Tuesday, December 06, 2011

Lawsuit over control, revenues of NYC Regional Center: co-founder charged with fraud by former partner; counterclaim also charges fraud

The New York City Regional Center, which has marketed Atlantic Yards as an investment for green card-seeking investors, is the busiest regional center in the China market, and seems to be New York City's designated third-party source for such cheap capital, is embroiled, directly and indirectly, in two lawsuits, one described below, the other here.

Given the early stage of the lawsuits, and the confidentiality of certain exhibits, it's difficult to fully evaluate them. But it is clear that the EB-5 program can bring significant sums to the middlemen, and that can fuel disputes.

The New York City Regional Center (NYCRC), the private firm authorized to raise funds from immigrant investors under the EB-5 program is embroiled in a lawsuit one of its founders filed against another, and that engendered a counter-claim.

Empire Gateway, LLC which owns more than half the NYCRC, and Empire's controlling owner, George Olsen, charge that Sandra Kim Dyche fraudulently gained "membership interest in Empire" and never recruited investors. Thus she should return her membership interest, which is nearly half the value of Empire (and about a quarter of the value of the NYCRC).

In return, Dyche charges that Olsen fraudulently gained control of Empire, and that she deserves damages of at least $5 million.

This article is based on documents filed in the case so far, though some key documents are filed securely, and thus not open to inspection. A hearing in the case is scheduled for 1/13/12.

It's a big business, now


From the current web site
The suit has no direct bearing, apparently, on the NYCRC's Atlantic Yards effort, in which it has apparently raised $249 million from 498 investors, mostly from China but some from Korea.

But there's big money at stake. The low-interest loan could save developer Forest City Ratner more than $140 million and bring the NYCRC tens of millions in revenue, both from fees (at least $30,000 per investor) plus interest..

Nor does it have direct bearing on other NYCRC projects, raising money for the Brooklyn Navy Yard ($60 million from 120 investors) and Steiner Studios ($65 million from 130 investors).

From the May 2009 web site
Under the EB-5 program, the regional centers must demonstrate that each investment will create ten jobs, but no head count is required, and an economist's report--seen as a trade secret--can suffice.

While the program was designed to help the public interest, it offers significant potential revenue to the middlemen--the regional centers that package the deals, their foreign agents, and the law firms that work with them.

Suit overview

Dyche, also known as Sandra Kim Dyche, no longer appears on the NYCRC web site (see screenshots above), and the lawsuit explains why. She's also a defendant in a couple of unrelated lawsuits charging fraud (see below).

She appeared in two videos (Welcome to the NYCRC, 9/11/09 and NYCRC Professionals, 9/14/09), which I excerpted into the below video.



NYCRC background

The NYCRC is owned by two limited liability companies, Empire Gateway (55%), and Chambers Holdings (45%). Chambers is controlled by NYCRC principal Paul Levinsohn, while Empire is controlled, at least as of now, by NYCRC principal Olsen.

Olsen and Empire Gateway filed suit on 8/2/11 in state court in Manhattan.

According to the suit, in November 2007, Olsen, Dyche, and attorney Mehreen Shah entered into an Operating Agreement with respect to Empire Gateway. Olsen would own 40%, Dyche 36.25% and Shah 23.75%.

Exhibits in the case reveal details about how the firm got off the ground. In a 6/19/09 email (Exhibit H) to Shah and Dyche regarding a capital call, Olsen stated that he and Levinsohn "feel we need to put up a bit more [than the initial $135,000 capital call], as our marketing budget will not cover the videos we feel is necessary to introduce our projects to investors." (Here's one.)

Shared responsibility

According to an Olsen affidavit (which included the graphic below), Empire Gateway contributed $165,000 and Chambers Holdings gave $135,000 to establish the NYCRC. Initially, Olsen was to concentrate on real estate, Shah on administration and EB-5 compliance, and Levinson on marketing and investor outreach.

Dyche was to coordinate recruitment, as the initial primary target would come from South Korea. As it turned out, relatively few investors have come from Korea, while China--which supplies the most immigrant investors to regional centers around the country--has proven a much richer lode.


