A week ago we highlighted the bankruptcy filing of Lucky Dragon Hotel & Casino LLC. In that bit, we wrote the following:
“All of which is all to say that there may be an opportunity for some industrious lawyers seeking an untapped niche as the distressed EB-5 experts.”
We were more prescient than we thought.
Yesterday Greentech Automotive Inc., an electric car company that heavily relied upon 283 EB-5 investors (to the tune of $141.5 million of funding), filed for bankruptcy in Alexandria, Virginia. And the company’s downfall is, in part, an interesting case study in the weaponization of political media.
The debtor noted in its bankruptcy papers that a conservative digital media company named Franklin Center for Government and Public Integrity - through its watchdog.orgweb site - posted 76 negative articles about the debtor which, at one point, was affiliated with liberal Virginia gubernatorial candidate, Terrence McAuliffe. And contrary to what 50 Cent may say, all publicity is apparently NOT good publicity.
In this instance, the attention from watchdog.org avalanched into public scrutiny from the SEC and the Office of the Inspector General of the Department of Homeland Security. Regarding the former, the SEC investigation never led to further action. In the latter, the OIG conducted an investigation of GreenTech and the involvement of Mr. McAuliffe in communications with the DHS’s Citizenship and Immigration Services (“USCIS”). A subsequent report added additional bad publicity. All of which affected the company’s ability to raise more capital AND affected the view of the USCIS toward the investor petitions for permanent residency under the EB-5 program. Whoops. The company blew through a lot of funds combating these various issues and other litigation - including litigation the company lost defending lawsuits from a subset of its EB-5 investors. One such lawsuit resulted in a multi-million dollar judgment; others remain outstanding.
So now the company has filed for bankruptcy to pursue a possible sale of its assets and deal with its outstanding litigation. It sure sounds like they’ll have to deal with several hundred angry EB-5 claimants whose immigration status in the U.S. is now in limbo and who will now become intimately acquainted with the automatic stay.* Have fun with that.
*Nerd alert: when a company files for bankruptcy, an “automatic stay” immediately goes into effect serving as an injunction against claimants pursuing claims against the company.