SEC vs SFRC

$100 million Oakland empire built on EB-5 investor visas goes into decline

Oakland businessman Tom Henderson had grand ambitions to create 2,000 jobs and win green cards for 215 foreign investors in the process. Now it’s all unraveling.

Tom Henderson has bought another building in Oakland.

Vinh Son Nguyen has a lot riding on a nondescript 92,000 square-foot warehouse in West Oakland. The property houses a logistics business, but it also holds Nguyen’s hopes of establishing a new life in the U.S..

Nguyen is among 215 foreigners who invested in total more than $100 million into a vast business empire envisioned by Oakland businessman Tom Henderson and his company, the San Francisco Regional Center (SFRC).

Extolled as a job-generating powerhouse by Oakland officials, Henderson made a splash by buying up iconic historic buildings. He promised to fill them with more than 2,000 workers while qualifying each of those foreign investors for green cards under the EB-5 visa program.

Those jobs, Henderson said, would spring from a wide array of labor-intensive businesses he would launch or buy.

“I’m focused on the whole community,” he told the Business Times in 2013. “I’m not just a white guy who grew up in Piedmont who wants to make a quick buck. I’m not focused on making money.”

Today, the logistics center is one of just three Henderson-started businesses that is still operating, now under the auspices of court-appointed receiver Susan Uecker. The portfolio of buildings is largely gone, a casualty of legal combat between Henderson and his former business partner. And the U.S. Securities and Exchange Commission filed a lawsuit in January claiming that Henderson committed fraud and misappropriated funds.

“Rather than using investor funds to create jobs and develop communities as promised, Henderson allegedly played a shell game with investor money to buy his home and support personal ventures,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office, in a statement released when the SEC filed its suit.

In his official answer to the SEC’s complaint filed in late July, Henderson denied wrongdoing. He declined several times to comment until after his legal battles are resolved.

So far, the parties in the SEC lawsuit have held at least one confidential settlement conference. The next one is scheduled for early November.

Court filings indicate that roughly 50 of Henderson’s investors have received their permanent green cards. But where the empire’s collapse leaves the others is uncertain.

Under the EB-5 program, investors receive provisional residency rights soon after they invest $500,000 in an approved venture, and can move here. But they only receive permanent green cards allowing them to stay if immigration officials determine two years later that their money directly or indirectly generated at least 10 jobs.

The U.S. Citizenship and Immigration Services, which oversees the EB-5 program, declined to comment on this case, but a spokesperson said when there is an investigation into a specific project or regional center, the U.S.C.I.S. will take at look at each case to determine if the investor is eligible for permanent residency.

Nguyen and dozens of other investors have written to U.S. District Judge Richard Seeborg for the Northern District of California, who is overseeing the case, pleading with him not to close the remaining businesses and jeopardize their rights to permanent residency.

“It is one of the best jobs creation in the U.S. and we, as investors, will hopefully in the end become citizens of this great country and become successful with the return on our investment,” Nguyen wrote.

Overnight success?

Born and raised in Oakland, Henderson played basketball for the University of California, Berkeley and started importing seafood from Asia in the 1970s.

“I had a whole network of business associates and friends in Asia,” he told the Business Times in 2015, explaining how he found EB-5 investors for his ventures. “Having a network already, people already knew my background.”

He set up the San Francisco Regional Center (SFRC) around 2010 and started recruiting investors. Regional centers are private companies that are approved by the U.S. Citizenship and Immigration Services to connect EB-5 investors with businesses to invest in so they meet their job-creation requirements.

From 2010 to 2016, the SEC alleges, Henderson touted plans for numerous ventures including a skilled nursing facility, call centers, logistics warehouse, seafood importer, powdered milk factory, hearing aid manufacturer, restaurants, a rooftop event venue and a grocery store in West Oakland.

His ambitions grabbed the city’s attention when he started snapping up buildings, beginning with the purchase of the iconic Tribune Tower in 2011. He later bought the I. Magnin building, Dufwin Theater, and Community Bank of the Bay buildings in downtown Oakland along with a warehouse in West Oakland, the Jack London Gateway strip mall in West Oakland, and a dairy farm in Tipton, Calif.

