U.S. District Judge Donald M. Middlebrooks entered Final Judgment in favor of a limited partnership and its 52 EB-5 investors, based on motions and memoranda filed by Kenneth Dante Murena, Partner at Damian & Valori LLP | Culmo Law, along with Associate Jonathan Groth and Partner Allison J. Leonard, on behalf of the investors who commenced the action against Joseph J. Walsh, Sr. and various entities he controlled.
In 2018, nineteen investors represented by Mr. Murena brought direct claims and derivative claims on behalf of the limited partnership through which they had invested with Mr. Walsh and his entities, including South Atlantic Regional Center (now in bankruptcy), for purposes of obtaining permanent residency in the United States through the federal EB-5 program. The investors stated claims for fraud, breach of fiduciary duty, violations of securities laws, violations of the Civil RICO Act, civil theft, conversion, breach of contract, fraudulent transfers, and unjust enrichment against Mr. Walsh and/or the entities through which he perpetrated the fraud.
In accordance with the requirements of the EB-5 program, 52 foreign nationals invested $500,000 (for a total of $26 million) in Royal Palm Town Center IV, LLLP (the “Partnership”), the new commercial enterprise that Mr. Walsh, as the general partner, had set up for the purpose of loaning the invested funds to Royal Palm Development I, LLC (“RPD”), the job creating entity that Mr. Walsh, as manager, had set up to purchase, renovate and lease out 60 commercial condominium units in Palm Beach County, Florida and ultimately create the jobs needed to secure the investors’ permanent residency under the EB-5 program. In addition to making the $500,000 investment, Mr. Walsh convinced each investor to pay tens of thousands of dollars to his firm, JJW Consultancy Ltd., to manage the EB-5 application process.
RPD purchased all 60 units with the investors’ funds but failed to complete the renovation of, or lease out, most of the units, despite claiming to have entered into a 10-year lease with one large tenant for all of the units. Instead, Mr. Walsh transferred millions of dollars of the investors’ funds to his other real estate projects, to himself, and to the would-be tenant, which quickly vacated the few units it occupied and turned out to be affiliated with Mr. Walsh’s ex-wife.
Therefore, the required number of jobs were not created and the investors’ petitions for permanent residence were denied, subjecting them to possible deportation while they sought reconsideration of the denials. Further, rather than granting the Partnership (of which the investors are limited partners) the first-priority lien to which it was entitled under the Loan and Security Agreement, RPD, at Mr. Walsh’s direction, pledged the 60 units as collateral for two separate loans from two different lenders, granting them liens on the property and diverting the vast majority of the loan proceeds to Mr. Walsh’s other real estate projects. And, RPD and Mr. Walsh failed to repay a single penny of the $26 million loan to the Partnership. As a result, the 52 investors lost all of the funds they had invested and never received any benefit for the tens of thousands of dollars in consultancy, administrative and legal fees they had paid to Mr. Walsh.
In the end, Judge Middlebrooks held Mr. Walsh liable to the 19 investors who had brought the action for fraudulent misrepresentation and to the Partnership, derivatively, for breach of fiduciary duty, and found “that, under the derivative claim, the Partnership is entitled to $26 million, representing the amount that it loaned to Defendant RPD which Defendant RPD did not repay, plus any unpaid interest due under the Loan and Security Agreement.”
“Our primary objective is to advocate for clients who have been victimized by wrongdoers and never relent until justice is done,” said Mr. Murena. “Mr. Walsh defrauded 52 investors out of more than $26 million dollars. And the Court has now spoken, confirming Mr. Walsh’s blatant fraud and breach of fiduciary duty and holding him accountable to the tune of $26+ million. This feels like justice.”