition, risk of eventual return of investment funds, and future investment benefits.

As for the future of Northern Queens Medical Center, Mr. Xia is confident, saying that while the past year has been challenging for many of the city’s hoteliers and developers, it is important to move beyond the current pandemic and prepare for the future. He believes that the healthcare sector will continue to be a key investment theme in the wake of the new pandemic, and that there are many different factors in the market that support continued growth and momentum in the healthcare sector beyond the new pandemic.

Mr. Hsia said that the Building Authority is expected to approve his Certificate of Occupancy (CO) in August this year.