The effort by the New York City Regional Center (NYCRC), the private investment pool federally authorized to accept immigrant investor funds, and developer Forest City Ratner (FCR) to raise $249 million from 498 Chinese millionaires under the EB-5 immigration program may be legal, but there is ample reason to question whether it will serve the public interest.
Part 1 of this series concerned the seven-year extension available on Phase 1 of the project should Forest City Ratner not repay the EB-5 loan. Part 2 estimated the developer could save at least $191 million. Part 3 examined the sales effort in China, with the arena front and center, even though it's already funded.
Part 4 reported on claims made in China, on video and in person, by public officials supporting the project. Part 5 concerned the value of the development rights, contrasted with those in last year's deal for the Vanderbilt Yard. Part 6 described reasons to think the development rights are overvalued.
Part 7 explained why China is such a popular target for those seeking EB-5 investors. Part 8 provided another reason why the Nets played exhibition games in China in October. Part 9 cited the curious avoidance of Mikhail Prokhorov during the pitch in China.
Part 10 noted NYCRC's belated announcement of the project in a newsletter. Part 11 described misleading promotion in the Chinese media and by Chinese firms working with the NYCRC. Part 12 covered the proclamations that are part of the pageantry in China.
Part 13 concerned the role of the NYCRC's preferred law firm. Part 14 linked the land loan to a previous one from Gramercy Capital. Part 15 analyzed the use of weasel words and ambiguous language. Part 16 took another look at a web video pitching the project.
The wrap-up and FAQ is here.
Crucial to the "Brooklyn Arena and Infrastructure Project" is Ithaca, NY, law firm Miller Mayer, a leading law firm in the narrow field of immigration investment.
Miller Mayer wears multiple hats regarding the project. It works directly for the New York City Regional Center (NYCRC), filing paperwork with the United States Citizenship and Immigration Services (USCIS), the federal agency overseeing the immigrant investor program.
Miller Mayer lawyers have helped the NYCRC recruit investor clients in China, while a NYCRC rep has called the firm "our preferred immigration attorney." It also represents such NYCRC clients in their applications to the USCIS.
While that could pose a conflict of interest, as described below, the firm wouldn't respond to my questions about how it safeguards against such a conflict.
(At right, Miller Mayer attorney Nicolai Hinrichsen, second from left, poses with the NYCRC's Paul Levinsohn, second from right, and others--perhaps lottery winners--at a seminar in October for potential investors. Screenshot from promotional video.)
Why it matters
There's evidence, at least in public presentations in China, that potential clients might be misled about the content of the project and the security of their investment. (Presumably the fine print in project documents covers the NYCRC's legal obligations, as well as Miller Mayer's role in disclosing risks.)
Miller Mayer attorneys, in such presentations, have helped promoted the project, emphasizing the role of basketball and the prominence of the arena, even though the arena's already funded, as state officials acknowledge.
There's ample incentive for Miller Mayer. Beyond the fees already paid by the NYCRC, lawyers could earn $14,750 per investor, or potentially $7,345,500 for the firm if it represents all of the 498 investors sought.
Also, Miller Mayer attorneys have been present when a NYCRC rep said green cards for investors are certain, such as when Gregg D. Hayden claimed (at about 1:00 of this video) that "the approval process, from USCIS, having already been accomplished, takes all of the immigration risk out of the process for the EB-5 investor."
While the firm in its newsletter did suggest that preliminary approval by USCIS "should facilitate more expeditious and predictable I-526 processing," it did not claim the risk was gone.
A USCIS spokeswoman told me that "we don't pre-adjudicate benefits."
Two kinds of risk
Beyond immigration risk, immigrant investors face investment risk--the risk that they won't get their $500,000 investment back expeditiously or in full even if they do get their green cards.
A Recognition Agreement signed by Forest City Ratner, the NYCRC, and the Empire State Development Corporation allows seven years before the loan must be paid back, and sets out a sequence in which it could be marketed to another buyer.
There's reason to believe that the claimed $542 million value of collateral couldn't be easily turned into cash, much less at the sum announced, which is more than double the $249 million sought in the loan. Also, there's much reason to doubt the NYCRC's claim that the immigrant investors' capital would represent "the safest, most secure portion of the capital structure."
I asked Miller Mayer if they "advise investor clients on the issue of investment risk or, if not, point them to other sources to evaluate investment risk?"
I didn't get an answer.
What's a conflict?
According to the American Bar Association (ABA), a concurrent conflict of interest exists if "there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client [or] a former client," according to a 2007 article in Immigration Daily, Ethical And Practical Considerations In EB-5 Representation.
The article was written by Miller Mayer attorney Carolyn S. Lee. It seemed geared to encourage immigration attorneys in general practice to direct their clients to experienced EB-5 attorneys--firms like Miller Mayer--in case the clients sought investment immigration.
(Above right, Miller Mayer attorney Nicolai Hinrichsen presents Hu Weihang of Kunpeng International with a certificate, in a photo from the Kunpeng web site.)
Lee wrote her article before the New York State Bar, effective 4/1/09, adopted a version of the ABA model rules, New York Rules of Professional Conduct, 1.7:
a lawyer shall not represent a client if a reasonable lawyer would conclude that either:However, there is an exception, if "the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client,” and as long as the lawyer obtains an informed consent, in writing, from each client.
