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Palm House Robert Matthews EB-5 Clintons Trump Tony Bennett
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JJune 2019
Lost paradise at the Palm House
The planned $91M hotel-condo project has been a case study in EB-5 fraud, leaving investors in the lurch and an unfinished
building in its wake
By Keith Larsen | June 17, 2019 11:00AM
The Palm House
When Chinese, Iranian and Turkish investors received marketing brochures for the
town of Palm Beach’s first EB-5 project in 2012, it seemed like a sure thing.
Pamphlets in Chinese and Farsi showed photos of the Clintons and Donald Trump as
part of the Palm House condominium and hotel advisory board of “political and
business leaders with worldwide experience.” In addition, the marketing materials
named Celine Dion, Tony Bennett and billionaire Bill Koch as celebrity members at
the hotel’s club.
But more than six years later, the Palm House’s planned $91 million makeover
remains unfinished. The dilapidated 80,000-plus-square-foot hotel finally sold in a
bankruptcy auction last month to a U.S. affiliate of the real estate investment firm
London & Regional Properties for just shy of $40 million.
To add salt to the wound, Trump and Clinton were never on the project’s advisory
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in EB-5 funding for personal expenses, including the purchase of a 151-foot yacht
named “Alibi” and his own debt payments.
Matthews and the project’s general contractor, Nicholas Laudano, recently pleaded
guilty to fraud charges in federal court, while the 91 EB-5 backers lost their $500,000
investments and never received their green cards.
The EB-5 regional center in charge of marketing the Palm House project and
soliciting the investments, however, has not been criminally charged. The South
Atlantic Regional Center (SARC) and its director, Joseph Walsh Sr., were allegedly
able to siphon nearly $9.5 million of the foreign investors’ money, according to a civil
complaint filed by the SEC in federal court.
To date, Walsh has only been charged civilly. He was allegedly even found recently
trying to solicit other EB-5 investors for another hotel project in Miami Beach, per a
lawsuit filed in Palm Beach County.
“This is the most egregious fraud case I have ever seen,” said attorney David George,
of George Gesten McDonald PLLC, who’s representing EB-5 investors in the Palm
House lawsuit.
Regional centers like SARC function as middlemen between
developers and their foreign investors. But despite the key role
they play in the EB-5 process, there’s minimal regulation over
how they operate and few safeguards to protect investors.
The current system, critics say, is a petri dish for fraud that
allows bad actors to come and go — in many cases with no
criminal prosecutions. At the same time, lobbyists for the real
estate industry have pushed to ensure these rules remain in place.
“No one is watching the regional centers,” said Doug Litowitz, a Chicago attorney who
was not involved in the Palm House lawsuit but represents Chinese clients in other
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Matthews, 61, gave investors the impression that he was a well-known luxury hotel
developer with a global track record, including completed projects in New York, Bora
Bora and Mexico. There is no evidence of him completing these projects.
Instead, his past dealings were mired in controversy and litigation, including another
failed condo-hotel project in Nantucket called the Point Breeze that was forced into
bankruptcy in 2010.
Matthews, who was raised in Massachusetts, moved to Connecticut in the mid-80s
after dropping out of college and started buying up apartments and commercial
properties in Waterbury. Locals there began drawing comparisons between Matthews
and the fictional Jay Gatsby due to his ritzy parties and expensive tastes, according to
the Hartford Courant.
He owned a 108-foot yacht named the Bon Vivant and claimed to possess North
Carolina’s original Bill of Rights, which had been stolen by a Union soldier in 1865
and was recovered by the FBI just over 10 years ago. Adding to the Gatsby
comparisons, Matthews became close with Connecticut’s then-governor, John
Rowland, in the 90s.
The developer used his political connections to secure favorable contracts with the
state government, allowing him to purchase government-owned property, among
other things, according to the New York Times. To return the favor, Matthews
allegedly bought a condo in Washington, D.C., from Rowland through a straw buyer
in 1997 for nearly 20 percent more than what the governor had originally paid.
