SEATTLE — Attorneys for an Everett-based developer accused of defrauding foreign investors said in court Thursday that federal authorities’ actions threaten to destroy two major development projects.
Lawyers representing the developer and the U.S. Securities and Exchange Commission were in U.S. District Court arguing about how much power should be given to a third-party appointed by the court to oversee companies owned by the developer, Lobsang Dargey.
The SEC filed a lawsuit against Dargey and his Everett-based company Path America in August, accusing him of defrauding foreign investors out of more than $17.5 million.
The same day the SEC filed its civil complaint, the FBI searched Dargey’s office in downtown Everett and his homes in Bellevue, according to court records.
Documents seized and turned over to the SEC revealed much wider potential misuse and misappropriation of investor money, SEC attorney Susan LaMarca said in a motion filed with the court.
At the SEC’s request, the court froze the assets of Dargey and his myriad development companies.
In August Path America issued a public statement saying that it did nothing wrong in soliciting millions of dollars from Chinese investors to fund various real estate projects in Snohomish and King counties.
The company also said it would cooperate with the U.S. Securities and Exchange Commission while “aggressively” defending itself.
In late September, the SEC asked the court to put Dargey’s companies and properties into receivership. If it agrees, the court would appoint a receiver, a neutral third-party to manage the entities. That would include the 220-apartment Potala Place and Farmer’s Market and adjacent Hampton Inn in downtown Everett and a 41-story Potala Tower in Seattle.
The asset freeze and the SEC’s receivership proposal could sink the projects, Dargey’s attorney Daniel Dunne argued in court. “Dargey’s companies are being destroyed because we have created zombie companies unable to act.”
He asked the court to exclude Potala Farms, a company created to run the retail side at Potala Place in Everett. The six-story building fills one block of Grand Avenue between Hewitt Avenue and Wall Street.
The ground floor retail space is slated to open later this year, and a few dozen people have already moved into Potala Place apartments.
Potala Tower, though, is a hole in the ground in Seattle. The lawsuit stopped excavation for the building’s parking garage and foundation.
Foreign investors have put more than $125 million into the two projects.
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 a U.S. visa in return for putting at least $500,000 into a job-creating project. To qualify, the foreigners must show that their $500,000 investment produced at least 10 U.S. jobs.
The SEC proposal would give the receiver access to protected, confidential communications between Dargey and attorneys he consulted while running his companies, Dunne said in court.
The court should not allow that, he said, while a criminal investigation is being conducted.
The argument caught the SEC and U.S. District Judge off guard.
“I’ve searched your briefings for factual findings that support your argument,” Judge James Robart said. “I can find none.”
“It’s not there, Your Honor, essentially because there is a criminal investigation going on,” Dunne replied.
SEC attorney Susan LaMarca said the SEC’s request doesn’t ask for such broad access.
A receiver needs the ability to act to make the best business decisions, she said.
The defense’s requests for limits on receivership would leave the receiver “hog-tied,” unable to deal with the most pressing problems after taking over, she said.
“We don’t know” what the biggest issue is, LaMarca said.
Potala Tower’s shoring in Seattle will only hold until March if work there is not finished, according to a letter from the excavation company filed with the court Thursday. Judge Robart said he would rule on receivership soon.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
