Indictments, investor wins mark turning point in EB-5 scandal

Jay Peak developers Ariel Quiros, left, and Bill Stenger were indicted May 22, 2019, in federal court in Burlington.

he ongoing saga of the EB-5 scandal at Jay Peak Resort is long from over, but 2019 marked a turning point in the story, which stretches back to 2006 and has involved leaders at every level of state government.

The most dramatic development was the indictment in May of four men in an alleged fraudulent scheme to bring a proposed biomedical facility to Newport from South Korea. The U.S. Attorney’s Office in Burlington charged three of the men with wire fraud, and a fourth, Ariel Quiros, the former owner of the Jay Peak Resort, with money laundering.

The year closed out with the criminal charges pending, Jay Peak on the market, the first civil litigation case tied to the scandal set for trial, and the state facing the possibility of hundreds of millions of dollars in claims from bilked investors thanks to a Vermont Supreme Court ruling.

The federal prosecutor’s indictments in the spring were issued three years after the U.S. Securities and Exchange Commission brought 52 counts of civil securities fraud against Quiros and former Jay Peak CEO Bill Stenger and accused the two men with misusing $200 million in investor monies for more than a decade. Both men did not contest the allegations against them and settled with federal regulators. The federal counts in April 2016 came nearly two years after VTDigger began reporting on allegations of financial improprieties at the resort.

The proposed AnC Bio plant to be built in Newport.

AnC Bio Vermont was the Jay Peak developers’ “crown jewel.” It was also a scam from the start, prosecutors say. Quiros’ business associate Alex Choi had been prosecuted by the South Korean government for ripping off foreign investors in Pyeongtaek before he brought the $110 million proposed stem cell research and biomedical manufacturing facility to Vermont.

Stenger sold the proposed biomedical facility to 169 foreign investors who put up a total of $80 million. Quiros’ business adviser Bill Kelly allegedly made $7 million on AnC Bio Vermont for “construction supervision services” that were never delivered.

Quiros, Stenger and Kelly have all pleaded not guilty, and a trial is set for October 2020. Choi is at-large and has not responded to the U.S. attorney’s charges.

The indictments set the stage for a battle over the state’s role in the fraud. Quiros’ attorney Seth Levine is seeking to move the case to the 2nd Circuit Court in New York because he says his client can’t get a fair trial in Vermont as a result of the U.S. attorney publicizing the case in a press conference. In addition, Levine cites ongoing media coverage.

In a court appearance this month, Levine alleged that the U.S. Attorney’s Office was tainted by political connections involving the former top prosecutor and the state’s leading politicians, including U.S. Sen. Patrick Leahy, U.S. Rep. Peter Welch and former Gov. Peter Shumlin.

U.S. District Judge Geoffrey Crawford’s ruling on the change of venue motion from defense attorneys is expected before February. 

Meanwhile, the pending criminal case is delaying Vermont Auditor Douglas Hoffer’s probe into who knew what when in state government related to the EB-5 scandal in the Northeast Kingdom.

The Vermont Attorney General’s Office has called on the auditor’s office to wait until the criminal cases have concluded before interviewing former state EB-5 officials. 

Investor lawsuit against the state moves forward 

The Vermont Supreme Court issued a ruling in October that will allow EB-5 investors to pursue claims regarding lax oversight of the state-run regional center and projects headed by the Jay Peak developers. 

That decision could potentially put the state on the hook for hundreds of millions of dollars due to allegations of misrepresentation and negligence and by the investors. 

Russell Barr speaks to reporters outside the Lamoille County Courthouse in Hyde Park in summer 2017. 

In addition, the high court’s ruling allows the investors to move forward on negligence claims against Brent Raymond and James Candido, the two former directors of the state-run EB-5 program.

It’s a legal fight attorney Russell Barr of the Barr Law Group in Stowe has been waging for years. 

In 2017, Barr, on the behalf of several investors, sued the state and commerce agency officials, contending that the state and those officials allowed the 10-year fraud to occur through, at best, negligence, or at worst, were complicit in carrying it out.

The Supreme Court decision reversed a lower court ruling dismissing the negligence and misrepresentation claims against the state. The high court ruling also reinstated other claims including breach of contract, and breach of good faith, against the state commerce agency regarding its oversight of Jay Peak Resort projects through the state EB-5 regional center. 

Only a handful of the over 800 EB-5 investors who put money into the developments headed by Stenger and Quiros are plaintiffs in the legal action, though Barr is seeking to make the lawsuit a class-action to bring even more into it. 

Every EB-5 investor in one of the many projects put in $500,000, plus fees of as much as $50,000. In exchange, if that $500,000 led to the creation of 10 American jobs, the investor would become eligible for a green card and permanent U.S. residency.

