Editor’s note: A write through of this story was posted at 8:10 a.m. June 15.
A Jay Peak investor is suing the state 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.
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, which was responsible for administering and monitoring the Jay Peak projects, refused to hold the developers accountable in 2014, Sutton alleges. When investors complained to state officials about fraudulent activity, the regional center director and others at the Agency of Commerce and Community Development defended the developers and rebuffed investors’ demands for help.
“We made no demands but just asked the VRC for help as none was provided by Jay Peak themselves,” Sutton said by email. “As is well documented the VRC did everything but help us. In fact, quite the opposite. It is mystifying why the State of Vermont appears to be holding no one accountable.”
Sutton’s case comes three years after he first 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.
Sutton’s law firm filed the civil suit Tuesday in Lamoille County Superior Court. He is being represented by Barr Law Group based in Stowe. The principal of the firm, Russell Barr, is the owner of Stowe Aviation, which recently pulled out of the Vermont EB-5 Regional Center program.
The state entities listed 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 in a statement that state officials have been “made aware of a draft complaint against the State and others regarding the Vermont Regional Center.”
“We will review and respond to the complaint if and when it is formally received,” Schirling continued. “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. Unfortunately, we cannot comment in greater depth on a matter anticipated to be in litigation.”
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-scheme to go on for an eight-year period.
Investors believed ‘in the fallacies’ peddled by 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, I-Vt., actively promoted the projects at Jay Peak and leant their credibility to the developers. All four traveled to Asia to talk with investors about the expansion of the Jay Peak. In September 2013, Shumlin and members of 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. Peter 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 center promoted its diligent oversight, review and pre-approval of EB-5 projects.
But that oversight never happened, according to the lawsuit. State officials did little more than promote the projects. Required quarterly reports were never filed, and Jay Peak did not pay administrative fees to the state, Barr alleges.
When Tony Sutton, and other investors in a hotel at Jay Peak, found out in May 2014 that Stenger and Quiros had seized their ownership stakes in the property, they were shocked, and they immediately turned the Vermont EB-5 Regional Center for help. But their complaints fell on deaf ears.
VTDigger reports in 2014 about the developers’ abuse of the Tram Haus investors and revelations that state officials defended Stenger and Quiros’ actions spurred an agreement in which state regulators took over management of the financial review of EB-5 projects in January 2015.
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.
The state-Jay Peak ‘partnership’
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, the then director of the state regional center, conducted a daylong “audit” of the 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.
Roth circulated the report to Stenger for approval before it was published, according to the lawsuit.
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.”
These “intentional misrepresentations” were made to current and would-be investors, Barr writes.
A Jay Peak investor with “deep concerns” about Hulme’s allegations went to John Cronin, the then director of the securities division of the Vermont Department of Financial Regulation. Cronin told the investor “to be very clear,” the division was “not conducing an investigation of Jay Peak.”
Other immigrants asked Candido if Jay Peak was a safe place to invest. Barr writes that the regional center director “represented to investors that he had investigated and reviewed everything and that it was safe to make an investment.”
Later that spring, state officials asked Hulme for more information, and he participated in a conference call in May 2012 with Lawrence Miller, then secretary of the commerce agency, Patricia Moulton, deputy secretary, and Brent Raymond, the director of the regional center. In that call, Hulme discussed the potential fraud at Jay Peak.
But instead of investigating Hulme’s concerns about potential fraud and allegations of securities fraud leveled by Michael Gibson, of USA Advisors, the state “engaged in a crusade of obfuscations” against Hulme and his company, Rapid USA Visas, “resulting in an outright cover-up.”
Raymond and John Kessler, general counsel for the commerce agency, went after Hulme for using the state of Vermont logo on the Rapid USA website. Meanwhile, Jay Peak continued to use the logo unabated “throughout its Ponzi-scheme.”
When Miller and Moulton learned that Hulme planned to work with Mount Snow, they met with Stenger to “chat.” Shortly afterward, Mount Snow proceeded with its EB-5 submission without Hulme and Rapid USA Visas, Barr writes.
The Vermont Regional EB-5 Center then ensured that no Vermont project “would be granted approval if that project was in any way associated with Rapid USA Visas.”
Three months after the conference call with Hulme, the Jay Peak developers held a daylong press conference announcing $600 million in projects in the Northeast Kingdom on top of the $250 million developments already underway at the ski resort. Vermont’s congressional delegation and Shumlin administration officials were on hand to tout the 10,000 jobs that would be created as a result of the massive developments planned in Newport and East Burke.
A week later, Miller signed the memorandum of agreement for one of those ambitions projects — AnC Bio Vermont, a proposed stem cell research and artificial organ manufacturing plant, that the SEC later said was “nearly a complete fraud.”
The Vermont EB-5 Regional Center then helped to market Jay Peak and made misrepresentations about the safety of investing in the projects. The state continued to “funnel” prospective investors “to lawyers with financial and/or immigration interests in the Jay Peak projects.
With the state’s stamp of approval, hundreds more investors came on board to buy into an athletic center and hotel at Q Burke Resort and AnC Bio Vermont.
Stenger directed investors to “specific attorneys who had a vested interest” in Jay Peak. Anthony Korda, a Tram Haus investor and immigration attorney, represented many of the investors in later projects at Jay Peak.
The lawsuit alleges that investors were “wholly unaware” of the Vermont EB-5 Regional Center and Jay Peak developers “scheme to improperly funnel investors to the Jay Peak projects.”
