The turmoil embroiling Founders Group International, the largest golf course ownership and management company on the Grand Strand with 22 courses and numerous other properties and businesses, has become more engrossing and complicated.
A series of real estate transactions have created mortgages on nearly all of FGI’s properties totaling more than $140 million, and acting managing partner Dan Liu holds the note on all of them, potentially giving him a personal stranglehold on the company’s finances.
A lawsuit filed last month by recently ousted FGI president Nick Dou that accuses Liu of misappropriating funds has been amended with a number of new defendants.
Of the six shareholders — two per company — named in Chinese incorporation papers for the three companies that comprise a reported 90 percent ownership in FGI and are represented by Liu, it appears four have been arrested and Liu is sought for arrest, according to a release by a Nanjing prosecutor’s office in the Jiangsu Province.
The arrests are part of a crackdown on suspected fraudulent fundraising by the Yiqian Funding peer-to-peer lending company, of which Liu is a controlling figure, according to the prosecutor’s release.
And the pending immigration status of Liu, a Chinese national, adds more uncertainty to the company’s future.
Based on recent events, Dou said he is “gravely concerned” for FGI and its approximate 1,100 employees.
Dou’s suit filed June 22 accuses Liu of misappropriating well over $1 million from FGI for Liu’s benefit, and Dou’s claim in the suit of 10 percent ownership in FGI and its entities is supported by the operating agreement of a company LLC.
The case was amended June 28 to add 15 FGI subsidiary LLC’s as defendants to original defendants Liu and the three Chinese companies he represents, and many of the LLCs were used in the creation of the mortgages. “We had to add them because of the nature of the case and claims we were bringing,” Dou’s attorney Reese Boyd said.
Hearings on motions for an injunction on Liu’s operation of FGI and the appointment of a receiver to protect FGI’s assets and Dou’s interests have a preliminary court date of Aug. 2 in the Horry County 15th Judicial Circuit Court of Common Pleas. Boyd is requesting an earlier date.
Dou’s suit also questions if any of the three Chinese companies are authorized to conduct business in South Carolina, and if Liu is authorized to serve as the agent for all three companies.
Liu’s attorney contends his client has done nothing unlawful.
Dominic Starr, managing partner of the McAngus, Goudelock & Courie law firm’s Myrtle Beach office which represents Liu and some of the corporate entities named as defendants in Dou’s suit, issued a statement to The Sun News on Liu’s behalf. It read, in part:
“Mr. Liu looks forward to fully presenting the facts and evidence relevant to this litigation through the proper legal proceedings. Mr. Liu denies any claims by Mr. Dou of his malfeasance or the impropriety of his conduct, and we are confident that the evidence will support Mr. Liu’s actions.”
Dou admits to personally investing significantly less than $1 million in FGI property purchases — which have totaled well over $100 million — including approximately $300,000 from his wife, who he says initially invested without his knowledge. He said his claimed 10 percent ownership is based on his work that included identifying properties, assisting with purchases, organizing companies and helping operate FGI since its inception.
Dou, a China native and U.S. citizen who has been billed as an immigration attorney since arriving on the Strand a few years ago, has acknowledged that he is not a licensed attorney but instead an immigration consultant who, before moving to the area, had a business relationship with a pair of immigration attorneys in New York City.
FGI recently has restructured its leadership with the appointment of three regional operations managers and three regional golf course maintenance managers on the heels of multiple executive firings in June, including the termination of FGI’s general manager, chief financial officer and Dou as president. Director of sales and marketing Steve Mays is the company’s acting president.
Liu apparently has given himself financial leverage over nearly all of FGI’s properties with the creation and assignment of mortgages on holdings that Liu and Dou have said were debt free.
FGI purchased 22 courses between September 2014 and April 2015 to take over approximately a quarter of the public-access courses in the Myrtle Beach market, and Dou and Liu have said all of the purchases were debt-free cash transactions. Several sellers have echoed the cash sales claim.
In February, 11 mortgages with promissory notes totaling more than $130 million were created on 20 golf courses, 29 acres of oceanfront property, the Stonewall Villas condominium project and land at Wild Wing Plantation, International World Tour Golf Links and TPC Myrtle Beach, according to Horry County Register of Deeds records.
FGI is a collection of nearly 20 subsidiary LLCs, and in each mortgage, one of the LLCs was deemed a lender and another a borrower. The mortgage then was assigned from the lending LLC to one of the three Chinese companies that Liu represents.
Both Dou as a member of the LLC and Liu as the authorized agent for the member Chinese company signed both the mortgage creation document and initial mortgage assignment document in all 11 cases.
The mortgage then was assigned from the Chinese company to Liu, and Liu signed both as the assignor and assignee.
