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Former affiliate of NYC Regional Center files suit, claiming firm stole confidential Chinese client list, thus saving millions in finder's fees for EB-5 investors in Atlantic Yards, other projects

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 thus fuel disputes.

The New York City Regional Center  (NYCRC), which has focused on recruiting green card-seeking investors in China, is facing a lawsuit filed by a former affiliate, which claims that the NYCRC appropriated its confidential client list and thus evaded obligations to pay $6 million in finder's fees for new investors.

The lawsuit, filed 4/18/11 by Lion's Property Development Group, also names Hoche Partners Capital and its president, Gregg D. Hayden as defendants. Hayden has served as the NYCRC's chief salesman in China (as I've described) under the title "General Manager Asia" on behalf of NYCRC.

Lion's (led by Chaim Katzap) argues that NYCRC has thus recruited more than 200 investors without paying the $30,000 fee it owed Lion's, or a total of $6 million. (That $30,000 fee, however, would have included a downstream finder's fee of $15,000 from Lion's to each local affiliate.)

There's good reason to pay a big referral fee; I estimated that the 498 investors in the Atlantic Yards project might earn NYCRC $50 million. Meanwhile, Forest City Ratner will get the benefit of a $249 million low-interest loan, from 498 immigrant investors, itself saving perhaps $140 million.

The NYCRC would benefit from the spread between the no-interest offered investors--who care more about green cards than investment returns--and the low interest, perhaps 4% to 5%, charged to the borrower.

Indeed, the suit charges that NYCRC told the local affiliates, aka Network Agents, they'd get $20,000 rather than the $15,000 offered by Lion’s if they worked directly with NYCRC to recruit investors for Atlantic Yards and the other two projects, involving the Brooklyn Navy Yard and Steiner Studios.

Defense response

The defense says the charges aren't true, that the Network Firms had a right to work directly with NYCRC, and that no exclusive relationship was promised to Lion's, which doesn't deserve credit for introducing NYCRC projects to some of the China's best-known agencies.

The defense says Lion's was supposed to solicit only individuals and representations of individuals.

It also charges Lion's for fraudulently misrepresenting its expertise, violating confidences, and bringing in only two investors.

(The Referral Agreement, likely a key to the case, is a secured exhibit and thus has not been made public.)

The public interest?

The immigrants, who park $500,000 for five years, are willing to forego a return in exchange for green cards. They need not live in the community where they investment, nor speak English. Many Chinese investors, for example, want to ensure that their children can become educated in the United States.

What about the public benefit? The investments are supposed to create jobs, but in some case--as I've shown with the Atlantic Yards investment--they don't create new jobs, and the immigrant investors get credit--apparently legal, though logically questionable--for the jobs created by the entire $1.448 billion in the "Brooklyn Arena and Infrastructure Project."

The lawsuit touches briefly on some public interest issues. For example, Lion's charges that that NYCRC, and its agents, have made incorrect representations in their own presentations, for which Lion’s sought correction.

For example, the suit says, NYCRC and Cansine (which has worked on the Navy Yard project, at least, and put its logo on an official NYCRC video, right) made a joint presentation to investors falsely describing a project  as being “guaranteed by government-owned land. So there is no risk.”

NYCRC denies that.

It's not clear to which project they referred, but in presentations regarding Atlantic Yards, both NYCRC affiliates and Hayden offered guarantees of no risk, which are contradicted by the NYCRC's contractual avoidance of warranties.

The relationship with New York City

Also, the suit points to the relationship the regional center, a private business, has established with New York City officials, who are apparently eager to steer developers to a source of cheap capital that costs the city nothing.

Regarding the relationship with a Chinese firm, Henry Global, the suit says, "In an imperial attempt to justify its improper interference, NYCRC told Mr. Katzap 'this is our regional center and our relationship with the government of NYC that we need to protect.'"

Looking for clients

In the suit, Lion’s Property claims it "possesses unique knowledge of the Chinese business community,"  having established connections with immigration agencies, law firms, education consultants, and others.

The NYCRC signed a Referral Agreement with Lion’s in July 2009, which Lion's says, "authorizes Lion’s Property to be responsible for the marketing of NYCRC projects in China, and provides that Lion’s Property would be paid compensation for introducing Chinese investors to NYCRC."