He stressed that his companies would employ people without advanced education or training — a segment of the population that typically has a hard time finding work.

“For the first two years, I have to create the jobs, so I’m not going to make a lot of money,” he told the Business Times in 2013. “Any profits are reinvested to create more jobs.”

He referred to the investors as his friends and family and that he personally helped them find lawyers, accountants and real estate agents to help them establish themselves in the U.S.

City officials buy in

At first the SFRC seemed like a godsend to officials in Oakland — then a city with relatively high unemployment that was still emerging from the Great Recession.

In a 2013 interview with the Business Times, then-Oakland assistant city administrator Fred Blackwell called Henderson “very aggressive,” and said, “there’s nothing that shows me that he has anything but the best intention.”

Two years later, Oakland Mayor Libby Schaaf said Henderson was helping diversify Oakland’s economy by creating “living wage jobs” that don’t require advanced degrees.

Henderson had a penchant for dropping names, frequently mentioning that while playing basketball at Cal, he had poked in the eye Kareem Abdul-Jabbar, who was then a star player for the University of California, Los Angeles. He said that incident prompted Jabbar to wear protective eyewear for much of his professional career.

Empire unravels

Evidence of turbulence within the SFRC began to emerge in 2015, when Allan Young, who had partnered with Henderson to start three call centers, sued him in Alameda County Superior Court for breach of contract, refusal to share financial information and misuse of funds. Young is a local entrepreneur who started the Runway tech incubator in San Francisco, also with Henderson, and the Topline incubator in Richmond. He declined to comment for this article via his attorney, Jonathan Levine.

At Young’s request, a judge put SFRC’s assets under control of a court-appointed receiver. In January, the SEC filed its lawsuit against Henderson and the seven limited partnerships he had established under the SFRC.

According the SEC’s lawsuit, Henderson violated immigration laws by taking investors’ money from one venture and using it for another, and using investor funds to buy real estate instead of creating jobs. Investor money can go toward buying real estate under the EB-5 program, but the investors must still prove they created jobs.

The SEC lawsuit claims Henderson put funds in bank accounts for companies that never operated and he co-mingled investor money so that it was unclear if the funds were being used for their stated purpose.

The suit also alleges that Henderson directed $346,000 of investor funds to pay for part of his $1.4 million Oakland home and spent $3.8 million to build out restaurants in Oakland that were not EB-5 approved ventures.

The lawsuit from Young is on hold while the SEC case proceeds. The SEC has an incentive to resolve the case without a costly trial to preserve the investors’ assets, according to legal sources who are familiar with the case.

Where are they now

The SEC alleges that of the seven businesses Henderson created through the San Francisco Regional Center, the dairy farm in Central California and the proposed grocery store in West Oakland never operated, according to documents the receiver filed with the court.

The Oakland logistics and warehousing company, North America 3PL, had about 29 employees last spring, according to court filings. SFRC had projected the warehouse would 338 workers by 2017 and 40 investors put their money into the venture, according to court filings.

The skilled nursing facility, known as the Bay Area Healthcare Center, employs about 160 people, according to court documents filed in June. It attracted 24 investors who each need to create 10 direct or indirect jobs.

SFRC planned to start three call centers, but only two opened for business. Last year, a judge in Young’s lawsuit against Henderson ordered the closure of CallSocket I, operated in the Tribune Tower.

The second call center, CallSocket II, now operates with a staff of about a dozen people, according to court documents.

Pleas for greencards

The receiver, who through her lawyer declined to comment, has sold various properties, including the Tribune Tower and the Dufwin Theater, both last fall, and is exploring the sale of others, such as a shopping center that was supposed to house the West Oakland grocery store and the dairy farm in Tipton, according to court filings.

When receivers are called into to a case, they typically liquidate businesses and sell off assets so that creditors can be paid and investors can recoup money.