All of the documents were recorded within two days.
“Mr. Liu individually, and as the representative of the majority owners of Founders Group International and its various associated entities, has made decisions and taken actions that he considers to be in the best interest of the companies,” Starr said in his statement. “The majority owners have provided nearly all of the financing for the Founders purchases and projects. Mr. Liu’s actions have been taken for legitimate business purposes and in the best interest of the companies. All of his actions have been done properly and in accordance with applicable law.”
Dou said he was not aware of the mortgage and assignment documents until he walked into a room where they were all laid out awaiting signatures. He said he signed because attorneys Fred Newby and Robert “Shep” Guyton, who he said had both done work for FGI, were present and informed him as the minority partner he would be unable to affect the process.
“I signed the documents in front of two attorneys. I thought the two attorneys, they know what to do,” Dou said. “They are both our attorneys … but they never discussed it with me.”
Newby, who said he has done work for FGI but hasn’t represented either Dou or Liu individually, said, “I can say nobody was forced to do anything; nobody was required to do anything.”
In May, six mortgages totaling more than $8 million for most of the remaining FGI holdings including condos, lots, homes, 42 acres in Carolina Forest and 21.5 acres near TPC Myrtle Beach were created and assigned to Liu in just two transactions each.
The Chinese company Nanjing Shoujun Trade and Industry Co. was named the lender to an FGI LLC in each case, and after Dou signed the mortgage, Liu assigned it directly to himself from that company.
The terms of the promissory notes are identical in all 17 mortgages. An annual interest rate of 3.25 percent must be paid quarterly, 20 percent of the note must be paid by its third anniversary in 2020, and the loan maturation date is in 2023.
As the acting managing partner of FGI, Liu would essentially have to pay himself with company funds to keep the mortgages current, or he could conceivably foreclose on the defaulting properties, taking individual control of all of them.
The largest single mortgage is $45.9 million and includes the 12 courses acquired from National Golf Management in April 2015. Quarterly payments on that loan are more than $2.1 million and nearly $9.2 million would be due against the note in 2020.
A pair of Myrtle Beach real estate attorneys find the transactions highly unusual and are unsure if they would hold up if challenged in court. Neither George Cox nor Dennis DiSabato Jr., who also is an Horry County Councilman, have ever seen a similar transaction, and Cox has practiced law for 45 years.
“Maybe that’s how they do things in China, but I don’t know if that’s going to fly here,” Cox said. “On its face it certainly appears to be unconventional financing, but I can’t say it’s illegal. It will take more legal scrutiny. But it certainly causes concern.”
DiSabato doesn’t believe the creation of the mortgages is illegal if Liu has the authority to act on behalf of the company, but it could become illegal if someone was defrauded through their creation and assignment to Liu.
“He’s the note holder and the borrower, and the person who ultimately if he doesn’t get paid can foreclose,” DiSabato said. “I’ve never seen anything like that. It does seem highly unethical.”
Newby defended the transactions. “What happened in this case is unique to the facts of this case,” Newby said. “I didn’t consider it and still don’t consider it to be an unusual transaction. It’s not uncommon for related entities to loan money to each other and acquire security to ensure repayment.”
Guyton, who did not respond to multiple messages over several business days, is the attorney who signed all of the mortgages and assignments.
Guyton is still awaiting a S.C. State Ethics Commission hearing originally scheduled for February regarding 167 charges of ethics violations. The former chair of the Myrtle Beach Area Chamber of Commerce is accused of exceeding personal campaign contribution limits in 2009 by moving money through corporations controlled by him to candidates and other political groups, according to ethics commission documents.
Liu’s status in the U.S. appears to be in transition.
According to U.S. Citizenship and Immigration Services documentation, Founders Group International LLC has filed an I-140 Immigrant Petition for Alien Worker form on Liu’s behalf requesting an EB1(c) visa for managers and executives being transferred from a foreign company to a related entity in the U.S.
The I-140 petition was filed in December 2015 and is still pending, according to USCIS records. If approved, the process can be fairly quick for conversion to a green card and permanent residency.
However, the process includes a background check, and the applicant and his family members must prove that they do not have prior immigration or criminal violations or other issues that may restrict them from receiving a green card. Similar legal issues also are required to be disclosed on an I-485 green card application that would be considered following a visa approval.
Liu’s legal problems in China and Dou’s lawsuit could impact the USCIS’ consideration for a visa and subsequent consideration for a green card.
Liu said last April that at that time he was in the U.S. through a B1/B2 business/tourist visa, which can have a valid term of up to 10 years for Chinese nationals but has a maximum duration per visit of six months.
