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Scammed Immigrant Investors’ Case Against Law Firm Revived (2)

Oct. 30, 2019, 4:35 PMUpdated: Nov. 1, 2019, 5:52 PM

One of two law firms involved with an investment scam must continue to defend a lawsuit brought by a class of 54 immigrant investors who say they were cheated out of their money and a chance at U.S. citizenship, the California Court of Appeal ruled.

Ithaca, N.Y.-based Miller Mayer and Wolfsdorf Rosenthal, which has a main office in Santa Monica, Calif., tried to get the case thrown out under a California law that bars lawsuits based on their exercise of free speech. Both firms prevailed in trial court with the argument that the state’s Anti-Strategic Lawsuit Against Public Participation, or Anti-SLAPP law shielded them from litigation over their submission of immigration petitions to the government.

But while the investors’ allegations against Wolfsdorf directly involved protected activity—the firm’s filing of their immigration paperwork—that wasn’t the case with the allegations against Miller, the Second Appellate District said Oct. 29 in an unpublished decision.

Rather, the investors say Miller prepared the misleading private offering memorandum on which they relied in deciding whether to invest, the court said. The firm’s protected activity—petitioning the government for an EB-5 regional center designation—was “merely incidental,” it said.

“We’re pleased with the decision of the Court of Appeals as another step in confirming that plaintiffs’ claims are meritless and lacking in any evidence as to the allegations against Wolfsdorf Rosenthal, LLP,” the firm’s attorney, Valerie A. Moore of Haight Brown & Bonesteel in Los Angeles, said Oct. 30.

The decision also is a boon to immigration attorneys because it protects their constitutional right to petition the government on behalf of their clients and “affirms that immigration attorneys are not guarantors of an EB-5 investment or the success of an underlying EB-5 project,” she said in a statement.

But Manhattan Beach, Calif., attorney Steven P. Scandura called the decision disappointing because it “said law firms can rip off their own clients.”

“The whole EB-5 program was basically destroyed by fraud,” said Scandura, who represents the investors. “I’m sure there are legitimate ones out there. There must be. I’ve yet to find one,” he said.

A representative for Miller Mayer didn’t respond to a request for comment.

EB-5 Fraud

The case is one of several dealing with the fallout of various EB-5 immigrant investor program scams, many of which came to light after a push by the Securities and Exchange Commission to investigate and prosecute EB-5 fraud. The visa program provides green cards to immigrants who invest at least $500,000 in a commercial enterprise that creates at least 10 U.S. jobs.

Homeland Security Department regulations set to go into effect Nov. 21 will raise that minimum investment to $900,000 and channel more money into projects in rural areas.

But the regulations don’t contain provisions to immunize the program from the fraud that has cost investors millions of dollars, something Sens. Charles Grassley (R-Iowa) and Patrick Leahy (D-Vt.) are trying to fix via legislation.

The lawsuit brought by a class of 54 investors involved the Pacific Proton EB-5 Fund, which was supposed to build and operate Beverly Proton, a cancer treatment center in southern California. But founder Charles Liu and his partner, radiation oncologist Dr. John Thropay, misappropriated some $21.1 million of the total $26.9 million invested and never built the center.

As a result of the SEC’s civil enforcement action, Liu and his wife were ordered to pay back all the investors’ money and to fork over $8.2 million in civil penalties, and were permanently barred from the EB-5 program. The U.S. Court of Appeals for the Ninth Circuit later affirmed.

The investors, each of whom lost more than $500,000, sued Miller and Wolfsdorf for their alleged roles. Both firms knew or should have known that Beverly Proton was a scam, the investors said.

Although finding that the case could go forward against Miller, the court said it wasn’t ruling on whether the firm actually is liable to the investors.

Kaufman Dolowich Voluck represented Miller Mayer.

The case is Shi v. Wolfsdorf Rosenthal, LLP, 2019 BL 414783, Cal. Ct. App., 2d Dist., No. B290792, unpublished 10/29/19.

(Oct. 30 story updated to include comment from investors' attorney.)

To contact the reporter on this story: Laura D. Francis in Washington at lfrancis@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Terence Hyland at thyland@bloomberglaw.com

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