They were duped by the “coordinated efforts” of Stenger’s referral, Korda’s knowledge of the Jay Peak projects and Candido’s representation of state oversight, Barr writes.
2014 allegations ignored by the state
In August 2013, Stenger and Quiros seized ownership of the Tram Haus Lodge, which was constructed in 2008. The developers had promised investors they would their money back, with a profit after five years. Instead they got an IOU with a payout over nine years.
In violation of their limited partnership agreement, investors were not asked to take a vote on the ownership conversion, nor were they notified of the arrangement until January 2014, at which time Stenger sent them a letter outlining the terms, but without any of the legal paperwork.
The promissory note was sent to the investors in May 2014, and it was at that point that a group of Tram Haus investors, led by Tony Sutton, sought help from the state. Twenty investors out of 35 sent emails to Miller, Raymond and Moulton, hoping that the state would intervene on their behalf.
Instead of helping the investors, state officials attacked them and “shielded” the Jay Peak developers, Barr writes. Raymond and the regional center “turned against” the investors, Barr says, “by reneging on their prior representations of state oversight by claiming they were powerless to assist, ultimately abusing the power of the state to obstruct the Jay Peak investor’s pursuit of the claims.”
Regional center director Raymond “lambasted” Sutton and the other investors for “how farfetched” their expectations were for the Vermont EB-5 Regional Center to monitor, oversee, or otherwise review financial documents relating to the Jay Peak projects, Barr writes.
A month later, Raymond recommended that the investors talk directly to Stenger because the regional center was “unable to assist” because the investors legal agreement was with the Jay Peak developers, not the state.
In July 2014, Sutton and the other Tram Haus investors then reached out to Jim Condos, the Secretary of State. Condos called the Vermont Attorney General’s office and the Vermont Department of Financial Regulation and was told to refer Sutton and the investors back to the commerce agency.
With nowhere else to turn, Sutton went to Stenger asking for partnership and financial documents. Stenger said he would compile the information and send it to him right away. The documents were not sent.
Sutton and the other investors then enlisted the help of a nationally renowned forensic accountant and certified fraud examiner, Dr. Michael Crain, for a review of Jay Peak’s records. While Stenger said he would be “happy to cooperate,” he never allowed Crain to review the company’s ledgers, financial statements and bank records. Crain’s visit was repeatedly delayed and eventually he was told he would have to sign a non-disclosure agreement in order to see the documents.
In October 2014, Sutton asked Raymond to help with his request to see the records. Raymond and the regional center instead “intentionally delayed” access to the records by asking the investors to attest in writing that Sutton was their representative even though each or the investors had already submitted formal complaints to the Vermont Department of Financial Regulation.
Secretary Moulton then responded to Sutton’s complaints by “completely disclaiming all responsibility” to the investors, claiming that it was a federal program that was effectively unregulated and that the state had little or no control over financial oversight of projects. She dismissed investors’ concerns about the misappropriation of their investment by claiming “it was not only unreasonable, but impossible, to expect reporting of where individual dollars are spent in a multi-investor project.”
Moulton, in that statement, effectively admitted that the “VRC’s representations of state oversight were complete and utter lies,” Barr writes.
After the regional center rejected their entreaties, Sutton and the other investors worked together to piece together information from their citizenship petitions, news articles, complaints to financial institutions, general contracts and architects to determine how their money had been used.
In November 2014, Sutton alleged in a letter to the Vermont EB-5 Regional Center and the Agency of Commerce and Community Development that Stenger and Quiros had illegally used investor funds to buy the Jay Peak Resort in 2008, and then proceeded to backfill projects with money from new investors in what the SEC later described as a Ponzi-like scheme.
Based on state and local documents, Sutton and the other investors also found that the developers had double-sold the fifth floor of Hotel Jay, to two sets of investors, wholly defrauding 65 investors who put up a total of $32.5 million for “Penthouse Suites.” The state also ignored complaints about this particular fraud allegation and it has not, to date, been investigated by state or federal regulators. Read VTDigger’s story from August 2016 here.
In January 2015, the regional center handed over financial oversight of all EB-5 projects to the Vermont Department of Financial Regulation. The agreement between the two agencies was designed to tighten up oversight of the program.
But despite the complaints from the early investors in Jay Peak and claims that the state was enhancing oversight of the EB-5 program, state regulators, under apparent pressure from Gov. Shumlin, reapproved the Q Burke, a ski area expansion, and AnC Bio Vermont, the biomedical facility in Newport, in April that year, allowing the Jay Peak developers to continue marketing the projects to new investors.
Barr alleges that Susan Donegan, the commissioner of the department, and Michael Pieciak, then deputy commissioner, crafted new legal agreements for investors in Q Burke and AnC Bio Vermont that gave “the false appearance” of state oversight and monitoring.
With the approval of the state Stenger solicited investments from dozens of new, unsuspecting investors for a year before the Securities and Exchange Commission shut down the Jay Peak projects in April 2016.
More than a year later, state officials who were involved in the “cover up,” Barr alleges, have remained in state government or have personally benefited from the alleged fraud at Jay Peak. Raymond, the former regional center director, is running the EB-5 program at Mount Snow. Moulton, the former agency secretary, is now the head of Vermont Technical College. Michael Pieciak is now commissioner of the Vermont Department of Financial Regulation. John Kessler remains general counsel for the commerce agency.