Miami-based investors are suing Honduras after their own false promises left families picking up the pieces.
By Marcia Perdomo | November 24, 2025
Online: https://fpif.org/u-s-backed-housing-scandals-threaten-to-rip-off-honduras-and-panama/
We are grateful to Jen Moore of Presente-Honduras for making this article available to us.
A pair of Miami-based investors whose social housing projects in Honduras and Panama received U.S. development financing are now using exclusive trade provisions to sue both countries. While little is yet known about their claim against Panama, the Hondurans who were supposed to benefit from more affordable housing are feeling duped and fighting to retake control of their community.
In 2010, U.S. company Inter-Mac marketed the Castaños de Choloma social housing project as a safe, low-cost housing in a non-flood zone with insurance against natural disasters. The housing project was jointly undertaken by Inter-Mac and construction company Hola Realty with a $70 million loan from the U.S. Overseas Private Investment Corporation (OPIC, the predecessor to the Development Finance Corporation or DFC).
But 10 years after the homes were built, midway through the COVID-19 pandemic and despite promises that the homes were built in a non-flooding zone, families were flooded out following back-to-back hurricanes Eta and Iota in 2020. Residents never received any compensation for the damages.
After the community began taking action to take management of Castaños into their own hands, to seek redress, and annul the company’s environmental permits for violating due process and human rights, two of the U.S. investors involved — Juan Carlos and Ernesto Argüello of Miami — launched a suit in May 2023 against Honduras at the World Bank-based International Centre for Settlement of Investment Disputes (ICSID). They’re demanding $100 million, plus $2 million in “moral damages,” as detailed in the report The Corporate Assault on Honduras. Few details have been made public about the grounds for the investors’ claim.
Their claim is possible thanks to special provisions in the Free Trade Agreement between the U.S. and Central America (CAFTA-DR) that gives transnational companies unilateral recourse to sue governments when they believe their investments have been harmed by public interest laws or regulations, court decisions in favour of community rights, or other measures.
But it was low-income families in Castaños de Choloma who paid a high price.
Reina Castellanos, who has lived in Los Castaños for 14 years, said that flooding from the 2020 Eta and Iota storms took them by surprise because when they bought their homes they were assured that the area was safe from flooding. Then, after the flood, the insurance policy they had paid for was never disbursed and Inter-Mac never explained what happened to the money.
Given the company’s abandonment, negligence, and deceit, Castellanos questions the arbitration claim against Honduras. “They couldn’t even manage to clean up the garbage that was leftover after the floods. How dare they sue the government now if it isn’t them who were harmed. They didn’t face the harm, rather it was us as a community,” she said.
With regard to the $2 million that the Argüellos are claiming in “moral damages” from Honduras, Castellanos said that she does not understand what damage they could be referring to. “We were the ones who were harmed and swindled… They never gave us even minimal consideration or ever showed up in the community.”
Pedro Mejía, a lawyer who has worked for the local firm Studies for Dignity (Bufete Estudios para la Dignidad) that represents the people affected by Inter-Mac and Hola Realty, believes the company’s claim before ICSID is arbitrary.
The claimants argue that the state did not guarantee their investment in Honduras. According to Mejía, however, the company “engaged in multiple illegalities, such as building houses without the corresponding environmental permits and basing their investment on a fraudulent promise that the houses would not flood, despite being located in a flood zone, according to official reports of which they were aware.”
Threats and Neglect
Faced with the indifference and abandonment of the company after the flooding, the Castaños Board of Trustees has sought to take control of their community and to organise their own local government to manage water and solid waste collection services, as well as to build mutual support among neighbours.
“We see a lot of indifference, even from the current authorities,” said Carlos Velásquez, president of the Castaños Board of Trustees. “Castaños has survived very much thanks to the contribution of residents themselves. What we have done” has been “without the support of any state [or municipal] government.”
Initially, Velásquez says that he and other colleagues faced threats to their lives for their efforts. He blames municipal authorities, including former Choloma mayor Leopoldo Crivelli, as well as Inter-Mac. Crivelli was mayor of Choloma for 16 years and allegedly granted operating permits to the company despite its environmental license having expired.
Crivelli’s administration was controversial and has faced several judicial processes without conviction. One involves the overvaluation for more than 7.5 million lempiras (roughly $300,000) of a piece of land that was to serve as a municipal landfill. He was also named during the New York trial against drug trafficker Geovanny Fuentes for his close relationship to the accused (since sentenced to life in prison) and for having helped facilitate the release from jail and return of confiscated money to someone working for the Los Cachiros cartel.