The condo sale and other business dealings eventually led to a corruption
investigation into Rowland. But Matthews was never charged. So, he headed to South
Florida where he first bought the historic Palm House — which needed substantial
repairs — in 2006. Then six years later, Matthews began soliciting EB-5 investors for
what he called Palm Beach’s last opportunity to build a “five-star hotel.”
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investors generally function as individual lenders on those projects, but they rarely
have a way to collect money if the project fails.
“The whole thing has to do with corralling desperate people in China, who believe
that Americans wouldn’t lie to them out right,” Litowitz said.
And while the program was designed to create jobs in rural and distressed regions
known as “targeted employment areas,” communities like Palm Beach — a top
destination for wealthy retirees with a median household income of more than
$110,000 — somehow met the same criteria.
Florida’s Department of Economic Opportunity approved the Palm House project for
such a designation in 2012 because Palm Beach had an unemployment rate of 18.5
percent, above “the qualifying rate of 13.4 percent for that time period,” according to
the state agency. Other EB-5 projects, including Hudson Yards in New York, the
largest private real estate development in the country, were also able to take
advantage of similar demographics.
Without mentioning his past dealings in Connecticut or in Nantucket, Matthews
touted his wife Mia Matthews’ success as an actress, singer and star of the
Nickelodeon show “Every Witch Way” and CW’s “South Beach,” which lasted all of
one season. To further show off his connections and status in Palm Beach, he would
take EB-5 immigration agents from China to a Mar-a-Lago charity event to meet
Trump and take picture with him, according to a complaint filed by EB-5 investors in
Palm Beach County Court.
The developer’s investment pitch also failed to mention that it was actually his
second time acquiring the Palm House. And there was no mention of the fact that
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By the books ?
To legally get EB-5 investors to put money into his project, Matthews was required to
go through a regional center regulated by U.S. Citizenship and Immigration Services
under the Department of Homeland Security.
So, he tapped Walsh — a South Florida resident who had a specious track record with
development projects — to raise the money through SARC. While it’s unclear how the
two met, Walsh allegedly lent Matthews more than $5 million of the foreign investors’
funds to keep his Palm Beach mansion from being foreclosed on.
(Click to enlarge)
In March 2014, Matthews sent Walsh an email to thank him for “saving [his] house,”
according to the SEC complaint.
As more developers turned to EB-5 for cheap financing after the financial crisis, more
regional centers received approval from the USCIS. From late 2014 to June 2019, the
number of regional centers in the U.S. jumped nearly 60 percent to 884, according to
USCIS. At the same time, close to 300 regional centers have been shuttered since
2007.
That high failure rate among EB-5 regional centers stems from an approval process
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“really just needs a business plan and numbers to support the government’s jobs
projections and give the appearance that it is able to execute on that plan.”
But a handful of legal experts argued that there’s minimal oversight by USCIS during
the course of most projects being built.
The agency is “inept at controlling the fraud,” said Michael Gibson, managing director
at the EB-5 advisory firm USAdvisors.org. “No one knows who the true owners of the
regional centers [are,] and there is no information on any of this. How can you deter
fraud when there is no way for anyone to do any due diligence?”
A spokesperson for USCIS said the agency has a team of auditors that conduct
compliance reviews on regional centers and noted in an email to The Real Deal that it
“does not release information on specific EB-5 applications, investors or related
projects due to [the Privacy Act] and other restrictions.”
“USCIS takes any violation of the law seriously, and we will explore all actions
available to us to ensure the integrity of our immigration system,” the spokesperson
added. “Where instances of fraud are suspected or proven within the program, USCIS
takes appropriate measures to deal with any actors involved in the fraud, including
terminating regional center designation.”
Regional centers have come under scrutiny for their roles in these EB-5 frauds in
recent years.
USCIS shutdown Vermont’s sole EB-5 regional center last year on the heels of the
country’s largest EB-5 fraud to date in the state’s so-called Northeast Kingdom.
Elsewhere, in Jupiter, Florida, Nicholas Mastroianni — who’s helped raise EB-5 funds
for the Kushner family’s real estate projects — was sued last October over his
Harbourside Place development by nearly 80 Chinese investors who accused him of
defrauding them. Mastroianni has denied these charges.
