EB-5 Investor Lawsuit Highlights the Importance of Specialty Financial Administration

The suit alleges PNC Bank worked with developers and a Florida Regional Center to defraud investors

PNC Bank is among the defendants in a lawsuit alleging fraud, misappropriation of funds, and civil conspiracy among a total of 10 counts related to investments made under the EB-5 Immigrant Investor Program. While still ongoing, the lawsuit is a good case study regarding the importance of working with purpose-built solutions for specialized financial transactions.

The lawsuit

The suit, Bahman Asgarifard, as assignee of Mohammad Hossein Asgarifard v. Daniel Vosotas, James Vosotas, and PNC Bank, N.A., regards the investments of Mohammad Hossein Asgarifard, a citizen of Iran. Mr. Asgarifard alleges that while seeking US residency, he invested $500,000 and paid a $45,000 “administrative fee” to the South Atlantic Regional Center, which was to loan investor funds to a developer for the development, renovation, and operation of two properties in an EB-5 Targeted Employment Area.

However, the plaintiffs claim funds were misappropriated and were never “accounted for, returned, or refunded.” They allege the Regional Center, bank, and Daniel and James Vosotas conspired to mislead investors through false advertising materials and the use of a “fake escrow account.”

What is expected of a Regional Center?

The EB-5 program gives immigrant investors the opportunity to gain permanent US residency while spurring economic growth. To qualify for an EB-5 visa, applicants must invest a specified amount (at the time of Mr. Asgarifard’s investment, this was $500,000 for investments made in a TEA) in a commercial enterprise approved by USCIS.

Once funds have been invested, the investor may apply for a conditional green card, good for two years. If the investment creates or preserves 10 or more jobs during those two years, the conditions can be removed and residency can become permanent.

Not all EB-5 investments are made through a Regional Center, but those who go through an RC can benefit from pooled investments (multiple investors putting their money toward projects with a larger raise) and the fact that indirect jobs can be counted. Investors also benefit from the RC’s documented evidence of job creation and assurance that the project meets USCIS requirements.

Regional Centers are expected to carefully manage and oversee investor funds following the contractual rules of an escrow agreement, and track jobs created for the purposes of investor visa applications. In this case, the Regional Center is alleged to have violated the rules regarding escrow.

The alleged fraud

The South Atlantic Regional Center (SARC), operated by Joseph Walsh, has been in operation (with approval from USCIS) since 2010. According to the suit, the Vosotas family owned many entities that purchased property and worked with SARC to advertise for the project. The lawsuit alleges that these parties all made false and misleading statements to investors, including the use of a “fake escrow account.”

Part of the agreement between SARC and investors was that funds would be held in escrow “pending EB-5 processing and approval,” funds would be “used to create 10 jobs,” and “if Mr. Asgarifard’s I-526 application was denied, Mr. Asgarifard would receive a full refund of his investment.”

The problem pertains to the account used to hold the funds: according to the suit, “PNC permitted Walsh to create a business checking account” that was to “appear as a legitimate escrow account to outside investors while providing no actual escrow protections.”

The goal was to create “a fake escrow account to obtain and control Mr. Asgarifard’s funds without being stifled by standard banking escrow requirements.” This gave Walsh “unrestricted access to the EB-5 investor’s funds.” In short, they created an account that would appear to investors to be a legitimate escrow account when they knew it was not.

To complete the illusion, PNC changed the name of the account to “South Atlantic Regional Center LLC – Escrow Account,” adding the words “escrow account” to fool investors.

In addition, Walsh, Vosotas and Vosotas are accused of making misleading statements about the use of investor funds, guaranteed return of funds in the event of I-526 denial, and the developer’s equity in the project, among many other claims. They also allegedly “provided a booklet which contained only the signature pages of the documents necessary for investors to make their investments.” Despite investing in good faith, “Mr. Asgarifard’s investment funds were never placed in escrow,” and “never used to develop” the proposed project.

Mr. Asgarifard claims losses in the amount of $545,000, or his entire investment plus administrative fees, and is seeking “damages, litigation costs, pre- and post-judgment interest, and for any such other and further relief as this Court deems just and proper.”

A history of impropriety

This is not the first lawsuit for Walsh and SARC. In a 2018 civil suit, they are alleged to have misappropriated funds and made “false and materially misleading statements” to another group of investors. These types of incidents are why the government has taken steps to protect investors from this sort of activity, including increased integrity measures under the newest iteration of the Regional Center Program.

The EB-5 Reform and Integrity Act

In March, Congress passed the EB-5 Reform and Integrity Act of 2022 as part of the omnibus spending bill, creating a new version of the Regional Center program. Regional Centers now have much stricter compliance requirements, including many new rules regarding escrow and the tracking and release of funds.

If these new rules are violated, Regional Centers face stiff penalties, which can include fines, debarment, or termination of the Regional Center. The hope is that these increased integrity measures will provide additional protections for investors against the kind of fraud alleged in these lawsuits.

Working with a trusted partner

These stories can cause a lot of anxiety for investors who have not only a great deal of money on the line, but their visa applications and immigration status as well. How can investors be confident in the banks they work with?

EB-5 transactions are highly specialized, and many banks may not have employees with specific experience in them. Specialized transactions like EB-5 require specific knowledge, and the economics of educating staff and putting the right controls in place can be costly and confusing, leading to errors that may be disastrous for both banks and investors.

To avoid these kinds of mistakes, some banks choose to avoid these specialty markets altogether. However, as financial markets become more and more specialized, remaining on the sidelines isn’t a viable option. It’s important for banks to figure out how to enter markets like EB-5 with the right procedures in place. The solution is to work with and experienced partner who can provide expertise and offer peace of mind to investors.

In order to provide the security, transparency, and compliance required to satisfy EB-5 investors and those in other specialized sectors, an escrow agent like JTC provides purpose-built software to go with our many years of experience. As experts in EB-5 and other specialty financial markets, we work with our banking partners to ensure practices follow current laws, allowing investors to rest easier knowing they’re banking with someone who cares about following best practices for EB-5.

Stronger Together

Learn more about JTC’s comprehensive EB-5 Fund Administration solution by downloading the EB-5 Fund Administration solution sheet!

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