There is a new, major EB-5 scandal in Chicago, not yet discussed in the media. It has many of the same-old, same-old ingredients plus some interesting new angles.
Familiar
There are 90 Chinese investors who put up $550,000 each, for a total of $49.5 million. They were recruited by other Chinese middlemen, not named as individuals in the suit.
Most of the complex documents were in English, a language the investors do not understand; few, if any, apparently sought impartial, English-speaking advice on the deal.
The investors were dealing with what their lawyer terms a collection of "self-dealing" entities, the limited partner, the general partner, the developer, and the regional center.
The project they invested in never got a building permit, and their efforts to get their money back have been ignored, or so their lawyer claims.
Not So Familiar
The Securities and Exchange Commission, the usual cop on this beat, is not involved this time, nor is, of course, the Department of Homeland Security, which is playing its usual passive role.
Leading the charge is what seems to be an assertive, if not brash, lawyer, Douglas Litowitz of Deerfield, a Chicago suburb.
It is a class action suit, a relatively rare approach in this field.
The un-built project (apartments, hotel, fancy restaurant) has a better-than-average title, Carillon Tower; it was to be in downtown Chicago.
The building permit system in Chicago (where I was born decades ago) is unusual; it allows a single elected official, the member of the Board of Aldermen for the area (in this case the 42nd Ward), to block the construction, which he did. (In the days of my parents, the then-alderman would have happily signed off on the project for a healthy bribe).
All of the above comes from the complaint filed on November 28 in the PACER system; it is case 1:18-cv-07865; the developer/regional center has not yet responded, so we do not have that side of the story.
One of the promising parts of the suit, for the investors, is the alleged role of TD Bank (the old Toronto Dominion Bank). While it could not have made more than a couple of million dollars out of the deal, if that, it has a national reputation to maintain, and is thus more likely to settle, and settle quickly, than the other players.
It was the presence of Raymond James, a brokerage firm, and at least one big bank in the Vermont EB-5 scandals that seemed to lead to a well-endowed settlement of somewhat similar claims in that state.
To me, it appeared that the lack of a national bank in the huge South Dakota scandals of a few years back, as well as the suppression of an FBI report on the subject, led to minimal EB-5 reform in that state.
The Roles of the TD Bank and Mr. Litowitz
TD was the depository of the EB-5 investor's funds. According to the project's proposal, while the first $50,000 of the alien's money was to be moved to the developer immediately, the remaining $500,000 was not to be transferred to the developers until "the Partnership has provided evidence that the Project has been formally presented to the Chicago Commissioner of Planning and Development."
According to the complaint, despite the fact that Alderman Brendan Reilly (D-42nd Ward) blocked such a presentation, the money was moved to the developers. The fact that the project was stalled was recorded in the local press.
So TD Bank is one of the entities being sued in this civil case.
As for the investors' lawyer, Douglas Litowitz, we have described his role in another, somewhat similar case in the federal courts in Illinois in which we commended the clarity of his prose.
More recently, his apparently vigorous role in backing the EB-5 investors got him disinvited from an EB-5 promotion conference. A supporter of his sent me this fragment of a letter from Aaron L. Grau, interim executive director of II/USA (Invest In the USA, A DC-based EB-5 organization):
Mr. Litowitz,
Please be aware that based on information we received regarding your intent to disrupt the upcoming IIUSA/AILA conference we must unfortunately refuse your registration to attend. Be assured that your registration fees will be refunded in full.
AILA is the American Immigration Lawyers Association; the combined organizations apparently decided that Litowitz might be too outspoken in his defense of immigrant investors.
An earlier, even larger, EB-5 fraud in Chicago gathered substantial press coverage, including this memorable piece in Fortune.
Let's hope this one gets some public attention as well.
Clarifications: Speaking of EB-5 scandals, when I recently wrote about the subject, I described the key person in the California case as a lawyer with a Chinese name. The name part was right, but, as a lawyer-reader pointed out to me, Edward Chen is not an attorney. I also said that the PACER court file on the case was closed; it must have been a glitch in the system, or in my machine, because the courts' electronic file on the case was working when I tried it more recently.