Among the threats made against members of the Castaños Board of Trustees, a woman who was participating in community assemblies was approached by a man on a motorcycle who knew that her daughter’s father had already died and who threatened that, if she continued to attend the meetings, the girl would lose her mother as well. On another occasion, a board member had to take refuge in a police post when two motorcycles chased him. For his part, Velásquez learned that, at one point, he was on the hit list of one of the main gangs in the area.
But the community fought back.
Between November 2021 and February 2022, the Board of Trustees, with the help of Mejía’s firm, filed several complaints over efforts on the part of the company to try to illegally evict families and for restricting access to potable water in the community as retribution against them. On August 30, 2022, the San Pedro Sula Prosecutor’s Office reported that an investigation had been opened into the companies Intermac S.A. de C.V. and Hola Realty S.A. de R.L. “for a possible crime of ongoing fraud due to alleged poor construction of homes.” The outcome of this investigation is not known.
For the last few years, community representatives and their lawyers say that the company has mostly abandoned Castaños and that their main challenge is now to gain formal recognition from the municipality of Choloma.
The Case Against Panama
Despite transparency provisions in CAFTA-DR, only one procedural decision has been published so far in the case Juan Carlos Argüello and Ernesto Argüello v. Republic of Honduras (ICSID Case No. ARB/23/17).
The efforts to request a copy of the investors’ notice of arbitration from the Solicitor General’s office have been denied based on confusing confidentiality arguments. Lawyer Pedro Mejía also states that the Solicitor General has not approached the victims in the Castaños housing project “in order to understand the rights violations they have faced from Inter-Mac and to build common cause.”
During the September 2024 launch of The Corporate Assault on Honduras, Aldo Orellana, a member of TerraJusta, underscored the importance during international arbitration processes that the state share information with affected communities, in order to build a common front as the case proceeds. “It appears that the authorities are not sharing information on the cases, they are not listening to the communities’ concerns and given this, well, it is unclear what level of transparency the government is seeking or not,” said Orellana.
While the case against Honduras lurches forward, on August 11, 2025, CIADI registered a second arbitration case from the Argüello brothers, this time against Panama under the terms of the U.S.-Panama Trade Promotion Agreement.
Little documentation is available about this claim. It is known, however, that the Argüello brothers were involved in another social housing project in Panama that received a $7.5 million loan from OPIC (now DFC) in 2015.
Based on press reports, this project was shut down following allegations of possible fraud by people who say they were tricked into investing in houses that the company sold multiple times. When interviewed by Panama’s Telemetro news program about the allegations, Ernesto Argüello said he had been deceived, claiming that people had presented false documents and blaming an employee for what had happened.
Exiting ICSID: An Important Step, But Not Enough
In response to an avalanche of cases against Honduras since 2023, the Central American country withdrew from the World Bank tribunal, ICSID, in 2024. But experts say the move is not enough and that the system that enables Investor State Dispute Settlement, or ISDS as it is known, should be questioned as a whole.
Speaking in Honduras in August, economist and University of Columbia professor Jeffrey Sachs made damning remarks against ISDS and the institutions that enable such claims. Rather than promoting sustainable development as is their mandate, he condemns multilateral agencies like the World Bank and others for facilitating ISDS claims that he calls an abuse and a means to extort countries like Honduras.
Of a total of 21 known claims arbitration that have been brought against Honduras, 14 remain pending for $9.9 billion, or roughly 27 percent of the country’s GDP in 2024.
Luciana Ghiotto from the Transnational Institute, co-author of the report The Corporate Assault on Honduras, says that it is not enough to withdraw from ICSID given that it is only one of a number of global arbitration centres to which investors can bring claims. The protections afforded to investors in free trade agreements, bilateral investment treaties, as well as Honduras’ 2011 Investment Protection and Promotion Law and various contracts enable investors to sue Honduras in any arbitration forum in the world, not just ICSID.
Demonstrating this, in May 2025, two companies brought new claims against Honduras, one under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules and a second under the ICSID Additional Facility arbitration rules.
To avoid further arbitration, Ghiotto proposes refraining from signing more free trade or investment treaties, including by conducting a comprehensive audit of treaties — as Ecuador has done previously. She further emphasized the urgency of renegotiating or terminating the contracts that contain ISDS and are unfavourable to Hondurans, as well as making reforms to the Law for the Protection and Promotion of Investments of 2011 that provides access to ISDS for all investors in Honduras regardless of their country of origin.
This article was adapted from an earlier version published in Spanish by the Honduran outlet Criterio.
Online: https://fpif.org/u-s-backed-housing-scandals-threaten-to-rip-off-honduras-and-panama/