Baltimore Developer Accused Of Defrauding Chinese EB-5 Investors In Hotel Project
A developer and his associates face securities fraud accusations from Chinese EB-5 investors in a lawsuit filed last month over a Residence Inn property near Baltimore's Johns Hopkins Medical Campus.
Developer Ronald Lipscomb and his business partners held marketing seminars and met with potential investors in China in 2014 and 2015, according to the lawsuit, filed in Baltimore Circuit Court. The group signed up almost 100 investors, who put down $500K each to bring in $47M for Lipscomb’s hotel project, The Baltimore Banner reported.
At the time, $500K was the threshold for foreign investors taking a stake in an American business to be allowed to permanently live in the U.S. through the EB-5 visa program. The threshold was raised to $800K in 2022 for the program, which is designed to spur foreign investment in the U.S. economy.
The 194-room hotel was completed in 2017 for $86.6M, according to the lawsuit.
Each year following completion, investors said they received reports the hotel was losing money. That was despite an offering memo Lipscomb allegedly included in his investment presentations stating that the hotel’s profitability would allow annual interest payments to be made to investors.
The hotel’s unprofitability became public knowledge last summer when it defaulted on a $21M bank loan. With the bank slated to be the first repaid, investors were told they may not see any of their $500K investment returned.
Almost half of the individual investors signed on to the lawsuit, which also names subsidiaries of general contractor Hensel Phelps and hotel manager Pyramid Global Hospitality.
Libscomb didn't immediately respond to a request for comment from Bisnow.
The developer has a checkered history in Baltimore, having been accused of bribing a city council member, pleading guilty to campaign finance law violations and agreeing to testify against then-Mayor Sheila Dixon, his former girlfriend, in a separate bribery case. He also had multimillion-dollar unpaid tax bills, and his company filed for bankruptcy before beginning investor meetings in China.
The investors allege Lipscomb and his associates took advantage of their unfamiliarity with the Baltimore market and presented misleading revenue projections. They also said he didn’t fully disclose conflicts of interest that could have led to his associates inflating construction and development costs.
Once financing closed on the hotel project, Lipscomb and his partners paid more than $2.8M to companies controlled or owned by the developer, according to the lawsuit.
The lawsuit is about “protecting the American dream” and holding Lipscomb and his partners accountable, the investors’ attorney, Ramsay Whitworth of Silverman Thompson, told the Banner.
Purported scams involving Chinese investors have made other headlines over the past year.
New York-based developer Richard Xia and his company, Fleet Financial, agreed to pay $272M this summer for allegedly defrauding Chinese investors seeking green cards in two Queens real estate projects. The Securities and Exchange Commission claimed Xia got $228M in financing from 400 investors between 2010 and 2017.
