Shanghai resident Li can’t bear to break the news to his family: They might lose their apartment because their $500,000 investment in a Seattle skyscraper project flopped.
Shanghai resident Li can’t bear to break the news to his wife and kids: They might lose their small apartment because their $500,000 investment in a downtown Seattle skyscraper project flopped.
The couple mortgaged their home to raise the funds to invest, hoping to get a U.S. visa through the EB-5 program so their five- and eight-year old sons can someday get an American education.
After being pitched to invest in Path America’s 40-story Potala Tower, the family borrowed the money from a Chinese bank, pledging their apartment as collateral, according to Li.
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“I really hope I can get my money back to get our home back from the bank,” said Li, 38, who sent an e-mail to The Seattle Times describing his plight and asking for help. He agreed his story could be told if his full name was not used.
U.S. District Court Judge James Robart has granted refunds so far to 24 Path America investors whose funds were still in escrow. But the interests of such investors are increasingly at odds with other investors whose money Path America has already tied up — those investors want to see the tower completed, or their visa prospects could be ruined.
The court appointed a receiver last month to run Path America and sort out what’s best for investors. The Portland-based receiver, Michael Grassmueck, said in a court filing he had no objection “in principle” to refunds for Potala Tower investors whose money is sitting in escrow.
But a Seattle attorney for 11 Chinese investors granted refunds says the California escrow agency that has their money is dragging its feet — and time is of the essence to his clients if they want to invest in another project. The EB-5 program will expire on Dec. 11, unless extended by Congress.
“We’ve been frustrated with the delay and lack of cooperation we’ve received, but we’re confident these funds will ultimately be returned said attorney Kelly Sheridan.
The harsh reality facing the 170 Chinese investors and their familes is that they bought into an illiquid partnership, hoping the construction of Path America’s $188 million Potala Tower would secure them so-called EB-5 visas to live permanently in the United States. (Another 80 Chinese nationals invested in the firm’s Farmer’s Market project, but those investors’s prospects are better because the Everett project is nearly complete.)
Foreigners who invest at least $500,000 in an eligible project that creates at least 10 full-time jobs over two years can apply for the EB-5 visa. Since 2010, more than two-thirds of approved petitions were from immigrants born in mainland China, federal records show.
Path America recruited Chinese nationals through brokers in China and at seminars in Shanghai and elsewhere. The brokers received a $45,000 finder’s fee for every investor who subscribed to the offering.
While EB-5 investors tend to be affluent, with a net worth over $1 million, Li doesn’t appear to fit that profile.
Li said he heard about Path America earlier this year from a broker who worked with Path America. The broker said it was “a very low risk project which is handled by a very professional company,” and that his family had a “very high chance to get our money refunded after receiving the green cards,” Li said in an e-mail.
On work trips to the United States, Li wrote, he was impressed by America’s clean air, “nice people” and superior education system.
“Like every parents do, we just want to give our kids better educations and health environments to grow up,” Li wrote.
So the couple decided to invest in Path America’s Potala Tower project.
“We certainly don’t have that much cash,” Li said. But they did have equity in the apartment they had worked 11 years to buy.
In addition to mortgaging their home, the couple also had to shell out about $70,000 for Path America’s administrative fee, an attorney to file the immigration petition and other charges, Li wrote.
In late July, the family’s $500,000 capital contribution was wired to Path America’s escrow agent in California. A month later, Li was shocked to read about the SEC’s lawsuit against Dargey.
The SEC alleges that Dargey misappropriated tens of millions of dollars from the Potala Tower account for his personal use, including buying a home in Bellevue and commercial properties in Shoreline and Kirkland. Dargey has denied wrongdoing.
“I haven’t shared this news with my wife and kids yet because I don’t know how to explain to them we may potentially [have[ lost our money, the green card and our only apartment,” Li wrote to The Seattle Times.
Attorney Steven Fogg, who along with Sheridan represents 11 Chinese investors in the tower project, said all of the investors he’s worked with were affluent, but he didn’t discount the possibility that a middle-class Chinese family might have invested in Path America.
“Many of these investors were coming through agencies,” Fogg said. “Could there be holes in that process? Perhaps.”