Dispute over Dyche's role

Olsen and Empire say Dyche "assured Olsen that she had extensive expertise and contacts in the identification and solicitation of potential EB-5 investors for NYCRC," and that helped get her on the team.

Dyche denies that, and says she brought the regional center idea to Olsen. She adds that, when she invited Olsen to join, there was no agreement that her membership interest was preconditioned on her ability to actually secure investment. She says that she did encourage investors, and that a stated $2000 payment for each new investor was an incentive bonus.

Olsen charges that Dyche, "in the almost four years since the execution of the Operating Agreement, utterly failed to take any steps to obtain EB-5 investors," while other representatives have taken up the slack.

The sale to Shah


Shah's interest in Empire was acquired by Empire, so Olsen now owns a 52.5% interest and Dyche has a 47.5% interest in Empire. But that process is contested in the lawsuit.


In a 9/18/09 agreement (Exhibit L), Shah transferred 21.75% of her 23.75% in Empire, leaving her with 2%, for $7921.81. She also got a promise that she would be named as a preferred attorney recommended to prospective investors and, if NYCRC lists recommended attorneys on its web site, she'd be listed.

Dyche did not sign the agreement at that time, but on 10/12/09.

Empire's suit charges that Dyche, in September 2009, tried to go around Olsen's back, as she "purported to enter into a secret and undisclosed agreement with Shah" to acquire the latter's membership interest in Empire, thus controlling the majority.

Olsen says Dyche backed off after her "duplicity" was discovered, while Dyche states that "Olsen threatened, intimidated and harassed her to such a degree that she was prevented from carrying through with her contract with Shah."

According to the counterclaim, from approximately 8/21/09 through 9/18/09, Olsen repeatedly harassed Shah to interfere with the agreement to sell her share to Dyche for $7921.81.

He also on 10/12./09, "by means of fraud, harassment and duress," coerced Dyche to sign a fraudulent Assignment agreement--a document known as Exhibit L.


Details on that process are yet unavailable; Dyche states that the Empire Gateway operating agreement says that founding members must act unanimously.


The referral agreement

The plaintiffs also say they recently discovered that, in July 2009, Dyche, purporting to act as a "principal" of NYCRC, executed a "Referral Agreement" [not made public] with her brother Back C. Kim, as "Agent,"

Under the agreement, Kim would receive a $25,000 "referral fee"--$5000 more than the customary fee--for each investor presented to NYCRC. Of that fee, $5000 would be an improper kickback to Dyche, according to the suit.

Dyche says Olsen approved the agreement with Kim, and some "exceptionally productive agents" get larger referral fees. She denies the kickback claim.

She also asserts Kim has been paid only $18,000 in commission payments, and is owed approximately $200,000 in unpaid referral fees. (See below for other lawsuits involving her brother.)

The plaintiffs say that Dyche is interfering with the Operating Agreement, which grants Olsen exclusive responsibility with respect to "all of [Empire's] decisions in connection with the day to day activities of regional centers."

Dyche says her consent is necessary for all decisions that "are not strictly day to day activities."

The counterclaim

Dyche, in a counterclaim filed 8/19/11, says she's been denied shareholder rights and a fair share of the company's profits.

Olsen "has improperly controlled the Company for his own benefit and excluded Dyche," she charges, without much detail,  and interfered with Dyche's purchase of shares.

Dyche also charges that the transfer of an interest to Chambers was unlawful, since Olson did not get unanimous consent of founding members.

Dyche says she never agreed to the 45% segment of NYCRC that "Olsen unilaterally and unlawfully agreed to sell to Levinsohn"--a claim that the regional center says is ridiculous, given that Empire and Chambers were founding members of the Regional Centers.

Dyche also named Chambers Holdings as a third-party defendant.

The response: Empire


In an affirmation, Empire Gateway attorney Bruce Lederman (who once represented operator of a homeless shelter in the AY footprint) says that Dyche's claims are untenable, as they're made under the New York Business Corporation Law, which is irrelevant to entities (like an LLC) formed under the Limited Liability Act.