The defense, however, denies that Lion's had any such network, given that it had no EB-5 experience in China, and that the Referral Agreement did not grant Lion's exclusive rights.

According to the suit, "NYCRC conspired with Hoche to cut Lion’s Property out of the process by misusing Lion’s Property’s confidential Client Lists to contact the Network Agencies directly, in many cases interfering with express contractual agreements between Lion’s Property and the Network Agencies."

Lion's, on its Former Projects page, lists the Brooklyn Navy Yard and Steiner Studio projects. It is currently touting another EB-5 project, the details of which are upcoming.

However, the NYCRC says only two actual investors were introduced by Lion's to NYCRC, and compensation was paid. Hoche had no involvement in the solicitation of investors.

The suit seeks damages under breach of contract, tortious interference with contract; tortious interference with prospective business relations; breach of confidence; unjust enrichment; trade defamation/slander.

Lion’s Property also charges NYCRC and its principals with "trade defamation," including false and disparaging statements that have cost Lion’s existing contracts and suffered other damages.

The defense responds that Lion's wrongfully disclosed confidential information.

Regional center established

The United States Citizenship and Immigration Services (USCIS) on 10/30/08 approved NYCRC’s application to be designated as a Regional Center under the EB-5 program covering the Boroughs of Manhattan, Brooklyn, Queens and the Bronx, and full approval was received in March 2009.

Thus the NYCRC got into the game fairly early, at a time when developers and others seeking cheap
capital recognized this could be a source. In 2008, there were perhaps 35 Regional Centers, but as of September 2011, there were 180.

Lion's in China

Lion’s Property, the suit states, "entered the China market as a real estate related investment advisory firm for China's internationally minded elite. Since 2007 it has established business operations in Beijing with a team of specialists offering a myriad of services including market analysis, returns forecasting, financing assistance, property leasing and management."

Because foreign companies can't directly solicit investors in China, Lion’s Property developed a network of firms and people within China, according to the suit, and cultivated name recognition via "extensive advertising, promotional activities (such as sponsoring golf tournaments), and other marketing efforts."

Lion's also says it gained credibility through media coverage; for example, the 1/13/08 edition of the International Herald Tribune contained an article (also in the New York Times Real Estate Section) headlined China primed to invest in U.S. sites and featuring Lion's.

Lion's says that its connections made it "a critical resource for the NYCRC entering into the China market to obtain its 120 investors for the first phase of the [Brooklyn Navy Yard] project, and subsequent projects such as the Steiner Studios and the Atlantic Yards projects." 

Lion's says NYCRC asked Lion’s Property to use its contacts to create referrals to NYCRC--a statement denied by the defense, which says Lion's approached NYCRC. (Those two things are not mutually incompatible.)

The Referral Agreement

On 7/9/09, NYCRC and Lion’s entered into a Referral Agreement, according to the suit, and the latter was "authorized to be responsible for NYCRC/BNY EB-5 investor marketing, sales and services in the People’s Republic of China.'"

NYCRC responds that the agreement was not exclusive, and that Lion's specifically requested and was denied a broader scope of rights.

NYCRC agreed to compensate Lion’s, according to the suit, for any potential investors who were “introduced to NYCRC” – made aware of NYCRC – by Lion’s. The suit says the Referral Agreement, precludes the NYRC from dealing directly with "these entities."

The defense says the agreement makes no mention of "solicitations conducted through so-called 'Network Agencies,'" a key part of the Lion's claim.

Lion's says it "contacted and created its network of Network Agencies in China that to work with prospective clients in processing their applications with NYCRC."

The defense, however, says the firms were simply those that were well-known in China, and did not provide any "exclusivity" commitments to Lion's--and that Network Agencies were not mentioned in the Referral Agreement.


Lion’s says it translated the project marketing materials and project overviews provided by NYCRC, and then "printed hundreds of copies of the confidential information memorandum, along with thousands of brochures, hundreds of DVDs, and other materials, all at its own cost."

The NYCRC says it doesn't know if that's true, but if it is, they were done without consent or authorization.

Lion's said "each Network Agency signed the Project Overview, confirming that they had learned of the project through Lion’s Property"--to which the defense says did not commit them to work exclusively through Lion's.