But the primary goal of EB-5 investors is to secure a green card. Recovering their money or making a return on their investment is secondary, said David Millstein, an attorney who heads the law firm Millstein and Associates. The firm has been hired by 50 to 60 investors to represent them as an interested party in the SEC’s lawsuit.

The investors had to “ensure themselves this was a legal investment as necessary to get the visas and at some point along the way, it became obvious after they paid the money, some of these investments were in trouble,” Millstein said.

“We are exploring all avenues to make sure their investments actually do create the correct number of jobs and that those jobs are acceptable to the U.S. Citizenship and Immigration Services,” he said.

Like Nguyen, other investors have written letters to the court asking for the judge to help safeguard their immigration status.

Ping Zhao lives in Livermore and has a daughter who recently took a job in New York. She wants to make sure she can still become a permanent resident. Others have similar concerns: Cao Yabin, a resident of Shenzhen, China; New York resident Liang Zhiwen; XiaoYun Wang of Ithaca, New York.

Their letters all include a similar plea: “I do not want any actions to be taken that will risk the goal of permanent residency.”

Partnerships sour

Other businesses Henderson said he would fund with EB-5 money never started or were not eligible to be approved for that purpose, the SEC alleges. One company, Starr Brands LLC was supposed to import seafood — a business Henderson told the Business Times in 2013 that he started with former NBA star AC Green. The SEC alleges that business never operated.

Henderson started two restaurants with well-known Oakland restaurateur Chris Pastena: the Tribune Tavern, a restaurant and lounge in the base of the Tribune Tower, and Lungomare, a restaurant in Jack London Square. In 2013, Pastena told the Business Times that people who took time to get to know Henderson, would “know that he’s for real.”

According to Pastena and statements Henderson made at the time, Pastena was under the impression Henderson would fund the restaurants using EB-5 money.

But after the eateries were up and running, Pastena said he wanted out of the deal after he and Henderson had differences. Pastena said he sued Henderson, after which the parties settled with Pastena keeping control of Lungomare and Henderson retaining Tribune Tavern.

“In the end, things did not work out the way they were supposed to,” he said, declining to discuss details.

Like other partners who worked with Henderson, Pastena said he was attracted by Henderson’s enthusiasm for creating jobs in Oakland.

“I hope that everything (Henderson) was trying to do came from the right place, but he wasn’t able to execute,” Pastena said. “He did try to do a lot of things, maybe he just tried to do too much.”

Now, the tavern is under the receivership while two other partners, Michael Luong and Robert Soviero, continue running it. They are listed as interested parties in the SEC lawsuit. Luong and Soviero are negotiating with the receiver to take over Henderson’s interest, said Malcolm Leader-Picone, a lawyer representing the two partners.

“They don’t want anything to do with Thomas Henderson,” he said.

Many people who worked for or went into business with Henderson as part of his EB-5 ventures declined to comment for this article. Several said they were focused on moving forward with their careers and did not want to be associated with Henderson.

That includes elected officials.

“The mayor was disappointed to learn about the allegations made by the SEC,” said Justin Berton, the Oakland mayor Schaaf’s director of communications, in a statement. “Now it’s time to let the investigation and lawsuit run its course.”

What could happen next?

Under the EB-5 program, investors are granted conditional residency in the United States when they put down their $500,000. After two years, they have to apply for permanent residency and the U.S. Citizenship and Immigration Services determines if that money was used to create 10 jobs. San Francisco Regional Center investors face a number of possible outcomes. The SEC alleges that the SFRC comingled investor funds, which means it could hard to prove that the money from a particular investor created jobs in a particular business. The U.S.C.I.S. could remove Henderson from the SFRC and find a new operator or completely shut down the SFRC. The agency could also ask another regional center to take on the SFRC projects so that the investors can keep their residency applications alive. However, the court-appointed receiver has found that several of the SFRC ventures won’t be able to create the jobs the EB-5 program requires, meaning all or most of the investors in these projects will not receive green cards.

 

Blanca Torres

Reporter

San Francisco Business Times