Judge quashes whistleblower deposition in EB-5 investor case against state

A judge has ruled that, for now, defrauded EB-5 investors in a class action lawsuit against the state cannot take the deposition of a key whistleblower in the case.

Lamoille County Superior Court Judge Thomas Carlson quashed the plaintiffs’ request for the deposition of Douglas Hulme, citing state rules prohibiting discovery until the defense has an opportunity to respond.

The plaintiffs allege that the state was complicit in allowing 800 investors to be systematically defrauded by Bill Stenger, the CEO and President of Jay Peak, and Ariel Quiros, the owner of the resort and other properties.

Barr and Associates, which is representing the investors, has asked for depositions of 10 individuals, starting with Hulme on July 27, and the release of all records pertaining to the EB-5 program.

The Vermont Attorney General’s office asked Carlson to block the depositions and the records release in a motion on July 18.

Carlson ruled that the plaintiffs’ requests violated legal procedures.

Bill Griffin, the chief assistant Vermont Attorney General, said in an interview that it was “inappropriate” for the plaintiffs to file a request for depositions and documents before the state responded to the investors’ complaint, which was filed in June.

The AG’s response, which must be filed by September 8, will be a motion to dismiss on the grounds that the state is protected from civil lawsuits under the doctrine of sovereign immunity, Griffin said.

Rapid USAs Visas CEO Douglas Hulme (left), a representative of Shen law firm (center) and Jay Peak CEO Bill Stenger (right).

Three state entities and 10 individuals are named in the class action lawsuit, including members of the former Shumlin administration who are no longer in public office. The AG’s office is representing current officials named in the lawsuit, and the Vermont EB-5 Regional Center, the Agency of Commerce and Community Development and the Vermont Department of Financial Regulation.

Russell Barr, the lead attorney for the plaintiffs, says his firm wanted to get Hulme, who is now 74, on the record as soon as possible.

“The state quashed whistleblower Douglas Hulme when he attempted to tell them the truth about Jay Peak in 2012 and they are doing so again by quashing his deposition now,” Barr said. “What are they so fearful of? The truth?”

Hulme, of Rapid USA Visas, worked as a consultant for Jay Peak CEO Bill Stenger and resort owner Ariel Quiros from 2006 through 2011. In that role, Hulme solicited investors for the Jay Peak projects. In February 2012, he broke off his relationship with the developers and publicly announced that he no longer had faith in the financials at Jay Peak.

Later that year, Hulme told officials with the Vermont EB-5 Regional Center that Stenger and Quiros, who were looking to use nearly $800 million in EB-5 immigrant investor funds for a series of developments in the Northeast Kingdom, were misappropriating funds, according to the plaintiffs’ lawsuit.

Under the federal EB-5 program, immigrants who put up a $500,000 in risky developments in poor rural areas are eligible to receive green cards.

The Vermont center, the only one of its kind nationally, was responsible for monitoring, overseeing and reviewing financial documents for the Jay Peak EB-5 projects.

Instead of investigating Hulme’s allegations in 2012, the Vermont Regional EB-5 Center vouched for the developers and forced Rapid USA, which had other clients in Vermont including Mount Snow Resort, out of the state.

Before and after Hulme blew the whistle on the developers, state officials told investors that the projects promoted by Stenger and Quiros were safe investments. In marketing materials, the two developers, and Gov. Peter Shumlin, claimed the projects were audited by the state. Shumlin, U.S. Sen. Patrick Leahy, D-Vermont, and U.S. Rep. Peter Welch, D-Vermont, promoted Jay Peak to potential investors in China.

Despite Hulme’s warning to state officials in 2012, the fraud continued through April 2016 when the Securities and Exchange Commission charged Quiros and Stenger with misappropriating $200 million in immigrant investment funds.

Many investors say it was the state’s stamp of approval that gave the projects legitimacy. More than 800 were allegedly defrauded by Stenger and Quiros, according to the SEC.

In the civil complaint against the state, five immigrants, including Tony Sutton, a British investor in the Tram Haus Lodge, and Wei Wang, a Chinese investor in AnC Bio Vermont, a proposed biomedical facility, charge that state officials were at best “grossly negligent” and at worst intimately involved in a conspiracy to cover up their joint improprieties with the developers.

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

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.

Sutton, in 2014, asked Pat Moulton, the former secretary of the Agency of Commerce and Community Development, to investigate allegations that the developers had illegally used investor funds to purchase the Jay Peak Resort in 2008.

Moulton came to the defense of the Jay Peak developers and ignored Sutton’s request.

Moulton is named in the class action investor lawsuit, as is 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; Lawrence Miller, former secretaries of the commerce agency; and John Kessler, general counsel for the commerce agency.

Donegan refused service of the plaintiffs’ lawsuit, according to an affidavit.

https://vtdigger.org/2017/08/06/judge-quashes-whistleblower-deposition-eb-5-investor-case-state/

Mentions

• SHENLAW, LLC
• Vermont EB5 Regional Center
• Bill Stenger
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION
• Ariel Quiros
• Mount Snow
• Vermont Agency of Commerce and Community Development RC
• Peter Shumlin
• Patrick Leahy
• Jay Peak - AnC Bio Vermont
• Jay Peak Resort - Tram Haus Lodge

Litigation Cases

• Chinese investors vs SHENLAW, LLC & Darren Silver & Darren Silver & Associates, LLP & Schnader Harrison Segal & Lewis LLP & Ting Geng, Esq. & The Law Offices of Geng & Zhang PLLC & Leslie I. Snyder, P.A. & Ruben Flores & The Flores Group & Cheng Yun & Associates, PLLC & Dai & Associates, P.C.
• Chinese investors vs SHENLAW, LLC & Jianming Shen
• State of Vermont vs Bill Stenger & Ariel Quiros
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Ariel Quiros & Bill Stenger

States

• Vermont