September 6, 2017 by Senior Housing News
An embattled senior living developer has notched a legal victory in a lawsuit involving the EB-5 program for foreign investors.
Last June, the SEC filed a lawsuit against Taher Kameli and development groups he created, including Bright Oaks Group, alleging that they had mishandled and/or misused tens of millions of dollars raised from hundreds of foreign investors.
These EB-5 investors, mostly Iranian and Chinese citizens, hoped to ultimately earn green cards by providing capital for a planned $500 million pipeline of senior housing properties being developed by Bright Oaks and related entities. The EB-5 program offers green cards for foreign investors who contribute a certain amount of funding for U.S.-based projects.
The SEC sought a temporary restraining order and preliminary injunction against the defendants, and asked the court to appoint a receiver for the projects.
However, with regard to nearly all the main charges, the SEC did not present a compelling enough case, U.S. District Judge Joan Gottschall ruled on Sept. 5.
For example, the SEC claimed that Kameli improperly transferred $15.8 million in investor funds into brokerage accounts, and then used the funds to invest in securities.
But Kameli explained that his hands were essentially tied in taking this course of action, due to changes in regulations governing investments from Iran.
Furthermore, language in the funds’ operating agreements appears to give Kameli the right to transfer the investment capital into brokerage accounts, the judge wrote.
While “it remains to be seen whether Kameli’s account will ultimately prove true,” the SEC did not present sufficient arguments and evidence to address the points Kameli raised, the judge wrote.
Another allegation was that Kameli reaped a $1.06 million profit from selling real estate he owned to three of the senior living development projects in Florida. He did not properly disclose those proceeds to investors, the SEC argued.
“In response, defendants once again present testimony that, if true, provides a fuller picture of the events in question,” the judge wrote.
Specifically, Kameli says he purchased the land prior to establishing the EB-5 funds, and then sold the real estate at a discount to the projects, because the land had been appraised at more than $1 million.
The SEC did not respond to Kameli’s testimony on this point, and did not make a strong enough case for why Kameli was obligated to disclose more information to investors about these real estate transactions, the judge determined.
The SEC did show that it might succeed in proving its allegations with regard to how the defendants allegedly misused a line of credit, the ruling states.
However, the court denied both the motion for a preliminary injunction as well as the request for a receiver.
Despite this win in the courts, the Bright Oaks projects remain in disarray. A memory care community in Aurora, Illinois, is the only project to be completed, and only 12 of its 60 units are occupied, according to the court document. That number is out of date, and occupancy now is up to more than 25, Kameli told Senior Housing News on Wednesday.
The SEC investigation that has been ongoing since 2014 itself has made it difficult to secure needed financing to move the pipeline forward, Bright Oaks Group CEO Nader Kameli, Taher’s brother, told Senior Housing News.
“The cloud of investigation has followed the projects,” he said. “As you may know, in any financing process, [potential investors] ask whether there is any litigation, threat of litigation or government investigation. We have to disclose to them that there is one, and that is an ongoing investigation by the SEC. This fact scares them away.”
As long as the SEC continues to pursue this case with the projects listed as relief defendants, financing will remain difficult to come by, he said. He hopes that given the judge’s ruling, the case now will be dropped.
Attorneys for the SEC had not responded to requests for comment from Senior Housing News as of press time.
Written by Tim Mullaney
Original source is SeniorHousingNews.
Seyed Taher Kameli
United States Securities and Exchange Commission
United States Citizenship and Immigration Services