One of the underlying problems is that regional center
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Solutions. In turn, regional centers do not have an obligation
to protect investors’ money if a development project sours.
“That’s where the weak link of the chain is — there is no real enforcement of the
fiduciary rule to protect investors,” Latour added. “The regional center says, ‘Hey I’m
not responsible.’”
The USCIS spokesperson said the agency has terminated nearly 220 regional centers
since January 2017, due to evidence of foul play.
But U.S. legislators have continued to kick the EB-5 program down the road, giving it
about 20 short-term extensions with many lasting only six months. And industry
lobbyists have aggressively pushed back against any reform. The EB-5 trade group
Invest in the USA has spent nearly $1.8 million lobbying on the federal program’s
behalf since 2014, while the lobbying group for the Related Companies’ EB-5
business spent more than $500,000 in 2018 alone, according to the Center for
Responsive Politics.
“This is not unlike any other industry that can produce a toxic product like the opioid
industry or the tobacco industry,” Gibson said. “There is a powerful interest involved.
They don’t want any oversight. They don’t want information about their projects to
come public.”
Blurry middlemen
Unlike Matthews, whose background is well documented in local news, SARC’s Walsh
remains something of a mystery.
In the Palm House EB-5 marketing brochures, the smiling gray-haired regional center
operator claims to have a background in advertising and electrical engineering. He
also claims to have launched “several startup computer and graphics firms that he
brought to the public markets in the late 1990s and early 2000s.”
Walsh could not be reached for comment through his lawyer.
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selling the mineral rights to 600,000 asteroids in space, an investor prospectus
claimed.
Walsh’s son did not respond to multiple requests for comment.
(Click to enlarge)
Despite proclaiming innocence, Walsh is not in the U.S. to face any charges, according
to multiple sources. George, the plaintiff attorney, said SARC’s founder is now either
in Vietnam or Australia.
Walsh’s success in getting foreign backers on board for the planned Palm House
project, according to the SEC’s complaint, was largely based on lies made to
unsuspecting investors who believed the project carried minimal risk.
In bold font, one marketing brochure claimed that the EB-5 investor money would
only be used for 43 percent of the project’s total costs while the rest would be covered
by a $29 million loan from a “reputable bank” and $22 million in equity from the
developer.
None of that was true.
SARC also claimed the investors’ funds would be held in an escrow account at PNC
Bank until their green cards had been approved by USCIS and that the money
wouldn’t be touched until then. Investors were even sent photos of a PNC account
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Fast withdrawals
As soon as deposits for the Palm House came in, Matthews, Walsh and Laudano, the
project’s general contractor, allegedly began to withdraw money for personal uses.
After Matthews was charged with using the account as a piggy bank, Walsh fired off a
press release last year claiming he and SARC had been absolved.
“It saddens me to see the waste of time, money and talent, and the human and
financial capital that these conspirators perpetrated in multiple courts and plain good
old fashion lies to continue their charade for years,” Walsh said in the release.
He even reportedly went a step further by hiring Brian Aryai, a certified accountant
who claims to have worked as senior special agent for the Department of Homeland
Security, to provide a detailed audit showing how the money was lost.
The report, meant to clear Walsh’s name, noted that he moved $9.3 million from the
Palm House account to his own company through more than 39 individual
transactions between September 2013 and January 2015.
SARC’s founder is now facing additional civil charges over an office condo project in
Royal Palm Beach — another development SARC raised $6.5 million in EB-5 funds
for.
“Walsh solicited and obtained investors for all of these projects,” George said.
But USCIS didn’t have to travel far to determine the unfinished project was a racket —
the agency’s local office sits directly across the street from the Royal Palm site,
according to Google Maps.
“It’s remarkable… These cases come and go, and there is no reform,” said Gibson, who
cited “egregious misuse of funds [while] the industry continues without a bump in
the road.”
Tags: eb-5, palm house, palm house hotel, robert matthews, South Florida June 2019
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