[B]URLINGTON — An attorney suing a Canadian company that formerly owned Jay Peak Resort says the firm “knowingly” and “improperly” accepted $15 million in EB-5 funds as payment for the ski area.
Saint-Sauveur Valley Resorts sold Jay Peak to Miami businessman Ariel Quiros in 2008. Federal regulators have said Quiros used immigrant investor funds to buy the resort. Bill Stenger, the former CEO of Jay Peak, was in charge of the EB-5 program at Jay Peak for Saint-Sauveur starting in 2006, and was instrumental in cementing the sale with Quiros, according to court documents.
Attorney Keith Miller, representing a group of EB-5 investors, alleges in his lawsuit that Saint-Sauveur officials knew Quiros was using investor funds for the purchase.
Miller says a document penned a decade ago that the company says exonerates them from the alleged fraudulent sale is nothing more than a “protect our ass” letter.
The EB-5 program promises green cards to immigrants in exchange for investments in developments that create jobs in economically depressed areas.
At a hearing Thursday in federal court in Burlington on a motion by Saint-Sauveur to throw out the lawsuit, a great deal of the debate centered on one document — a letter the company sent to a financial firm Quiros used to help carry out the purchase of the ski area in June 2008.
In that letter, the company warns Raymond James that money raised for EB-5 funded projects at the ski area “may not be used in any manner, including as collateral or a guarantee, to fund the purchase of the Jay Peak Resort.”
And, according to federal and state regulators, that’s just what happened.
“If I may say so, your honor,” Miller said in court Thursday to Judge Christina Reiss, “we call that a ‘protect our ass letter.’”
The attorney added that Saint-Sauveur, then known as Mont Saint-Sauveur International Inc. (MSSI), knew all along that Quiros would be using those funds to pay for the resort.
“Yes, they wrote a letter,” Miller said of the Canadian company. “It looks like a self-serving letter to prevent the inevitable.”
Laurence May, an attorney for Saint-Sauveur, contended in court that the letter shows the company tried to prevent wrongdoing, not perpetrate, or facilitate it. The idea that the company wrote the letter as part of a ruse “to cover our behind” is “pretty rich,” he said.
“It’s far more plausible to say we would have never written a letter at all if we were in cahoots with Quiros,” May said.
Both sides repeatedly referenced a civil lawsuit brought by the U.S. Securities and Exchange Commission against Quiros in April 2016 that describes his purchase of Jay Peak in 2008 as “ground-zero” of a “Ponzi-like” fraud scheme.
In June 2008, Quiros negotiated a transfer of EB-5 funds with Mont Saint Sauveur officials, according to the SEC. The Canadian firm moved the assets of Jay Peak, including cash from immigrant investor accounts, to his company, Q Resorts. The transfer occurred within hours of Quiros’ purchase of the resort.
In advance of the transfer, Quiros asked MSSI to open brokerage accounts at Raymond James for EB-5 funds that were to be used for construction of the Tram Haus Lodge and Hotel Jay.
Attorneys for MSSI, at the time of the bank transfers, sent a letter to Raymond James, which was copied to Quiros and Stenger, saying that money for those EB-5-funded projects “may not be used in any manner” to pay for Jay Peak, according to the SEC filing.
May, SSVR’s attorney, said in court Thursday that the SEC filing shows his client acted to prevent any fraud from occurring.
“It goes on to basically say that our client is somewhat of a Boy Scout here,” May added. “The SEC basically exonerates our client. It says that our client did the right thing.”
He said the real argument from the plaintiffs appears to be, “You guys are liable because you never should have a done deal with Quiros.”
Joshua Simonds, Miller’s co-counsel, had a much different take. Simonds said the letter “doesn’t pass the straight-face test,” and “the pre-closing transfer of the funds is … suspicious.”
Also, Simonds said, the letter contradicts an earlier argument raised in the case by Saint-Sauveur that it didn’t have a “fiduciary duty” over the funds.
“If they don’t have a fiduciary duty why are they sending a letter scolding Quiros not to use that money for other purposes?” he said. “They are acting like they have fiduciary duty.”
The SEC filing, as well as a separate one brought by state regulators in Vermont, alleged Quiros and his then business partner, Stenger, misused $200 million of the more than $350 million they raised through the federal EB-5 immigrant investor program.
The money was raised to finance massive upgrades at the ski resort and to pay for developments in other Northeast Kingdom communities.
About 800 EB-5 investors were defrauded over an eight-year period.
In the SEC case, federal regulators say the “Ponzi-like” scheme began when investor money, which was supposed to be held in escrow for two hotel projects, was used by Quiros to buy Jay Peak Resort from Saint-Sauveur Valley Resorts.
That money was to be used for Tram House Lodge, known as Phase 1, and Hotel Jay, Phase II.
However, Quiros used it to buy the resort instead, federal regulators said in their filing.
To pay for the construction of Tram Haus and Hotel Jay, the developers solicited investors for new projects, such as Penthouse Suites, Golf and Mountain Suites and the Stateside Hotel.
The SEC says the “Ponzi-like” scheme kept moving forward with a total of eight projects, including an expansion at Burke Mountain Resort and a proposed biomedical facility in Newport, before eventually grinding to halt with the filing of the enforcement actions by regulators in April 2016.
The plaintiffs suing Saint-Sauveur are Tony Sutton, Glyn Moser and Patrick Tawil, EB-5 investors who put money into Tram Haus and Hotel Jay. They all said they believed they were investing in the first construction projects at Jay Peak. They were not aware their money had been used by Quiros to buy the resort.
Michael Goldberg, a court-appointed receiver now overseeing Jay Peak, has replaced those investors as the lead plaintiff in the case.
He did not attend the hearing Thursday.
Quiros has settled his case with the SEC for $81 million, and Raymond James has agreed to pay $150 million to resolve claims with Goldberg. In each case, neither Quiros nor Raymond James admitted any wrongdoing.
As part of his settlement, Quiros has agreed to surrender his interest in Jay Peak.
In court Thursday, May, the lawyer representing Saint Sauveur, said it didn’t seem fair that the lawsuit is seeking the return of the $15 million from the sale of Jay Peak when Goldberg, on behalf of investors, now holds the property.
Saint-Sauveur, in a court filing seeking to dismiss the case, contends that the lawsuit is seeking an “unconscionable windfall” at the Canadian company’s expense.
Judge Reiss later raised that point with Miller.
“You have Jay Peak,” Reiss said. “Doesn’t that result in a windfall for you? … Tell me why that’s not a windfall.”
Miller cited an affidavit written by Goldberg that states “innocent investors” will still face “deficiencies” as a result of the fraud, even after the resort is sold. Goldberg has said it is unlikely the investors will recoup all of their losses.
“So what are we doing here?” Miller asked. “We’re trying to collect money that SSVR gave to Mr. Quiros, unequivocally took back, and put it back in their pocket, and still hold.”
Reiss said as the hearing came to a close that she would take the matter under advisement and issue a written decision.
“You certainly have given me plenty to think about,” the judge said.
