The fund's leaders face a challenge: Preserving an economic-development engine while shedding ties to A. Eddy Zai, an alleged participant in a bank-fraud scheme.
View full sizeBusinessman A. Eddy Zai launched and led the Cleveland International Fund, an investment outfit that pairs wealthy foreign investors hoping for U.S. residency with job-creating projects. Zai resigned from his job this week, before being indicted in a bank-fraud scheme that, according to investigators, contributed to the collapse of a credit union in Eastlake. CLEVELAND, Ohio -- The indictment of businessman A. Eddy Zai casts a cloud over the Cleveland International Fund, which has raised millions of dollars for real estate projects in Cuyahoga County.
Now the investment outfit's leaders face a challenge: Preserving an economic-development engine while shedding any ties to Zai, who launched the fund in 2010 and led it until this week.
On Wednesday, Zai was charged in a bank-fraud scheme that, according to investigators, contributed to the collapse of the St. Paul Croatian Federal Credit Union in Eastlake.
The Cleveland International Fund doesn't appear in the 35-page indictment. And there is no indication of illegal activity at the fund, which is part of a federal program that links foreign investors to job-creating projects in the United States.
But the news about Zai, an immigrant entrepreneur known for civic engagement, has put the successful organization on shaky footing. The leaders of a new, related fund in Columbus resigned this week after learning about the charges against Zai.
The Cleveland fund's four-member advisory board agreed to stay on - pending the outcome of a review by law firm Jones Day and an accountant.
"We were stunned," said Baiju Shah, an advisory board member and the chief executive officer of BioEnterprise. "We are hopeful that the independent review confirms management's assurances that CIF is independent of these allegations and has itself operated in a fully legal manner. If there is any indication otherwise, clearly the advisory board will resign."
With a $45 million loan amassed from 90 investors, the fund helped prop up the Flats East Bank project in a sour economy. It fueled expansion at University Hospitals and promised low-cost financing for the new American Greetings Corp. headquarters and a hotel makeover in downtown Cleveland.
On Wednesday, the leaders of those projects expressed support for the fund - while distancing themselves from Zai, who resigned from his job Tuesday. Adam Blackman, the former chief operating officer, is now the fund's chief executive.
"Our relationship is with CIF, not with Eddy Zai, and CIF has met every financial commitment to fund the Flats East Bank project," said Adam Fishman, part of the team developing an office building, hotel and restaurants on the east bank of the Flats.
In a written statement, University Hospitals said that it "hopes that actions allegedly taken by this one person prior to the development of the CIF do not destroy the funding opportunities that have been made available to the greater Cleveland community to support creation of new jobs."
Optima Ventures and Sage Hospitality, which are turning the former Crowne Plaza Cleveland City Centre hotel into a Westin, are committed to their deal with the fund.
"I'm hopeful that they will still be able to deliver on what was negotiated," said Chaim Schochet, an investment executive with Optima.
American Greetings has not closed its deal, a spokeswoman wrote in an email.
"We are now assessing how this recent event affects CIF and the relationship between CIF and American Greetings," she said.
Zai was unavailable to comment Wednesday.
He and his family still own roughly 90 percent of the Cleveland International Fund, through a company called the Cleveland Group Ltd. The fund's new leaders hope to restructure the ownership and eliminate Zai's stake, said Steve Strnisha, a financing expert who became the fund's chief financial officer last month.
"Again, this is not ideal," Strnisha said, adding "I'm staying on. I'm working at this. This is something I believe in."
Licensed and regulated by U.S. Citizenship and Immigration Services, the fund offers U.S. residency to wealthy foreigners who create jobs here. It follows guidelines set by the federal EB-5 visa program, a little-known investment vehicle that gained attention when traditional loans dried up during the recession.
A spokeswoman for the federal citizenship agency said she could not comment on the indictment. "Generally, when new information comes to light regarding an EB-5 Regional Center, USCIS assesses whether it continues to meet the requirements of the law," she wrote in an email.
The Cleveland International Fund has pledged more than $200 million to local projects and has come through on $80.5 million of that funding so far.
"We're committed to doing everything we can to try to preserve this very, very important tool," said Joe Roman, a member of the advisory board and head of the Greater Cleveland Partnership.
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