By operating a company, Dou would have violated the terms of the B status visa. The B1 visa allows only mild business activity such as meeting with clients, not productive labor such as hiring, firing and collecting profits, and the B2 visa is for tourism activities.
Dou said Liu is out of status with the B1/B2 visa because he exceeded the six-month maximum stay, and said Liu is now here on a temporary work permit as he awaits a ruling on the EB1(c) visa application.
According to Johanna Keamy, a San Diego attorney who for the past two decades has specialized in business immigration law with a focus on foreign investors, work authorization is commonly granted during a pending visa case in one-year increments and can be renewed.
On May 1, Liu assigned power of attorney to his wife, Xuan Zhuang, primarily and friend Dean James “D.J.” Karavan secondarily, allowing them to act on his behalf and manage his finances in the event he is not available or of sound mind.
If Liu were to leave the U.S., his wife likely would have to leave with him since her immigration status is believed to be directly tied to his, possibly leaving Karavan as the overseer of Liu’s U.S. finances, which conceivably could include all of FGI’s current holdings.
Karavan is a real estate investor and developer who has been involved for many years in the ownership and operation of numerous properties and businesses on the Strand, such as restaurants and golf courses, including the now-closed Cypress Bay Golf Club in Little River.
Liu has claimed in interviews with The Sun News that the embattled Yiqian Funding and FGI are not related entities and he is solely a paid advisor to Yiqian.
But a video message from Liu directed at Yiqian investors last year and the release by the Jiangsu Province prosecutor’s office in March refer to Liu as the chairman/head of the company, and the video and a pair of postings last year on the Yiqian company website suggest the businesses are connected.
In the video, Liu states he is going to the U.S. to sell property to relieve a Yiqian monetary shortage caused by the freezing of some assets by authorities.
A letter posted on the Yiqian website in April 2016 named FGI as a company with holdings in America and reiterated that property in the U.S. will be sold to pay investors.
A statement last June on the website stated Jiangsu Tianru Danfo Commerce and Industry Co., one of the three Chinese companies involved in FGI ownership and the one with Liu listed as a shareholder, would be merging with Yiqian, and Liu would be the company chairman responsible for appointing executives to run the business.
It has been reported in multiple publications in China that Yiqian Funding, which does business in China under both its Mandarin name and the English name “Easy Richness,” has approximately 60,000 investors. “The real owners [of FGI] are the 60,000 investors who gave money to Yiqian,” Dou said.
In a P2P business model, individuals or businesses invest in the P2P company, which lends their investments to borrowers and both the P2P company and investors make money on the interest paid on the loans.
According to pictures and videos in China, there have been numerous large gatherings of people protesting Yiqian Funding, chanting and holding signs demanding to have their money returned.
Nanjing Xinyuanyuan Commerce and Trade Co., Jiangsu Tianru and Nanjing Shoujun are the three companies listed as defendants and part owners of FGI in Dou’s lawsuit.
Nanjing Xinyuanyuan shareholder Xiuli ‘Lily’ Xue, Nanjing Shoujun shareholders Jia Sheng and Wei Yang, and Liu’s fellow Jiangsu Tianru shareholder Dehong Zhang appear to be among the 12 Yiqian executives and senior staff members the Nanjing prosecutor’s office claims to have arrested on suspicion of fraud, leaving Liu with seemingly few people to answer to.
In addition to FGI’s 22 courses, hundreds of acres of land and other properties that are now mortgaged, the company’s ancillary businesses include the Prime Times Signature Card membership program, a tee time call center, two golf package companies and a few high-traffic golf- and tourism-related websites.
FGI has a division that handles residential and retail development, and executives previously said it had partnered with one of the largest travel agencies in China to bring golfers, tourists and wedding parties to Myrtle Beach.
But Dou said all of FGI’s business dealings in China have ceased because of the Yiqian Funding tumult. “There is no business connection with China right now,” Dou said.
As a county councilman and resident, DiSabato is fretful.
“With all this going on I am concerned about what it means for the health of the economy, the viability of these golf courses — I mean, that’s a lot of land we’re dealing with here — the ability of those to pay taxes, and they have to be income-bearing in order to pay the taxes,” DiSabato said. “So we may have some problems here and we have to figure it out.”
Founders Group International courses
Aberdeen Country Club
Burning Ridge Golf Club
Colonial Charters Golf Club
Grande Dunes Resort Course
Indian Wells Golf Club
International World Tour Golf Links
Long Bay Club
Myrtle Beach National West
Myrtle Beach National SouthCreek
Myrtle Beach National King’s North
Pine Lakes Country Club
River Hills Golf & Country Club
Wild Wing Plantation
TPC Myrtle Beach (parts in both counties)
Founders Club at Pawleys Island
Litchfield Country Club