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December 6, 2011

Who's Suin' Who? Atlantic Yards EB-5 Marketer NYC Regional Center is Awash in Lawsuits

Atlantic Yards Report, Former affiliate of NYC Regional Center files suit, claiming firm stole confidential Chinese client list, thus saving millions in finder's fees for EB-5 investors in Atlantic Yards, other projects

The New York City Regional Center, which has marketed Atlantic Yards as an investment for green card-seeking investors, is the busiest regional center in the China market, and seems to be New York City's designated third-party source for such cheap capital, is embroiled, directly and indirectly, in two lawsuits, one described below, the other here.

Given the early stage of the lawsuits, and the confidentiality of certain exhibits, it's difficult to fully evaluate them. But it is clear that the EB-5 program can bring significant sums to the middlemen, and thus fuel disputes.

The New York City Regional Center (NYCRC), which has focused on recruiting green card-seeking investors in China, is facing a lawsuit filed by a former affiliate, which claims that the NYCRC appropriated its confidential client list and thus evaded obligations to pay $6 million in finder's fees for new investors.

The lawsuit, filed 4/18/11 by Lion's Property Development Group, also names Hoche Partners Capital and its president, Gregg D. Hayden as defendants. Hayden has served as the NYCRC's chief salesman in China (as I've described) under the title "General Manager Asia" on behalf of NYCRC.

Lion's (led by Chaim Katzap) argues that NYCRC has thus recruited more than 200 investors without paying the $30,000 fee it owed Lion's, or a total of $6 million. (That $30,000 fee, however, would have included a downstream finder's fee of $15,000 from Lion's to each local affiliate.)

There's good reason to pay a big referral fee; I estimated that the 498 investors in the Atlantic Yards project might earn NYCRC $50 million. Meanwhile, Forest City Ratner will get the benefit of a $249 million low-interest loan, from 498 immigrant investors, itself saving perhaps $140 million.

The NYCRC would benefit from the spread between the no-interest offered investors--who care more about green cards than investment returns--and the low interest, perhaps 4% to 5%, charged to the borrower.

Indeed, the suit charges that NYCRC told the local affiliates, aka Network Agents, they'd get $20,000 rather than the $15,000 offered by Lion’s if they worked directly with NYCRC to recruit investors for Atlantic Yards and the other two projects, involving the Brooklyn Navy Yard and Steiner Studios.

Atlantic Yards Report, Lawsuit over control, revenues of NYC Regional Center: co-founder charged with fraud by former partner; counterclaim also charges fraud

The New York City Regional Center (NYCRC), the private firm authorized to raise funds from immigrant investors under the EB-5 program is embroiled in a lawsuit one of its founders filed against another, and that engendered a counter-claim.

Empire Gateway, LLC which owns more than half the NYCRC, and Empire's controlling owner, George Olsen, charge that Sandra Kim Dyche fraudulently gained "membership interest in Empire" and never recruited investors. Thus she should return her membership interest, which is nearly half the value of Empire (and about a quarter of the value of the NYCRC).

In return, Dyche charges that Olsen fraudulently gained control of Empire, and that she deserves damages of at least $5 million. ...

The suit has no direct bearing, apparently, on the NYCRC's Atlantic Yards effort, in which it has apparently raised $249 million from 498 investors, mostly from China but some from Korea.

But there's big money at stake.

Posted by eric at December 6, 2011 12:53 PM