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Investors Say PNC Was ‘Intimately Involved’ In EB-5 Fraud

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A group of Chinese investors asked a Florida federal judge on Wednesday not to let PNC Bank walk away from a lawsuit accusing it of being “intimately involved” in a fraud scheme that misappropriated the investors’ funds by hijacking the EB-5 visa program.

PNC said in December that the suit is “woefully insufficient” in alleging how anyone at PNC could have known that Joseph Walsh, the head of an EB-5 regional center, was secretly transferring investor funds earmarked for a Miami hotel project to personal accounts for his own benefit.

The investors, who’d hoped to earn U.S. permanent residency by investing in low employment areas, responded Wednesday that their complaint clearly alleges how Walsh and his EB-5 center, South Atlantic Regional Center, “shopped around for a bank” that would help them skirt the EB-5 program’s requirement that investor funds be held in escrow before projects are approved.

Walsh and the center found PNC and Vice President Ruben Ramirez, who told Walsh that if he did not want to open a true escrow account, with the required escrow agreement, restrictions and an escrow agent, he could instead open a business checking account and label it “escrow account,” the investors said. “Plaintiffs’ claims are rooted in the repeatedly alleged fact that Ramirez and PNC knew that defendants Walsh and [South Atlantic Regional Center] needed to operate an escrow account and have unrestricted access to the investor funds,” according to the motion.

“Based on this knowledge, Ramirez and PNC allowed and even suggested a workaround to Walsh.”

In the suit filed last year and updated in December, the investors claim they each sunk $500,000 each into a Florida hotel development project through the EB-5 visa program, which allows foreigners who invest in U.S. enterprises that create American jobs to live in the U.S.

According to the suit, Walsh had no intention of holding the investors’ money in an escrow account and instead has them send funds to a checking account, provided by PNC Bank, that he could access without restrictions. The companies behind the hotel development project either helped Walsh misappropriate the funds or should have known about his misconduct, the investors claim, though the companies have denied any such wrongdoing.

The role of PNC and Ramirez in the scheme is quite clear, the investors said Wednesday, pushing back on the bank’s defense that it and Ramirez were “peripheral actors” in the alleged fraud who had no participation in any escrow agreements.

The investors said their complaint adequately alleges how Ramirez proposed that Walsh open a business checking account that would have PNC’s escrow services module, thus appearing to be an escrow account but without any accompanying escrow requirements.

Doing so was an exception to PNC’s typical banking policies, the motion argued.

“PNC and its vice president, Ramirez, had ‘specific,’ actual knowledge, and that Ramirez and PNC not only provided substantial assistance in the commission of the bad acts, but also that Ramirez and PNC provided concrete suggestions about how to further conceal and perpetuate these bad acts,” the investors contended.

Ramirez stood to gain from the agreement because it would increase deposits and profits for his employer, PNC, and in turn would net him an increased salary and promotion opportunities, the investors said. They asked that the judge allow their claims of aiding and abetting fraud, breach of fiduciary duty and conversion, as well as racketeering and conspiracy, to go forward.

Counsel for the investors did not immediately respond to a request for comment Thursday.

The bank declined to comment.

The Chinese investors are represented by Jordan A. Shaw, Candace Phillips and Steffani M. Russo of Zebersky Payne LLP and Kevin Qi of SMS Law Group.

PNC is represented by Peter D. Hardy, Aliza Karetnick, Mary K. Treanor, Mansi G. Shah and Nicholas A.R. Kato of Ballard Spahr LLP and Nina Stillman Mandel of Mandel & Mandel LLP.

The case is Feng et al v. Walsh et al., case number 1:19-cv-24138, in the U.S. District Court for the Southern District of Florida.

–Additional reporting by Suzanne Monyak. Editing by Abbie Sarfo.

Original Article published at Law360 on January 16, 2020 by Dean Seal

Jordan A. ShawInvestors Say PNC Was ‘Intimately Involved’ In EB-5 Fraud

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