A deal that would restart construction on the stalled 40-story Potala Tower and give hope to Chinese EB-5 investors who invested $83 million to earn a U.S. green card has been tentatively accepted by the court-appointed receiver for the project.
A deal that would restart construction on the stalled 40-story Potala Tower — and give hope to Chinese investors who put $83 million into the development to earn a U.S. green card — has been recommended by the project’s court-appointed receiver.
The agreement would infuse the project with $30 million in new capital and terminate the involvement of developer Lobsang Dargey, who in August was sued by the Securities and Exchange Commission (SEC) on allegations he diverted millions of dollars of investors’ money for his own use.
However, $1.8 million from the proposed arrangement would go to pay Dargey’s lawyers, according to papers filed Monday in U.S. District Court in Seattle by Michael Grassmueck, the receiver put in charge of many of Dargey’s corporate entities. A hearing on the plan is scheduled for Thursday before Judge James Robart.
Grassmueck initially proposed to sell the Potala project as it was — a 60-foot-deep hole in the ground at 2116 Fourth Ave. in downtown Seattle.
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That approach was opposed by lawyers for many of the Chinese investors who each put $500,000 or more into Dargey’s development in expectation of earning a U.S. visa under the federal EB-5 program. They argued selling the project would deprive their clients of the all-important opportunity for a visa, even if they got back much of their money.
The memorandum filed by Grassmueck says Binjiang Tower Corp., a Chinese firm that already owns a 20 percent interest in Potala Tower, would invest $20 million. The Molasky Group of Companies, a Las Vegas real-estate firm, would invest $10 million.
Grassmueck also marketed the project site on its own. His memo says the best proposal for that option was from City Investors, a Vulcan entity that owns an adjacent parcel and offered $30 million for the Potala site.
But the receiver noted that the EB-5 investors “have been nearly unanimous” in supporting a restructuring rather than a land sale, because it preserves their hope of getting a U.S. green card once the tower is built.
Under the recommended deal, Molasky would challenge federal immigration authorities’ proposed termination of Dargey’s “regional center,” the entity licensed to collect and invest EB-5 investors’ money. Grassmueck’s memo says “Molasky has retained a nationally recognized immigration attorney to assume responsibility for the appeal” of that termination, which affects the investors’ eligibility for visas.
Other elements of the proposed deal include:
• Eighty percent of the investors would need to opt in to the restructuring deal. Those who didn’t would get a $250,000 refund and a claim for the rest.
• Some $20 million cash now held in other Dargey companies that are under the receiver’s control would also be put into the restructured company, the document indicates.
• Dargey’s claim to own 80 percent of the Potala Tower project through another entity, Dargey Holdings, would be extinguished.
• Investor money that is still in escrow would be freed for use on the project.
Some details remain to be negotiated, Grassmueck’s filing says.
Approval of the plan is not a foregone conclusion — there have been at least a half-dozen offers to buy the project, and some of those parties are opposed to the receiver’s plan.
On Monday, the SEC amended its lawsuit against Dargey to add the allegation that he used money diverted from the EB-5 investors to make the equity contribution that underlies his claim to an 80 percent stake in the tower project.
The SEC has alleged Dargey, while raising at least $125 million and collecting $11 million more in fees from about 250 EB-5 investors, “misappropriated well over $17.6 million” to spend on a Bellevue home, unrelated real-estate projects and personal expenses. Some of that $125 million was applied to other projects Dargey was developing around the region.
Dargey has denied any improprieties.