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EB-5 suit lands in Lamoille County

EB-5 suit lands in Lamoille County

EB-5 Visa, EB5 Visa, EB-5 Investment

A Jay Peak investor is suing the state government in Lamoille County Superior Court over allegations that officials covered up a $200 million Ponzi-like scheme in which more than 800 EB-5 immigrant investors were defrauded.

In the civil complaint, Tony Sutton, an investor from London, charges that three state entities and 10 current and former state officials were at best “grossly negligent” and at worst intimately involved in a conspiracy to cover up their joint improprieties.

Sutton and his attorneys allege that the state effectively acted as partners in the alleged fraud at Jay Peak Resort.

He is being represented by Barr Law Group, based in Stowe. The principal of the firm, Russell Barr, owns Stowe Aviation, which recently pulled out of the Vermont EB-5 Regional Center program.

The state did not call the Jay Peak developers to account, despite evidence that Ariel Quiros, the owner of the resort, and Bill Stenger, CEO of the company, were defrauding investors, the lawsuit alleges.

Instead, state officials attempted to cover up their complicity in the fraud, Sutton says.

The 16-count class-action lawsuit alleges that the state failed to perform due diligence in reviewing the projects, failed to monitor the projects, violated securities laws, profited at the expense of investors, misrepresented its oversight role to investors, and failed to follow up on red flags that would have uncovered the scheme.

The Vermont EB-5 Regional Center was responsible for administering and monitoring the Jay Peak projects, but refused to hold the developers accountable in 2014 when investors complained about fraudulent activity, the suit alleges. Instead, the regional center director and others at the Agency of Commerce and Community Development defended the developers and rebuffed investors’ demands for help.

52-count federal case

Sutton’s case comes three years after he brought allegations of fraud to the attention of state officials. His claims were borne out in a 52-count securities fraud case brought by the Securities and Exchange Commission in 2016.

Federal regulators charged Quiros and Stenger with misusing $200 million out of $440 million they collected from immigrant investors under the federal EB-5 visa program for eight projects in the Northeast Kingdom. The state Department of Financial Regulation helped uncover the complicated scheme.

A year later, the financial services firm Raymond James, which allowed Quiros to borrow against investor money to place bets on the stock market, settled with the investors for $150 million.

The state entities named in the suit include the Vermont EB-5 Regional Center, the Vermont Agency of Commerce and Community Development and the Department of Financial Regulation. The individual defendants are James Candido, Brent Raymond and Eugene Fullam, the former directors of the regional center; Joan Goldstein, the interim director of the center; William Carrigan, deputy commissioner of the Securities Division; Michael Pieciak and Susan Donegan, the current and former commissioners of the Department of Financial Regulation; Patricia Moulton and Lawrence Miller, former secretaries of the commerce agency; and John Kessler, general counsel for the commerce agency.

Michael Schirling, the secretary of the commerce agency, said the state will respond to the complaint.

In the meantime, “we continue to support the projects in the Vermont Regional Center and, with regard to Jay Peak, are working closely with the federal receiver, Michael Goldberg, to ensure the best possible outcomes for investors and impacted parties.”

Ignoring the evidence

Barr alleges that instead of providing diligent oversight of the Jay Peak projects, as advertised to investors, the Vermont EB-5 Regional Center “took an active role in the Ponzi-scheme out of self-interest, self preservation, personal gain and protection of their Jay Peak partners.”

Most alarmingly, the center covered up evidence provided by a former business partner who blew the whistle on financial improprieties at Jay Peak in May 2012, Barr charges in the lawsuit. State officials then went to great lengths to discredit the whistleblower.

Meanwhile, state regulators studiously ignored investor complaints and concerns raised by experts in the EB-5 industry, Barr alleges.

“The Vermont Department of Financial Regulation has chosen not to investigate the state’s involvement in the largest fraud in the history of the national EB-5 program,” Barr said. “Their very own documents — memoranda of understanding, specifically — lay out their obligation to administer, manage and monitor the projects, and they clearly didn’t even do a cursory review of Jay Peak going back a decade.”

Barr claims that the Vermont EB-5 Regional Center “operated as a criminal organization hand-in-hand with a criminal investigation.”

State officials, including newly elected Republican Gov. Phil Scott, have not called for an investigation into the state’s role in the alleged fraud.

While the Vermont Legislature zeroed out the regional center’s budget, lawmakers did not hold a single hearing in the 2015 or 2016 sessions to investigate how the regional center allowed the Ponzi-like scheme to go on for an eight-year period.

