Following more than a year of litigation and a trial before Judge Erik P. Kimball in the Bankruptcy Court for the Southern District of Florida, Bast Amron attorneys Brett M. Amron and Peter J. Klock, II, together with co-counsel Philip J. Landau and Eric Pendergraft of Shraiberg, Landau, & Page, obtained a judgment in the amount of $1,237,291.05 in favor of Scott N. Brown in his capacity as the Chapter 7 Trustee of the bankruptcy estate of South Atlantic Regional Center, LLC (“SARC”), a defunct USCIS-approved EB-5 Immigrant Investor Regional Center. The judgment avoided fraudulent transfers totaling $915,000 from SARC to KK-PB Financial, LLC, and also included an award of prejudgment interest in the amount of $322,000. KK-PB Financial is owned and controlled by Glenn Straub, a Wellington developer and owner of Palm Beach Polo.
The EB-5 Immigration Program allows foreign nationals to become lawful permanent residents following an investment in a U.S. business, but the investment must create at least ten new jobs to qualify under the program. The vast majority of EB-5 visas are granted through Regional Centers, which are public or private entities that pool together capital from investors and then use investor funds to either purchase equity in a job-creating project or loan money to a job-creating project. SARC was one such private company authorized to receive investments from foreign investors seeking eventual U.S. citizenship, but the principal misappropriated tens of millions of dollars of investor funds before fleeing the country.
Prior to the collapse of its scheme, SARC solicited $500,000 investments from nearly 90 foreign investors for the construction of the Palm House Hotel in Palm Beach, Florida. SARC was to loan the investors’ funds for the completion of extensive renovations to the hotel for its eventual operation as a luxury boutique, but the hotel was never completed, and the investors’ funds were, for the most part, squandered and pilfered. After an involuntary Chapter 11 bankruptcy was commenced against SARC, Mr. Brown was appointed as Chapter 11 trustee of SARC’s bankruptcy estate, and Bast Amron served as his general counsel. Following his initial investigation, Mr. Brown quickly determined that it would be in the best interests of SARC’s bankruptcy estate to convert the case to Chapter 7 and pursue litigation claims. Thereafter, working with his legal and financial advisors, the Trustee identified three transfers totaling $915,000 from SARC to KK-PB Financial, LLC, all of which were made at a time when SARC was insolvent. While the transfers were ostensibly for the purpose of satisfying three monthly mortgage payments owed by the underlying project to KK-PB (from which the hotel real estate had been purchased), they were made at a time when the property was already in foreclosure (in an action brought by KK-PB against the obligor on the mortgage), the loan was underwater, SARC had already disbursed all investor funds earmarked for the hotel, and SARC, which was not a party to the mortgage, was under no legal obligation to make the payments.
Bast Amron and co-counsel Shraiberg, Landau, & Page brought suit to recover the transfers on behalf of SARC’s bankruptcy estate, which KK-PB vigorously defended. During the trial, the Trustee presented expert witnesses establishing that SARC was insolvent at the time of the transfers and the value of the hotel was far below the amount owed on the mortgage. KK-PB, for its part, presented no expert witnesses of its own but attempted to challenge the credibility of the Trustee’s experts and establish through a fact witness that SARC had indirectly benefitted from the mortgage payments. Upon consideration of the evidence, however, Judge Kimball flatly rejected KK-PB’s contention of an indirect benefit, stating during his ruling, “There is an age old saying: ‘Don’t throw good money after bad.’ It is hard to imagine a better example than this case… The hotel was doomed, and so was any investment previously made by the debtor. When the debtor made the three loan payments at issue here, the debtor was just buying time on a sinking ship, and worse, at the expense of EB-5 investors other than those whose investments were intended for the hotel.” Judge Kimball also found the Trustee’s expert witnesses credible, and entered judgment in favor of the Trustee in the full amount of each claim pursued at trial.
Case: Scott N. Brown, as Chapter 7 Trustee of the bankruptcy estate of South Atlantic Regional Center, LLC v. KK-PB-Financial, LLC
Case nos.: 19-25762-EPK (Main Case), United States Bankruptcy Court, S.D. Fla.
20-01233-EPK (Adversary Proceeding), United States Bankruptcy Court, S.D. Fla.
Filing date: June 2, 2020
Judgment date: July 7, 2021
Judge: Erik P. Kimball, United States Bankruptcy Judge, Southern District of Florida
Plaintiff’s attorneys: Brett M. Amron and Peter J. Klock, II of Bast Amron LLP, Miami with Philip J. Landau and Eric Pendergraft of Shraiberg, Landau, & Page, P.A, Palm Beach
Defendant’s attorneys: Evan Goldenberg, John Cunningham, Fan He, and Dylan Fay, White & Case, LLP, Miami