[J]ay Peak owner Ariel Quiros continues to challenge an investor fraud lawsuit brought against him by the U.S. Securities and Exchange Commission.
Meanwhile, one of the defendants, a longtime business associate of Quiros’ who runs an entity embroiled in the case, appears to be settling with the SEC.
Quiros recently submitted his official answer to the lawsuit filed this spring, demanding a trial and raising several defenses to the allegations leveled at him by federal regulators. He has also asked that he be reimbursed for the costs associated with defending himself in the action, which total more than $2 million in attorney fees.
At the same time, Michael Goldberg, the court-appointed receiver, has agreed with the SEC to resolve the cases against the many entities he now oversees, including the six limited partnerships for Jay Peak Resort expansion projects, plus AnC Bio Vermont, a proposed biomedical park.
All seven projects at the center of the fraud case are also named as defendants in the lawsuit.
Quiros, in his 52-page filing, disputes the claims against him laid out in the 82-page SEC lawsuit, listing 34 “affirmative defenses.” Quiros raises many of the same arguments from earlier submissions to dismiss the case outright. Defense attorneys have argued that the Miami businessman, who is accused of using EB-5 immigrant investor funds as a personal piggybank, was taking legitimate profits from the developments.
Judge Darrin P. Gayles last month rejected that motion and granted a preliminary injunction against Quiros requested by the SEC, freezing his assets and barring him from dealing in securities. The case is filed in federal court in Miami where Quiros resides and many of his businesses are located.
Quiros earlier this month appealed that preliminary injunction ruling to the U.S. 11th Circuit Court of Appeals in Atlanta.
In the most recent filing, attorneys for Quiros again contest the claims against their client, saying they occurred outside the five-year statute of limitation. SEC attorneys have contended in their previous filing that actions leading to the allegations in the lawsuit included a “continuing course of conduct” by Quiros that is within the limitations.
The filing also challenges whether the allegations against Quiros rise to the level of securities fraud.“The SEC’s claims are barred in whole or part because the alleged misstatements were opinions, judgments and estimates that are not actionable,” the filing states.
Defense attorneys say Quiros “at all times” acted in “good faith and with good cause.”
The SEC and Quiros’ attorneys could not be reached Thursday for comment.
Quiros’ answer to the lawsuit is filed in the SEC case against him which alleges a fraudulent investment scheme spanning several limited partnership securities offerings and the misuse of $200 million. The limited partnerships are all connected to Jay Peak Inc., a wholly-owned subsidiary of Miami-based Q Resorts, Inc. — which is in turn owned by Quiros.
The limited partnerships raised money from foreign investors through the federal EB-5 visa program, with the funding expected to be used to pay for a series of development projects in Vermont’s Northeast Kingdom, including hotels at Jay Peak and Burke Mountain ski resorts.
Funds were also raised for a proposed $110 million biomedical research center in Newport that never materialized and federal regulators have said is “nearly a complete fraud.”
The lawsuit against Bill Stenger, Jay Peak’s former CEO, and Quiros also claims Quiros spent $50 million of the money raised through the EB-5 program in “other ways never disclosed to investors.” According to the federal complaint, Quiros improperly used investor funds for the purchase of a luxury condominium, payment of income taxes and other taxes unrelated to the investments.
According to the complaint, “Quiros orchestrated and Stenger facilitated an intricate web of transfers between the various Defendants and Relief Defendants to disguise the fact that the majority of the seven projects were either over budget or experiencing shortfalls.”
Stenger settled his lawsuit with the SEC in September, neither admitting or denying wrongdoing. He still faces possible civil penalties based on his level of cooperation with investigators and his ability to pay.
The SEC lawsuit, in addition to naming Quiros and Stenger as defendants, also lists a slew of corporate and relief defendants.
Goldberg, appointed by the court as the receiver overseeing those corporate and relief defendants, submitted a filing this week, titled, “Consent of Corporate Defendants and Relief Defendants to judgment of permanent injunction and other relief.”
“(T)he Court appointed Receiver has consented to entry of the attached proposed Judgment on behalf of the Corporate Defendants and Relief Defendants,” Goldberg wrote in his filing. “Entry of the Judgment will remove the Receivership entities from the trial docket and leave only the issues of disgorgement and a civil penalty pending against those entities, which the Commission anticipates resolving soon.”
Goldberg’s filing states that the corporate and relief defendants “consent” to the judgment against them, without admitting or denying the allegations.
The corporate and relief defendants are entities that were mostly under the control of either Stenger and Quiros, and in some cases other parties, who were recipients of funds raised through the investment schemes.
Relief defendants are entities that may have received “ill-gotten gains” but not necessarily took actions that led to the fraud allegations.
One of those relief defendants is North East Contract Services, which was run by Bill Kelly, a longtime business associate of Quiros’ who received $7.9 million for services allegedly provided for the AnC Bio Vermont project, which was never built.
The corporate and relief defendants also agree, Goldberg wrote, that the court will determine whether it is appropriate to order disgorgement of ill-gotten gains and prejudgment interest, as well as any civil penalties.
The entities also agree, the receiver wrote, that at any hearing to determine disgorgement or civil penalties that “they will be precluded” from arguing they did not violate federal securities law as outlined in the lawsuit.
The corporate defendants include Jay Peak, Inc., Q Resorts, Inc., Jay Peak Hotel Suites L.P., Jay Peak Hotel Suites Phase II L.P., Jay Peak Management, Inc., Jay Peak Penthouse Suites L.P., Jay Peak GP Services, Inc., Jay Peak Golf and Mountain Suites L.P., Jay Peak GP Services Golf, Inc., and Jay Peak Lodge and Townhouses L.P.
They also include Jay Peak GP Services Lodge, Inc., Jay Peak Hotel Suites Stateside, L.P.,and Jay Peak GP Services Stateside, Inc., Jay Peak Biomedical Research Park L.P., AnC Bio Vermont GP Services, LLC.
The relief defendants are Jay Construction Management, Inc., GSI of Dade County, Inc., North East Contract Services, Inc., and Q Burke Mountain Resort, LLC.
The corporate and relief entities have been under the control of Goldberg since his appointment as the receiver shortly after the filing of the SEC lawsuit brought in April. Goldberg, in his role as receiver, has the authority to act as the owner of the entities and enter into the agreement with the SEC.
Goldberg’s proposed agreement with the SEC still needs the approval of the judge. Goldberg could be reached Thursday for comment.
In addition to the federal case, both Stenger and Quiros face a state lawsuit brought by the Vermont attorney general’s office alleging similar conduct as alleged in the SEC complaint. Both men are contesting the allegations against them in that case.
No criminal charges have been brought against Quiros or Stenger. A federal criminal investigation led by the U.S. Attorney’s office in Burlington has been underway since April.