Relying on the state

The EB-5 program is a green card program for immigrants who invest $500,000 in an at-risk development in an impoverished area of the U.S.

State officials, including Gov. Peter Shumlin, Gov. Jim Douglas, Sen. Patrick Leahy, D-Vt., and Rep. Peter Welch, D-Vt., actively promoted the projects at Jay Peak and loaned their credibility to the developers. All four traveled to Asia to talk with investors about the expansion of Jay Peak.

In September 2013, Shumlin and members of his administration went on a $100,000 junket to promote the projects with Stenger. Both Leahy and Shumlin wrote letters of support for a planned biomedical center facility.

Vermont has the only state-run EB-5 program in the nation and state officials touted the state’s good government reputation as an asset for investors.

The lawsuit says the Vermont Regional Center “billed itself as an attractive option for development and foreign investment because of its superlative ‘oversight powers’ as a state agency and because of overwhelming investor confidence that came from the VRC’s ‘stamp of approval.’”

In promotional materials and in conversations with investors, Bill Stenger, the CEO of Jay Peak, emphasized that the projects were audited by the state. Then-Gov. Shumlin underscored that assertion in an October 2013 video produced for Jay Peak by his former chief of staff, Alex MacLean, who went to work for Stenger in January that year. The video was translated into Chinese, and it was featured in communications with investors through 2014. Jay Peak materials and website pages about the projects bore the state logo, and the faces of state politicians were sometimes included in promotional fliers.

In agreements with Stenger, and his partner, Ariel Quiros, state officials signed off on promises to monitor, manage and administer each of the eight projects approved by the regional center.

Investors assumed, based on representations made by state officials, that the projects had been audited, Barr writes.

A dozen investors interviewed by VTDigger have said they would not have invested in Jay Peak without the state of Vermont’s stamp of approval. Immigrant investors bought into in the Jay Peak projects in good faith, Barr writes. And they made personal sacrifices to do so: They turned over their life savings, liquidated their assets, left their home countries and displaced their families.

“Many of these immigrant investors came from countries that are mired in corruption,” Barr wrote in the lawsuit. “For these investors, the EB-5 program involved an opportunity to escape that corruption for themselves and their families.”

He writes that the investors were all drawn to Vermont “by the promises of accountability, legitimacy, oversight, and the gold-star standard trumpeted by the VRC Team and its Jay Peak project.”

The false promises and “decades-long cover-up” of the Jay Peak fraud “have thrown all that they invested and sacrificed into an abyss,” Barr writes. Many of the investors, he writes, may be “forced out of this country to start over in the countries they left behind.”

Ultimately, the investors were defrauded of their investments by the developers under the state’s watch, the lawsuit alleges. The immigration status of more than 400 Jay Peak investors is in limbo because of the fraud, according to the SEC.

Barr argues that state officials and the Jay Peak developers worked together to cover up the fraud.

The most glaring example he cites is the state’s treatment of Douglas Hulme, who broke off his partnership with Quiros and Stenger in February 2012, and announced to 100 EB-5 immigration attorneys that he no longer had faith in the financials at Jay Peak.

The state immediately embarked on a campaign to discredit Hulme. James Candido, then the director of the state regional center, conducted a daylong “audit” of Jay Peak and found “no issues” with the project finances.

“It is now known as fact that a non-CPA junior accountant with little practical experience could have uncovered this Ponzi scheme within an hour of reviewing basic financial records,” Barr writes.

Candido asked an immigration attorney, John Roth, to spend a weekend with his family at Jay Peak in the wake of the Hulme allegations, after which he issued a glowing report of the project highlighting the “first class amenities,” its “high sale figures,” and the “particularly careful” oversight by the Vermont EB-5 Regional Center.

The “Roth Report” said that Candido inspected the financial records at the resort four times a year and that the projects were “set to be audited by an independent accounting firm.”

State officials later admitted the projects were not monitored and an audit was never conducted. Roth had a “long-standing referral relationship” with Jay Peak and had a financial interest in the success of the projects, Barr writes, and had a motive to misrepresent the regional center’s oversight of Jay Peak.

The regional center then used the Roth Report as “proof positive” that the Jay Peak projects were healthy and Hulme’s allegations about misappropriation of funds were “unfounded” and merely the result of a “business dispute.”


Source: http://www.stowetoday.com/stowe_reporter/news/local_news/eb--suit-lands-in-lamoille-county/article_607e8b5a-577d-11e7-84f5-3bd2d15cc3eb.html

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