Chinese investors sue Nick Mastroianni over alleged EB-5 fraud

Complaint alleges he intentionally came up one investor short in $100M raise

Harbourside Place and Nicholas Mastroianni II
Harbourside Place and Nicholas Mastroianni II

UPDATED, Oct. 16, 4 p.m.: Nearly 80 Chinese investors have filed suit against EB-5 fundraiser and Jupiter developer Nicholas Mastroianni II, alleging he defrauded them of their EB-5 investments.

Mastroianni, who’s been tied to President Trump’s longtime attorney, Michael Cohen, as well as to the Kushner Companies, founded the U.S. Immigration Fund for EB-5 investment. He’s known to have raised EB-5 funds for a number of major developers, and USIF remains one of the biggest EB-5 service providers.

According to a lawsuit filed in Palm Beach County Circuit Court last week, Mastroianni raised $99.5 million from 199 EB-5 investors for the Harbourside Place development in Jupiter. The deal was he would raise $100 million.

The complaint, filed through Miami-based Levine Kellogg Lehman Schneider + Grossman, alleges Mastroianni intentionally structured the EB-5 investments so that he was one investor short for the $100 million, first-priority, secured construction loan. The alleged purpose of that was so that Mastroianni could eventually control the new senior lender.

Harbourside Place said in a statement that it “vehemently” denies the allegations. “The allegations are baseless, factually incorrect and totally ignore the economics and legal structure of the Harbourside investment,” the statement said. “We intend to prevail in court against these plaintiffs and to continue to work with the majority of investors in Harbourside who did not sue.”

According to the statement, 100 percent of the capital invested by all EB-5 investors was properly used, and  independent accountant reports provided to the United States Citizenship and Immigration Services reflect that. “The financial statements of the company clearly show that we invested additional equity of almost $34 million into this project to ensure all investors would receive their immigration benefits…. In addition, all investors have been, and continue to be, paid interest and their investment remains superior to the developers equity.”

More than 60 of the 78 plaintiffs who are suing Mastroianni, Harbourside Place GP, the U.S. Immigration Fund LLC, Florida Regional Center LLC, Allied Capital and Development of South Florida, Richard Yellen and R. Bowen Gillespie, have received their green cards, according to their attorneys, Jeffrey Schneider and Marcelo Diaz-Cortes. But they have not been paid back, Schneider and Diaz-Cortes said.

Harbourside Place, a $170 million entertainment and hotel project, was completed in December 2014, according to Allied Capital and Development of South Florida’s website. Mastroianni, who did not return requests for comment, is president of the firm. Tenants at Harbourside Place include The Woods Jupiter, BurgerFi, Regus and Subculture Coffee.

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The Chinese investors are alleging they were never paid back for their $500,000 investments, plus interest. The visa program gives green cards to foreign investors in exchange for a $500,000 investment. According to Harbourside’s statement, 70 percent of the EB-5 investors have received their green cards.

“By some wild coincidence, Mastroianni, who has been called the ‘hottest money-raiser’ in the EB-5 program, raised only $99.5 million,” the lawsuit alleges. Mastroianni, in addition to obtaining an $18 million line of credit, allegedly took the EB-5 money and invested it into a limited partnership that acted as the lender, then defaulted on the loan and sought to foreclose on the EB-5 investors.

“To me it’s inconceivable that he wasn’t able to find one investor. That was part of the fraud,” Schneider said, adding that “this has been a continuing fraud that started at the very beginning but [the investors] didn’t realize it until very recently.”

Mastroianni has been sued for his alleged role in EB-5-funded projects before. Earlier this year, 124 Chinese EB-5 investors in the 701 Seventh Avenue skyscraper in Manhattan pushed to stop the USIF and Mastroianni from moving their funds into a nearby project being built by the same developer. According to a statement from USIF, the temporary restraining order was eventually dismissed and withdrawn by the investors as part of a settlement.

The Harbourside Place lawsuit marks another example of alleged fraud using the EB-5 program. The visa program received another short-term extension through Dec. 7, as part of a spending package signed by the president at the end of September.

In Fort Lauderdale Beach, a development group raised at least $30 million from 60 EB-5 investors to fund construction of a 12-story, 136-room hotel – but fell into financial trouble earlier this year, defaulting on its loan. In August, a U.S. Bankruptcy Court approved the sale of the unfinished 550 Seabreeze Boulevard hotel to a subsidiary of Magna Hospitality Group for $39.1 million. The new owner agreed to comply with certain reporting guidelines that will assist the EB-5 investors who helped finance the project in obtaining their visas.

And in Palm Beach, the former developer of the Palm House condo-hotel project now faces allegations of fraud by the Securities and Exchange Commission and a group of EB-5 investors. Related Companies emerged last week as the stalking horse bidder for that project, which stalled in 2014.

EB-5 investment “has become a replacement for capital structure financing,” Schneider said. “Despite that massive change, there’s very little government oversight and regulation.”