Katzap in August 2009 travelled to China and "personally met with the Network Agencies to explain the NYCRC projects," according to the suit.

The defense says that all efforts were on a non-exclusive basis, with others also attempting to solicit investors.

Lion's says that he was encouraged by the NYCRC's Paul Levinsohn after he reported that he was “blanketing the PRC [People’s Republic of China] market,” and Levisohn promised to provide additional marketing materials.

The defense says that Lion's knew other individuals and firms were making solicitations.

Lion's says it established agency relationships with several Network Agencies, including Qiao Wai Immigration Consulting Co. (which played a significant role in promoting the Brooklyn Arena project, I'd point out).

The defense says the firms had no obligation to direct potential investors to NYCRC through Lion's.

Cementing relationships

On about 8/25/09, according to the suit, Lion’s Property transmitted to NYCRC a list of 23 Network Agencies.

The defense says that those agencies had not signed agreement with Lion's, and that NYCRC's George Olsen told Lion's, orally, and in an email dated 11/4/09, that NYCRC would not recognize any such agencies without a written agency agreement.

Lion's recognized that NYCRC might attempt to establish direct relationships with these entities, according to the suit, and Olsen told Katzap, without being specific, that “a couple” of those entities on the Client List had been identified by “others.”

However, the defense says Olsen told Katzap that NYCRC would not recognize and pay commissions based on a "blanketing" of the market and that "you cannot go to the phone book and send us that list and expect to be protected."

Lion's claims that, prior to that 8/25/09 email, it had not been told that NYCRC had made any independent contact with such firms and that each had confirmed "that they had no prior knowledge of the NYCRC/BNY project."

The defense says that the "Network Firms" are large and well-known that they can be "identified" by anyone with a basic knowledge of the market.

On 8/27/09, Lion's says it provided a revised Client List with 35 names. “I briefed every one of them PERSONALLY about NYCRC and BNY [Brooklyn Navy Yard],” Katzap said in a message.

The defense says that there was no exclusive obligation and it denies Lion's allegation that it did not dispute Lion’s assertion that these entities had been gained through Lion’s Property’s work efforts.

Lion’s prepared an “Agency Cooperation Agreement” for one year with several firms. The NYCRC says those firms provided just one investor, and that the agreement did not provide Lion's with exclusive rights.

Allegations of interference

"NYCRC improperly utilized the information provided to it in order to interfere with Lion’s Property’s relationship" with the firms, according to the suit, which charges that NYCRC "agreed to retain Ms. Sung Bing, a Chinese citizen, to serve as a native-speaking representative of NYCRC," and hired her through Hayden’s firm, Hoche Partners Capital.

The defense says she was never retained by either Hoche or NYCRC.

The suit says NYCRC provided Bing with Client Lists that Lion’s Property had provided to NYCRC in confidence and that she was told to advise the Network Agencies not to work with Lion’s but instead to work directly with NYCRC. Bing was promised $5,000 for each investor, according to the suit.

The defense says that's not true.

The suit also says that "Bing falsely advised them that Lion’s Property was not authorized to deal with the Network Agencies, and directed the Network Agencies to deal directly with NYCRC, and particularly with Mr. Hayden." The defense says they don't have knowledge of what Bing said.

The suit says NYCRC's Levinsohn and Hayden advised the Network Agencies on Lion’s Property’s Client List that "if they continued working with Lion’s Property, they would not receive any cooperation from NYCRC." The defense denies that.

Lion's charges that NYCRC improperly claimed that Lion’s was not authorized to represent NYCRC; the latter says that Lion's falsely represented an exclusive agency relationship. 

NYCRC told the Network Agents, according to the suit, they'd get $20,000 rather than the $15,000 offered by Lion’s Property if they worked directly with NYCRC. The defense says that's not true, but that the Network Firms had a right to work directly with NYCRC.

Dueling accounts

Lion's says the Well Trend firm agreed to accept $15,000 of the $30,000 referral fee for every investor referral and agreed to market the program. However, according to the suit, NYCRC "falsely told [Well Trend's] Mr. [Larry] Wang that Lion’s Property was not authorized to act on behalf of NYCRC."