The ruling sent the case back to Lamoille County Superior civil court in Hyde Park, where it remains pending.

“We’re going to move forward on our case to find out the exact details of what happened and what went on, that’s my charge right now,” Barr said after the high court ruling was issued.

In a separate ruling that came out the same day, the Vermont Supreme Court shot down a request by Barr, on behalf of a group of EB-5 investors, to intervene in a lawsuit brought by state regulators against Quiros and Stenger more than three years.

In that case, the state reached a $2.1 million total settlement with the two developers. That agreement called for Quiros to turn over an estimated $2 million in property to the state, with Stenger paying $100,000.

Barr contended that he, rather than the state, was in a better position to represent the interest of investors in the case. Justice Karen Carroll, writing in a unanimous decision, stated that Barr waited too long to seek status in the case.

Federal case in kickback scheme

Barr is also suing an immigration attorney who allegedly took $1.25 million in kickbacks from Stenger to promote the Jay Peak projects to investors. Jianming Shen, a New York lawyer, had hung his defense on the Vermont EB-5 Regional Center’s knowledge of his activities. 

Shen says he translated for state politicians who promoted the projects overseas and that commerce agency officials knew about the so-called “referral fees.”

Over the past year and a half, Judge Christina Reiss has barred depositions of key witnesses, including Vermont EB-5 Regional Center officials; sided with a former Jay Peak business partner’s attorney who insisted that Barr pay exorbitant security fees for her client; and thwarted Barr’s bid to expand the case as a class action lawsuit.  

In December, Reiss ruled that the case can go to trial in April 2020. 

Canadian firm in the fray 

From left, attorneys Laurence May and David Pocius walk out of federal court in Burlington along with Louis Dufour of Saint-Sauveur Valley Resorts Inc. of Quebec, former owner of Jay Peak. Earlier, they were in court for a hearing in a lawsuit brought by a group of EB-5 investors against the Canadian company.

Michael Goldberg, the court-appointed receiver now overseeing the properties at the center of the fraud case, including Jay Peak and Burke Mountain ski resorts, is pushing ahead in a lawsuit against the Canadian company that formerly owned Jay Peak.

Goldberg is seeking more than $80 million in his lawsuit brought against Mont Saint-Sauveur International Inc., now known as Saint-Sauveur Valley Resorts.

The lawsuit alleges the Canadian company fraudulently accepted $18 million in EB-5 immigrant investor funds, which were supposed to be kept in escrow accounts for construction projects at the resort, from Quiros as part of his payment for the Jay Peak ski area in 2008.

Attorneys for Saint-Sauveur have denied the allegations.

The year ended with a request pending before Judge Reiss in Vermont seeking approval to move forward with the depositions of two Montreal lawyers who represented the Canadian company during the sale process to Quiros. 

USCIS slams state 

The state is awaiting word on its longshot bid to reverse a decision by a federal agency to shutter the scandal-plagued Vermont EB-5 Regional Center.

The U.S. Citizenship and Immigration Services filed a notice of termination for the state-run regional center in July 2018, citing the state’s “lax oversight” that “allowed the fraud to occur in the first place.”

The state contested that USCIS decision. That state had sought the ability to “wind down” the operations of the regional center to allow investors in EB-5 projects in Vermont to continue to move forward in seeking permanent U.S. residency.

In September, USCIS rejected that request by the state, raising many of the same points outlined in its earlier notice of termination. 

Now, the state is calling on USCIS, the same agency that blasted the state, to reconsider its decision and allow for the continued operation of the regional center. Outside of the Jay Peak projects, there is currently one other business in the program, the von Trapp Brewery in Stowe.

Michael Goldberg at a Statehouse news conference in April 2017. 

Michael Pieciak, commissioner of the state Department of Financial Regulation, has estimated that as many as 150 EB-5 investors from across all the projects in the state may be at risk of not obtaining their green cards if the center were to close now.

Goldberg, Jay Peak’s receiver, is engaged in his own battle with USCIS.

In November, Goldberg filed a lawsuit against USCIS, alleging the federal agency is delaying the process for EB-5 investors in the projects led by Stenger and Quiros to become permanent U.S. residents.

Goldberg wants a judge to order the USCIS, which has left some of those investors waiting up to five years for a decision, to issue rulings within 90 days.

No rulings, in that case, had been made by year’s end. 

EB-5 records missing 

In August, VTDigger reported the state cannot find about four months' worth of emails from James Candido, the former head of the state-run EB-5 center from May to October 2010, as well as other records. 

