(Lidia Dinkova | The Real Deal) – Joseph Walsh Sr., who is accused of being a pivotal player in some of South Florida’s biggest EB-5 fraud schemes, was ordered to pay $26 million in a case involving a Royal Palm Beach project.
Investors from China, Vietnam and Russia had sued Walsh, alleging he tricked them into lending funds for the Royal Palm Business Plaza at 9200 Belvedere Road. He allegedly told them he had lined up a tenant and made other misrepresentations to lend an air of credibility to the project.
In total, 52 investors lent money in the project through the EB-5 program that allows citizenship to foreigners who bankroll $500,000 in a U.S. project that creates jobs. Out of those, 19 sued in 2018, but the award covers all investors’ funds plus interest. The investors claimed Walsh siphoned at least some of the money through a network of entities and didn’t complete the project, leaving them unable to obtain citizenship.
Federal Judge Donald Middlebrooks in West Palm Beach entered a final judgment against Walsh on Monday. He isn’t to pay back the investors individually, but Royal Palm Town Center IV, the partnership in which foreigners invested.
In return for their loans, the investors became limited partners in Royal Palm Town Center IV, and Walsh was its general partner, according to the lawsuit.
Walsh couldn’t be reached for comment. In an August 2018 filing in a separate EB-5 case, Walsh requested an extension, saying he was abroad attending to family matters. He hasn’t responded to filings in the Royal Palm Business Plaza case since 2019.
Walsh also is named in a civil Securities and Exchange Commission complaint over alleged EB-5 fraud involving the Palm House Hotel in Palm Beach.
Attorney Kenneth Dante Murena, who sued on behalf of investors in the Royal Palm Business Plaza case, said the judgment is justice for the foreigners.
“Mr. Walsh defrauded 52 investors out of more than $26 million. 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,” Murena, a partner at Damian & Valori | Culmo Law in Miami, said in a statement.
Murena said he is going to investigate Walsh’s assets in a push to collect the award.
The complaint alleged that Walsh told investors he had secured Connect Insurance Group as a tenant at the 60-unit office condominium Royal Palm Business Plaza. As it turned out, Connect Insurance was led by Walsh’s ex-wife, and it temporarily occupied the building, but ultimately left the space without creating the promised number of jobs.
Funds then allegedly flowed in the opposite direction, as $9 million went to Connect Insurance, even though as a tenant it should have been the one paying rent, Murena said.
Another Walsh-linked entity, Royal Palm Development I, bought the condos in 2012 with investors’ money. In support of their claims, investors pointed out a Connect Insurance lease that they were presented with was dated 2010, two years before the condo purchase closed, according to the complaint.
Property records show Royal Palm Development I still owns one unit. The Palm Beach County clerk of court sold the other units through tax deeds between November and February.
Walsh is founder of the South Atlantic Regional Center, which is a federally authorized EB-5 conduit connecting foreigners with U.S. projects. The center lists Royal Palm Business Plaza as its office.
Investors also sued South Atlantic Regional Center, Connect Insurance and other Walsh affiliates, but those actions were halted since some of the defendants are undergoing involuntary bankruptcy proceedings. Murena said investors have filed claims in some of the bankruptcy cases.
The investors also alleged Walsh collected roughly $60,000 from each investor for administrative and other fees to purportedly help them with their EB-5 visas.
Middlebrooks awarded $69,090 to Konstantin Galkin and $60,000 to investor Huong Thi Thu Nguyen for those claims. The remaining 17 investors who had sued didn’t pursue the case, but that doesn’t impact the total $26 million judgment, according to Murena.
Walsh also was accused of failing to secure investors’ funds with a mortgage in favor of the properties, but instead allegedly used the units as collateral to take out a bank loan. Centennial Bank has sued to foreclose on its loan, and investors’ partnership Royal Palm Town Center IV has intervened in that case. The partnership is seeking to get in front of the bank to take over the property, Murena said.
Investors, who were granted temporary residency, only found out about the alleged fraud when they filed for second approval for citizenship, according to Murena. Their petitions were denied because Royal Palm Business Plaza had failed to create the required number of jobs, Murena said. At least some of the investors still are pushing for immigration approval.
“Having this judgment won’t hurt them,” Murena said. “If anything it confirms they were in fact defrauded, which perhaps could help them in the immigration court.”