The defense says that's not true, and that, at the least, Well Trend was told Lion's did not have an exclusive agency relationship with NYCRC.

On 10/21/09, Wang told Katzap that he was “confused,” because he had been advised “by Gregg [Hayden]” that Lion’s was not authorized to represent NYCRC, according to the suit.

The defense denies knowledge or information whether that's true.

On 10/26/09, "Wang visited New York at the behest of NYCRC, and thereafter signed with NYCRC as a 'Direct Authorized Agent,'” according to the suit. Katzap soon told NYCRC that the relationship was
established through him.

The defense says Lion's did not have any contracts with Well Trend and other firms.

According to the suit, another firm, Cansine, "was ready to execute an Agency agreement with Lion’s Property" awaiting additional marketing materials from NYCRC. The head of Cansine told Lion's, according to the suit, that NYCRC had offered Cansine $20,000 per investor to work directly with them.

NYCRC says that's not true.

NYCRC restricts Lion's?

"After having successfully usurped Lion’s Property’s network, and being bothered by Lion’s Property’s protests over NYCRC’s conduct," the suit charges, on 12/3/09, NYCRC told Lion’s Property by email that it should conduct no further seminars without written consent of NYCRC, because "seminar materials were inaccurate in some undisclosed manner."

NYCRC says it had the right to do so, and on 12/9/09 told Lion’s it could not conduct further seminars without advance approval.

Lion's claims "NYCRC’s purported reason for prohibiting Lion’s Property from engaging in
further marketing was pre-textual," as the materials being used had been prepared or approved by NYCRC. The defense denies that.

Bing's role

According to the suit, in April 2010, Bing began contacting companies working on EB-5 projects, touting her work experience for NYCRC. Hou Xiaoyu of Lion’s Property contacted Bing, who confirmed she had been working with Hayden.

Katzap and Bing met 6/9/10, and Bing "confirmed that she had been provided with copies of the client list that Lion’s Property had emailed to NYCRC in trust and confidence in August 2009," according to the suit, and said Hayden told her "to use the client list to contact the immigration firms and induce them to deal with NYCRC directly."

The defense says it lacks knowledge to assess the truth of this allegation.

Because NYCRC knew that this was improper, Hayden warned "Bing that she should never disclose the source of the listing to anyone, specifically to Lion’s Property," according to the suit, and that she should avoid meeting with NYCRC in public. The defense denies that.

Breach of the Referral Agreement?

Thanks to Lion's and its relationships with the Network Agencies, NYCRC has secured some 750 investors for its three projects, the suit claims. The defense denies that. 

The suit says that, in June 2010, Katzap met with Olsen and sought information about the investors, which NYCRC initially agreed to provide, but then refused to do so. The defense says that's not true.

NYCRC’s disparagement

Not only has  "NYCRC falsely disparaged Lion’s Property’s work to the Network Agencies," the suit says, it "also has disparaged Lion’s Property to other EB-5 Projects."

For example, BirchLeaf Miami 31 on 9/8/10 terminated its agreement with Lion’s, because, according to the suit, NYCRC said Lion's provided no investments from Chinese investors; acted beyond what NYCRC had authorized; and had made misrepresentations to investors.

The defense says Lion's did commit those acts, but denies that it had made such statements as charged.

The defense responds

The defense says that Lion's "procured the execution of the Referral Agreement by NYCRC through fraudulent representations and concealment of material facts concerning its abilities to obtain investors in China, as well as its intentions to solicit only individuals and representations of individuals."

Beyond that, NYCRC has no liability because Lion's breached its obligations to maintain documents in confidence. Lion's denies that.

The defense also states that Lion's has made "false and defamatory statements" in the U.S. and China "concerning the integrity and abilities of NYCRC and its principals." Lion's denies that.

NYCRC also charges that Lion's has tried to get firms in China to stop doing business with NYCRC. Lion's denies that.

What next?

According to an 11/10/11 preliminary conference order and schedule, the parties are currently involved with an exchange of documents, with documents and answers to written interrogatories due by 12/23/11, and depositions (EBTs, or examinations before trial) due in two stages, by 2/3/12 and 4/6/12.

A compliance conference is due 5/11/12.

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