News of the missing communications was revealed in a settlement in a public records lawsuit brought by the media organization against the state over EB-5 documents. 

As part of that settlement, the Vermont Attorney General’s Office revealed that email records may have been deleted as part of a purge when state servers were overloaded. 

According to the attorney general’s office, the email communications may have been deemed “non-substantive.”

Records VTDigger did receive as part of the lawsuit settlement did reveal that before the state’s EB-5 program became ensnared in fraud allegations, Sen. Patrick Leahy wanted people to associate him as the leading backer of the immigrant investor initiative in the state.

Leahy’s staff in 2011 pushed then-incoming Gov. Peter Shumlin to laud the senator during his inaugural address for playing a primary role in supporting the state’s EB-5 program, while also offering plaudits to members of the state’s congressional delegation on other topics.

“Recognize them and their good work – on EB5 you need to recognize Leahy and only Leahy,” Chuck Ross, then a member of Leahy’s staff, wrote to Bill Lofy, Shumlin’s incoming chief of staff, on Jan. 3, 2011, three days before the new governor’s inaugural address. 

Jay Peak hits the market 

The Hotel Jay and Conference Center at Jay Peak Resort.

Jay Peak ski resort may be in the hands of new owners in the new year.

Golberg, Jay Peak’s receiver, said late this year he is “hopeful” a buyer will be found by summer 2020.  

And, based on what he knows, Goldberg has said he’s “fairly certain” that many of the EB-5 investors will “incur a significant loss of their principal investment.”

The resort is not expected to sell anywhere near the roughly $250 million needed to make the investors whole. 

The resort is assessed by the town of Jay on its grand list at $124 million. The SEC, during a court hearing, valued Jay Peak at $42 million, basing that figure on average profits.

In an interview earlier this month, attorney Jeffrey Schneider, who is representing Goldberg in legal actions, said the receivership is estimating the value of Jay Peak at around $90 million to $100 million.

Details of entities interested in buying Jay Peak have been scarce, though it was revealed in September that Alterra Mountain Company, based in Denver, had expressed interest in purchasing Jay Peak.

Alterra, which also owns Tremblant ski resort in Quebec and Stratton in Vermont, announced in November it was purchasing a different ski resort in the state, Sugarbush in Warren.

The fate of Burke Mountain ski area, the other northern Vermont ski area tied to the EB-5 scandal, remains unclear. The sale of that resort remains on hold. Golberg said he is working to boost job creation at the resort to aid investors as they try to meet green card requirements through their investments. 

Criminal probe continues

The criminal case has led federal prosecutors to seek a stay in a civil lawsuit brought by Goldberg against the former legal team for Quiros, contending that allowing the civil case to proceed would hurt an ongoing criminal investigation. 

Goldberg, in that civil lawsuit, has claimed that lawyer David Gordon of New York City and the firm where he works, Mitchell Silberberg & Knupp LLP, failed to take steps to stop the alleged investor fraud, though they deny wrongdoing. 

Federal prosecutors say allowing the civil case to move forward before the conclusion of the criminal case could impede their ongoing grand jury probe that has already led to indictments against Quiros, Stenger, and two of their associates. 

The year ended with federal Judge Marcia Cooke granting that request from prosecutors.

“This matter stayed until November 13, 2020, or until the resolution of the criminal prosecution,” the judge wrote, adding, “whichever is sooner.” 

https://vtdigger.org/2020/01/01/year-in-review-indictments-investor-wins-mark-turning-point-in-eb-5-scandal/

Mentions

• Vermont EB5 Regional Center
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION
• Jay Peak - AnC Bio Vermont
• Jay Peak Resort - Hotel Jay & Conference Center
• Ariel Quiros
• Bill Stenger
• U.S. Citizenship and Immigration Services
• Russell D. Barr
• Brent Raymond
• Patrick Leahy
• Peter Shumlin

Litigation Cases

• United States of America vs Ariel Quiros & Bill Stenger
• Michael I. Goldberg vs Ariel Quiros
• MICHAEL I. GOLDBERG vs The AM Wealth Management Group of Raymond James & Ariel Quiros & Joel Burstein
• JAMES B. SHAW, JOHANNES EIJMBERTS, and LORNE MORRIS Individually and On Behalf of All Others Similarly Situated, vs The AM Wealth Management Group of Raymond James & Bill Stenger & Joel Burstein & Ariel Quiros
• ALEXANDRE DACCACHE, on behalf of himself and all others similarly situated vs Ariel Quiros & Bill Stenger & The AM Wealth Management Group of Raymond James & Joel Burstein
• State of Vermont vs Bill Stenger & Ariel Quiros
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Ariel Quiros & Bill Stenger

States

• Vermont