Beyond that, Lederman states, documentary evidence shows that Dyche knew and accepted the fact that Chambers owned 45% and Empire owned 55% of NYCRC. For example, on 2/22/08, before NYCRC was formed, Dyche sent Olsen an email detailing that if Empire elected to go into business with "Paul's group" that Olsen, Dyche and Shah would own 55%.

"That Dyche... was somehow unaware of Levinsohn's interest from the get go is fanciful, and at this late and opportunistic date, she has waived any right to assert otherwise," Lederman states.

Given Dyche's "self-professed accomplishments as an experienced business woman," her claims of undue influence and fraud should be rejected, Lederman stated.

The response: NYCRC/NJRC/Chambers

The regional centers are represented by their own counsel. A memorandum of law similarly states that Empire always had a 55% membership interest in NYCRC and that the alleged improper transfer took place before the regional centers existed, and thus they cannot be liable.

Nor does Dyche, who is not a member of either regional center, have standing to sue, say these parties. The Regional Center Operating Agreement (see Exhibit A) was formed with two members: Empire and Chambers.

Murky issues

Not all the documents have been released, and the documents made public only go so far. Documentary  evidence suggests that Dyche knew that Chambers owned 45% of the NYCRC and that she Dyche complied with the sale of Shah's interest to Empire Gateway.

The evidence regarding Dyche's performance as alleged by her adversaries, and of the undue influence and fraud she alleges, remains unclear.

What is clear is that there now is significant value in the NYCRC to fight over.

More on Dyche: cases alleging fraud

The NYCRC's Levinsohn, I've noted, has a questionable past as one of New Jersey's "Billboard Boys." Olsen was found by Reuters to offer evasive explanations of the NYCRC's deceptive marketing.

 And Dyche has been subject to some severe criticism in two legal cases.

The first case involves an allegation, yet unresolved, of investment fraud. In a 4/2/11 decision in the case An vs. Dyche, New York County Judge Joan Madden denied a motion by Dyche, her niece, and Dyche's company American Gateway Energy (AGE) to dismiss an allegation by a Korean couple that Dyche and others defrauded them out of $1.2 million investment in a sham power plant.

The intrigue includes an alleged $50,000 to Dyche's brother Kim as a finder's fee, as well as $350,000 he gained of the investor's money.

Wrote Madden, "the court finds that Dyche willfully and contumaciously failed to comply with the April 30, 2009 discovery order." The case is scheduled to go to trial in February.

The second case, now resolved, involves the failure to repay a loan. In 2/4/09 decision in the case Joo vs. Cho, et al., New York County Judge Lottie E. Wilkins rejected a motion by the defendant, Dyche's company AGE to set aside a verdict, in which the jury found that Dyche's brother Kim "had conveyed [an apartment] to AGE on August 31, 2004 with actual intent to hinder, delay or defraud present or future creditors."

The judge wrote:
Plaintiffs initially commenced this action against several defendants including AGE asserting various claims all arising from a loan plaintiffs made to defendant Back Chul Kim in 2003 secured by a mortgage for the premises located at 304 East 65th Street, Apartment 3C, in Manhattan. At the time of the loan, Back Chul Kim held himself out to plaintiffs as the owner of the premises. The loan was not repaid and, for reasons detailed in the record at trial, plaintiffs delayed significantly in filing their mortgage lien on the property. On August 31, 2004 Back Chul Kim sold the premises to defendant AGE, a company at least partially owned by his sister, Sandra Dyche. Notwithstanding the August 31, 2004 transfer of title from her brother to her company, Ms. Dyche maintained that she had always been the true owner of the apartment and that she only permitted title to be placed in her younger brother's name for the purpose of enhancing his image and giving him the appearance of respectability despite his "spoiled" nature and "playboy" lifestyle.
The plaintiffs, who had given Kim a loan in the amount of $88,000, ultimately began a foreclosure process on the mortgage, prompting Dyche to arrange for payment of her brother's debt, according to the Joos' attorney, Jeffrey Dannenberg.NYCRC Receives Full USCIS Approval

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