(1) the representation will involve the lawyer in representing differing interests; or
(2) there is a significant risk that the lawyer’s professional judgment on behalf of a client will be adversely affected by the lawyer’s own financial, business, property or other personal interests.
To obtain informed consent, the lawyer must communicate information "adequate" to make an informed decision, and explain "the material risks of the proposed course of conduct and reasonably available alternatives."
I asked Lee if attorneys at the firm considered working for both the NYCRC and clients of the regional center a potential conflict of interest and, if not, what safeguards they take to ensure against such a conflict.
As noted, I didn't get a response. (I didn't expect one; Lee had already written a blog post criticizing my first Huffington Post article on the NYCRC and EB-5; here's my response.)
Need for due diligence
Immigrant investors seek projects that will deliver green cards by generating sufficient job creation. Even if they don't want or expect any profits from the $500,000 they'd park in a regional center, they do want their money back--and, in the history of the EB-5 program, that doesn't always happen.
In the case of the Brooklyn Arena project, the investors would be buying securities with less reliability than bonds. After all, no public rating for the securities has been announced, and it's unclear what revenue stream is expected to repay the investors.
The collateral offered involves development rights to seven future towers. That asset is hardly fungible, so the Recognition Agreement describes a complex process to market that collateral, likely reducing its value well below the asserted $542 million.
Miller Mayer attorneys have talked up the project. Partner Hilary Fraser appeared on a webcast (excerpts below) in China, saying, "My firm is very excited to be here in China, in cooperation with Qiao Wai [immigration consultancy] and the New York City Regional Center, on this very exciting NBA arena project."
She thus used the arguably dubious framing--that investor funds would be going into an arena--as presented by the NYCRC, even though the arena would go forward with or without immigrant investors, as the state acknowledges.
Fraser described the firm's work, including its successful record in getting immigrant investors green cards for other projects, and the process, including gathering documents, needed to get investors green cards in this case.
At least in the webcasts and in the public presentation to which I listened, there's no evidence that Miller Mayer dealt with the issue of investment risk. Given that there was not an attorney-client relationship at the time, Miller Mayer likely was not obligated to do so.
However, that may not constitute best practices. "[T]he immigration attorney has, IMHO [in my humble opinion], an affirmative duty to conduct basic due diligence on any EB-5 Regional Center project he or she is prepared to present to any client," Florida immigration attorney Jose Latour argued 9/27/10 on his Immigration Insider blog.
His comments did not address Miller Mayer or the Brooklyn project.
In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social, psychological, and political factors that may be relevant to the client’s situation.(Fraser and Hinrichsen photo from Qiao Wai promotional page for Guangzhou event.)
Latour added, "Each immigration attorney who sends a client to a Regional Center in which he or she would never personally invest because they believe the I-526 will be approved but the investment is a bad one is every bit in violation of their ethical duties as an attorney who only cares about the referral fee and sends a client to a Regional Center where visa denial is likely."
"Instead, what we have seen is the proverbial ostrich game, where larger firms are so concerned about liability that they protect themselves by pretending that there is an artificial line between the immigration and investment objectives of an EB-5 visa," he stated.
Miller Mayer's role
Miller Mayer attorneys have worked directly for the NYCRC. At the least, the firm prepared documentation to amend the NYCRC's federal designation as a regional center to include the Atlantic Yards project in the scope of its work.
According to the NYCRC web site, the regional center "also works in conjunction with top outside professionals including... Miller Mayer, LLP (immigration counsel)."
"We'll also recommend highly qualified immigration attorneys with significant experience in EB-5 petitions," says NYCRC Principal Paul Levinsohn in a NYCRC video, prepared as a general introduction to the immigrant investor process.
At an investment seminar in October in Beijing, Hayden told the audience, "Finally, our preferred immigration attorney is Miller Mayer, they're here with us tonight. Ms. Hilary Fraser's in the crowd, available to answer questions after the presentation." (See here for disclosure on sourcing.)
An FAQ on the NYCRC's web site leaves the impression there might be some distance between the regional centers and the attorneys involved:
Will the NYCRC assist me in obtaining my Green Card?However, if investors go with the "preferred" attorney, how much reason does that attorney have to challenge the NYCRC? Not much, though presumably potential clients must give informed consent about the deal.
Yes. Though your own attorney will oversee and coordinate the application process, the NYCRC team of professionals will answer questions and provide assistance through the process.
Big business for Miller Mayer
Regional center work is big business for Miller Mayer.
(At left, Fraser greets potential client at an event in Beijing in October sponsored by the Kunpeng consultancy.)
In a 7/26/10 letter to the United States Citizenship and Immigration Services, Miller Mayer's Stephen Yale-Loehr described the broad scope of the firm's work:
My colleagues and I here at Miller Mayer, LLP have filed over 25 EB-5 regional center applications. We are also preparing an additional 16 regional center applications. As such, we have probably filed more regional center applications than any other law firm and have considerable knowledge and experience about the process.If so, you'd think Miller Mayer would be willing to answer questions, explaining and defending its practices. That hasn't been the case.