SEC seeks oversight of Everett-based developer accused of fraud

SEATTLE — Attorneys are arguing in U.S. District Court about who should control properties belonging to an Everett-based developer accused of securities fraud.

While the U.S. Securities and Exchange Commission is pursuing a civil complaint against Lobsang Dargey, the FBI is conducting a criminal investigation.

The SEC has asked the court to appoint a receiver with wide-ranging powers to oversee several development projects controlled by Dargey, 41, and his Everett-based company, Path America. The commission filed a civil suit in the U.S. District Court for Western Washington against Dargey in August accusing him of misusing as much as $46 million of investors money.

Dargey’s attorneys say the SEC’s request entails far-reaching powers that will halt progress on the developments, which include a 220-unit apartment building in Everett. They also say it will hurt foreign investors.

Dargey used a federal investment program known as the EB-5 program to bankroll much of his company development work. The program essentially allows foreign nationals a shortcut to consideration for U.S. residency in exchange for investing at least $500,000 in a qualifying project. To qualify, projects must create at least 10 U.S. jobs.

Foreigners, mostly from China, invested millions in two Dargey projects: the 220-apartment Potala Place and Farmer’s Market and adjacent Hampton Inn in downtown Everett, and a 41-story Potala Tower in Seattle.

Potala Place and Farmer’s Market is nearly finished. Tenant improvements for ground-floor retail shops are supposed to be finished by the end of the year. The Hampton Inn is already completed. Both are operating.

Potala Tower, however, is simply an empty hole in downtown Seattle.

The court froze assets of Dargey and Path America when the SEC filed its complaint Aug. 24. It subsequently allowed some payments to be processed. On Tuesday, the court re-affirmed the asset freeze.

Without the freeze, there is good reason to believe the defendants “will dissipate, conceal, or transfer from the jurisdiction of this Court” assets that might have to be turned over or used to pay penalties, U.S. District Judge James Robart said in his ruling.

The SEC is arguing that a court-appointed receiver “is necessary because it is imperative that a person other than Dargey make an informed decision about the projects that were begun with investor money and whether they can and should be completed as originally described,” wrote Susan LaMarca and Bernard Smyth, SEC attorneys at ithe agency’s regional office in San Francisco.

In a counter-motion filed Monday, one of Dargey’s lawyers, Daniel Dunne, said “the SEC has proposed its standard, off-the-rack receivership with the basic blunderbuss provisions …”

Dunne is with Seattle-based Orrick, Herrington &Sutcliffe.

Instead, he wrote, the court should encourage the receiver to keep work going on Potala Place and Potala Tower.

The SEC’s approach will cause further project delays, harming the Everett mixed-use development and threatening to sink Potala Tower, he said.

Delays in completing tenant improvements for Potala Place could cost up to $2,000 a day. If one tenant loses confidence and backs out, it could have a domino effect, he wrote.

If the projects don’t create U.S. jobs, that will threaten investors’ ability to gain U.S. residency through the EB-5 program, he said.

This week, several of Dargey’s foreign backers filed motions asking the court to let them withdraw their investments so they can put the money into other projects.

Shortly before the SEC filed its complaint, Dargey had secured $96.4 million in additional financing for Potala Tower, enough to finish the project, according to a statement submitted to the court by one of his business associates.

Atlanta-based Voya Investment Management gave the tower project a $66.4 million loan, and a Chinese company, Binjiang Tower Corporation invested $30 million for a 20 percent interest in the project.

In all, Dargey and Path America got foreign investors to put in more than $125 million that was supposed to go to either Potala Tower in Seattle or Potala Place and Farmer’s Market in Everett.

SEC officials say that Dargey misused at least $46 million of that money, spending it on development projects that didn’t qualify for the EB-5 program and for personal use, such as trips to local casinos.

Dargey’s attorneys have said it comes down to accounting errors, not fraud.

The FBI, however, is also looking into the matter and in August served a search warrant at Dargey’s office in Everett, according to court documents.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.