The company run by Chinese billionaire Zhang Li will have to pay a $1 million fine after a sentencing in federal court Thursday. Representatives for the firm pleaded guilty to conspiracy to commit fraud for its part in bribing ex-San Francisco Public Works head Mohammed Nuru to get approvals for a major development project in the city.
The sentence, which also requires Z&L Properties to enter into a corporate compliance program designed to prevent corruption, stems from a yearslong international saga in which real estate mogul Zhang was first arrested in London and fought extradition to the United States.
After an extended legal battle, Zhang agreed to be extradited to San Francisco in July, where he confessed to bribing Nuru in exchange for the U.S. Department of Justice agreeing to drop the charges against him personally in three years. That month, prosecutors filed criminal charges against Zhang’s California company, Z&L Properties. The business agreed to plead guilty and pay the $1 million fine as part of Zhang’s deal.
Zhang is just one of more than a dozen powerful public officials and business executives who have been charged in a federal probe into San Francisco corruption. Others who bribed Nuru ended up in federal prison, including Alan Varela, who received a two-year sentence, and Florence Kong, who was sentenced to one year of incarceration. Zhang’s deal, however, required no prison time, and he returned to China immediately after his lone appearance in federal court this summer, his attorney previously told The Standard.
Before accepting the fine prosecutors offered to Zhang, Judge William Orrick questioned the impact it would have on the fabulously wealthy Zhang.
“He could pay $1 million, and it’s just money off his back,” Orrick said.
In response, prosecutor David Ward argued that Zhang’s punishment included four days in custody and seven months of house arrest in the United Kingdom before he was extradited, and that the U.S. Justice Department was seeking the “maximum fine.”
Orrick, in the end, accepted the sentence.
“If I keep my blinders on to what this company is charged with and did, I think it’s more than fair,” Orrick said.
Jennifer Lewis, a resident of one of Z&L Properties’ San Jose developments where residents have feuded with the company, saw the $1 million fine as low given the billions Zhang’s company is worth.
“It seems fairly inconsequential for the scope of what he would be willing or able to pay out today,” she told The Standard.
At the center of both the cases against Zhang himself and his company is a lavish 2018 trip in China that Nuru took at Zhang’s expense, according to the agreement the business tycoon signed with prosecutors. As part of that agreement, Zhang admitted to paying for Nuru’s luxury hotel, transportation, services at a hot spring and numerous gifts totaling $6,500.
Prosecutors have further alleged that the trip featured a $10,000 bottle of liquor shared over dinner with the vice president of a foreign country.
Zhang treated the powerful public official to that trip, and regular dinners in San Francisco, so that Nuru would help usher along Z&L Properties’ high-profile development project at 555 Fulton St., he admitted in the agreement.
On Dec. 3, 2019, Zhang messaged Nuru via WeChat, according to a transcript in the agreement.
“How are you doing, Bro, 555 Fulton project has finished almost all inspection and have signed off plumbing & electrical & SFFD inspection for South Tower,” the business mogul wrote. “Can you please help to arrange inspection ASAP? Thank you very much Bro!!”
Nuru quickly replied: “No problem, will make sure you get all your sign off,” promising to make a call and get an update for the tycoon. Nuru followed up two days later, writing that paperwork had been signed for the building.
Zhang’s Guangzhou-based company, R&F Properties Co., has assets topping $53 billion, according to Forbes. He first purchased 555 Fulton St. in 2012, and in 2016, he formed the Foster City-based company Z&L Properties to manage that project and others in California.
Nuru pleaded guilty in 2022 to a slew of corruption charges reaching well beyond Zhang’s case. He’s currently serving seven years in prison.
Z&L Properties’ other developments have faced serious problems, The Standard found. In August, San Jose Mayor Matt Mahan criticized the company for allowing a historic downtown church in the city to languish in disarray for years, earning it the name “Trash Bag Church.”
“Those responsible for this neglected, frankly dangerous, building have not done their part,” Mahan said about Z&L Properties’ management of the church.
The company is also in a prolonged feud with the owners of apartments in its 188 W. St. James St. development in San Jose. That owners' association accused Z&L Properties of insurance fraud in a letter to the federal court overseeing the criminal case. The company filed for insurance reimbursements of over $138,000 for a window that actually cost about $10,000, the letter claims.
The owners association also accused Z&L Properties of failing to pay dues it owes for the maintenance of communal spaces in the building in a letter to the court, stating that homeowners have recorded 10 liens on units the company owns within the development over the delinquent payments. Meanwhile, Z&L Properties controls the communal funds and has spent some of the money collected from 188 W. St. James St. residents to pay for PG&E bills at another building, the letter claims.
Attorneys for the owners association asked the court to disqualify Z&L Properties from serving on any building board, including at 188 W. St. James St.
“These financial criminals should not be permitted to continue handling the money of others,” attorney Maria Kao wrote in the letter.
Thursday’s final sentence, however, did not include the owners' association’s requested conditions.
Z&L Properties’ attorney declined to comment on the owners association’s allegations.
In July 2022, the owners association at 555 Fulton in San Francisco sued Z&L Properties, claiming that the building contained construction defects, including leaking windows, water ponding in stairwells, inadequate hot water delivery and overheating units, among other issues.
The Trader Joe’s that was promised at that location has been stalled for years. But reports by the San Francisco Business Times that Z&L Properties sold the commercial space to a new developer in September indicate efforts to bring a grocery store may finally be underway.
Meanwhile, at least 1,000 homes that Z&L Properties announced it would build in the Bay Area remain far from a reality.
Noah Baustin can be reached at email@example.com