After two and a half years of litigation, Richard Xia, a real estate developer in Queens, and his company Fleet Financial recently reached a settlement with the United States Securities and Exchange Commission (SEC) regarding allegations of misleading Chinese EB-5 investors. The settlement amount reached $272 million.
SEC accused Xia and his company of misleading EB-5 investors from 2010 to 2017, raising over $228 million from more than 450 Chinese investors. These funds were used for two real estate development projects – “Eastern Mirage” located on Union Street in Flushing and “Eastern Emerald” located on Northern Boulevard in Corona. SEC alleges that Xia misled investors on the source of funding, experience of development and construction teams, and actual scale of the projects.
The EB-5 program allows foreign investors to exchange a minimum of $500,000 for a US green card. In the 2010s, many real estate developers participated in this program seeking international financing for their constructions. The EB-5 investment immigration program was particularly popular among Chinese investors. However, in recent years, the enthusiasm has waned due to uncertainties surrounding immigration status and investment returns.
In this case, out of the initial investors in the two projects, over a hundred people successfully obtained permanent green cards, while over three hundred received temporary green cards. However, the “Eastern Emerald” project has faced challenges in recent years due to issues raised about early withdrawal of funds. After SEC intervened and froze the funds, both projects were left in distress.
According to the terms of the settlement, Xia is required to return the $228 million received from EB-5 investors, along with $25 million in pre-judgment interest, and pay a civil penalty of $3.1 million. Xia’s company is also mandated to pay a civil penalty of $15.5 million. A court-appointed distribution manager will ensure a structured approach to managing the settlement funds, ensuring fair distribution among affected investors. Investors also have the option to return their proportionate share to a new business enterprise, continuing to be used for the original “Eastern Emerald” development project.
According to hearing documents from April of this year, Federal Judge Pamela Ki Mai Chen of the Eastern District of New York commended SEC for its flexibility and innovation in handling this complex case. The settlement ensures that the development projects, “Eastern Mirage” and “Eastern Emerald,” can proceed, with the court-appointed distribution manager overseeing the safekeeping and distribution of funds, ensuring that investors can maintain their path to permanent residency.
The settlement agreement provides substantive relief to nearly 400 EB-5 investors, alleviating their concerns about the uncertainties of immigration status and investment, safeguarding their American dream.
It is understood that due to the current value of the projects exceeding the EB-5 loan amounts, all investors are expected to receive their investments back while obtaining green cards. All investors in the “Eastern Mirage” project have already received their green cards. Investors in the “Eastern Emerald” project have also obtained temporary green cards and are poised to receive permanent residency upon complete investment return.