After a year and a half of litigation, Richard Xia, a real estate developer in the Queens district of New York, and his company Fleet Financial have recently reached a settlement with the U.S. Securities and Exchange Commission (SEC) regarding allegations of misleading Chinese EB-5 investors, with a settlement amount of $272 million.
The SEC accused Xia and his company of misleading EB-5 investors between 2010 and 2017, raising over $228 million from more than 450 Chinese investors. These funds were used for two real estate development projects – “Eastern Mirage” on Union Street in Flushing and “Eastern Emerald” on Northern Boulevard in Corona. The SEC claimed that Xia misled investors in terms of funding sources, development and construction team experience, and the actual scale of the projects.
The EB-5 program allows foreign investors to obtain U.S. green cards in exchange for a minimum investment of $500,000. In the 2010s, many real estate developers participated in this program to seek international financing for construction. The EB-5 investment immigration program was particularly popular among Chinese investors, but in recent years, due to uncertainties about immigration status and investment returns, this trend has cooled down.
In this case, out of the initial investors in the two projects, over 100 people successfully obtained green cards, and more than 200 people received temporary green cards. However, the “Eastern Emerald” project has faced challenges in recent years due to withdrawal and refund issues raised by some individuals. After SEC intervention and fund freezing, both projects have faced difficulties.
According to the terms of the settlement, Xia must repay 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 will also pay a civil penalty of $15.5 million. A court-appointed distribution manager will ensure the structured management of the settlement funds and fair distribution to affected investors. Investors also have the option to return their proportionate share to a new business enterprise for development projects.
In April of this year, New York Eastern District Federal Judge Pamela Ki Mai Chen praised the SEC for its flexibility and innovation in handling this complex case. The settlement ensures that the development projects “Eastern Mirage” and “Eastern Emerald” can continue, with the court-appointed distribution manager overseeing the custody and distribution of funds to ensure investors can maintain their path to permanent residency.
The settlement agreement provides substantial 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 projects’ value exceeding the EB-5 loan amount, all investors are expected to recoup their investments while obtaining green cards. All investors in the “Eastern Mirage” project have already received green cards. Investors in other projects have obtained temporary green cards and are expected to obtain permanent residency upon fully recouping their investments.