Crime and Justice

Attorney general slow-walks discovery of documents in EB-5 fraud case

T.J. Donovan
Attorney General T.J. Donovan, testifying to a legislative committee in 2019, has taken one step after another to slow down a lawsuit filed four years ago by defrauded EB-5 investors. Photo by Glenn Russell/VTDigger

Foreign backers of the Jay Peak projects — who say they were misled by state officials in the biggest fraud in Vermont’s history — now face a new twist in what has become a longstanding legal battle. 

State officials — who were required to protect the interests of EB-5 investors — have thwarted a lawsuit seeking damages by throwing up roadblocks in the years since the case was filed. Now the Vermont Attorney General's Office is using the discovery process — in which opposing attorneys are allowed to discover evidence held by the other side — as a way to thwart the investors' attempt to seek recourse.

Russell Barr, lead attorney for the investors, said the latest efforts to "obstruct" the case are another example of the state acting in "bad faith."

It's been nearly five years since federal regulators brought 52 counts of securities fraud against Jay Peak Resort developers Bill Stenger and Ariel Quiros, and more than 20 lawsuits associated with that watershed case are winding down. Securities and Exchange Commission litigation wrapped up in 2018, Raymond James Financial Services settled for $150 million, and Quiros pleaded guilty to criminal charges filed by the U.S. Attorney’s Office in 2019. Stenger's case is slated to go to trial this year. 

Quiros also blamed the state, claiming government officials had "unclean hands." His lawyers had said they would expose the role of state officials in the scheme, but he was offered a plea deal and took it before he could advance that argument. 

Amid 10 litigation touch points involving the state, the Vermont Regional Center — an arm of the state commerce agency — was shut down in 2019 by the U.S. Citizenship and Immigration Services, which cited state officials' abdication of responsibility, negligence and material misrepresentations. 

Meanwhile, a lawsuit brought by a group of defrauded investors in Sutton v. Vermont Agency of Commerce and Community Development is just getting started. Since the investors filed suit four years ago, the Vermont Attorney General's Office has used every tool at its disposal to quash the case.

The investors allege that the Vermont Regional Center helped to ensnare 851 foreigners in a pyramid scheme that ultimately raised $425 million for Jay Peak developments, plus administrative fees. About $200 million was misused by the developers in the largest known EB-5 fraud in the nation. 

The plaintiffs say state officials not only failed to adequately monitor the finances, they also helped to cover up the Jay Peak fraud. Attorneys for the investors have obtained new documents from other lawsuits that bolster that charge and also show that Stenger paid travel expenses and gave out ski passes to state officials in exchange for their assistance in marketing and promoting the Jay Peak projects. 

'The investors lost everything'

“Our clients turned their money over because the Vermont Regional Center was to watch the money. They didn’t," Barr said. "The investors lost everything, and many are now at risk of deportation. That the state still treats these victims as the enemy is shameful, and we're not going to stop until that changes.” 

They sued in 2017, and the case was dismissed by the Lamoille County Superior Court in 2018. The investors appealed. A year later, the Vermont Supreme Court said the investors had a right to move forward with claims of negligence against the commerce agency and gross negligence claims against two former directors of the regional center. 

The Vermont Attorney General's Office subsequently threw up more obstacles, delaying action until the end of 2020. Now, as the case enters the discovery phase, lawyers for the state are arguing that investors don't have the right to depose former state officials who they say are tangential to the case and shouldn't have unfettered access to the records in what they describe as a "fishing expedition." 

The state is seeking to release the records as part of a "rolling" production over four months and proposes to charge defrauded investors tens of thousands of dollars for the cost of redacting and producing the records. Under the state's proposal, the redactions would include anything that could be considered "confidential information" under both the court rules and the Vermont Public Records Act — private details such as Social Security numbers and certain communications, including attorney-client privilege and other unspecified exemptions under the catchall. 

Barr said the state's latest tactic is another attempt to deny access to information about why state officials did not act to protect the investors after allegations of fraud first surfaced in 2012. Barr said he has enough information to depose 18 people — former regional center directors, other former commerce agency officials and state regulators. He issued subpoenas to do just that last November.

In a motion filed last month, the state's lawyers sought to delay for months the investigatory interviews of state officials, including former Gov. Peter Shumlin.

Eleanor Spottswood, chief of the civil division of the Vermont Attorney General's Office, said in an email that the state proposes to "right-size discovery" by putting limits on what information the Barr Law Group can obtain. 

"In the event that the court rejects our proposal to right-size discovery, we are requesting to split the document management costs with plaintiffs. Those costs are billed at hourly rates ranging from $45 to $75 per hour," Spottswood said. The per-page rate for legal review is 57 cents, according to the attorney general’s website. 

The attorney general’s office is using "statute and common law" to define the confidential information that would be redacted, she said. 

Three times around

The case is on round three in the courts. The Vermont Supreme Court in October 2019 remanded it to the Lamoille court, ruling that investors had a right to pursue negligence, breach of contract and breach of faith claims against the state commerce agency. The high court held that two former Vermont Regional Center directors, Brent Raymond and James Candido, could be grossly negligent if the plaintiffs proved their case. 

Last year, the attorney general insisted on a reconsideration of the facts in the Supreme Court decision, which took months. Then, in a highly irregular move, last November attorneys for the state went on the offensive and threatened to file a so-called Rule 11 claim, effectively accusing the plaintiffs' attorneys of failing to provide enough evidence to support statements made in the Supreme Court lawsuit — even though the high court justices had already ruled the arguments were legitimate.

In November, Barr Law Group moved ahead with discovery, issuing subpoenas to key witnesses. But before the depositions could begin, the state sought a protective order to sideline the process, insisting that discovery must start with records production. Judge Mary Miles Teachout is expected to rule on the motion in April.

“We are simply trying to get to the truth and find out why and how things went so bad," Barr said. "And, the state is doing their very best to stop us.”

Meanwhile, Barr Law Group has obtained records from other related lawsuits that underscore the hand-in-glove nature of the relationship between the Jay Peak developers and state officials who were responsible for oversight of the projects. 

State audit was 'the pivotal sell point'  

Representations about state oversight were the No. 1 reason investors say they put their faith and $500,000 each into the Northeast Kingdom developments, according to Barr's opposition to the state's motion for a protective order. In one prime example, Shumlin claimed in a video translated into Chinese that the developments were audited by the state. In fact, the finances at Jay Peak were never audited. 

One expert testified that, with fierce competition for EB-5 investors, “these auditing representations provided the pivotal sell point for the Jay Peak investments." 

The state's self-described "partnership" with Jay Peak was established early on, according to court documents. 

Instead of embracing an oversight role as required by law, the Vermont Regional Center and Stenger worked together to develop marketing strategies and materials, solicited investors overseas together and shared booth space at EB-5 conferences — with Jay Peak footing the bill for expenses. 

According to newly obtained documents, Raymond told Stenger that Becky Fu, an employee of the center, spent a weekend in November 2012 translating Jay Peak materials into Chinese. Stenger asked, “Is she a skier? I want to give her something for helping.” 

Stenger bankrolled state officials' travel, records show. Jay Peak spent $100,000 on a 10-day junket for Shumlin and his entourage through China and Vietnam in September 2013. 

Brent Raymond
Brent Raymond is a former director of Vermont's EB-5 Regional Center. File photo by Hilary Niles/VTDigger

In text messages referring to Fu and then-commerce secretary Lawrence Miller, who were both on the gubernatorial promotional tour, Raymond joked with Stenger, "Tell Lawrence and Becky I'm checking in on them, and I don't want any reports of them slacking off. :-)"

Stenger replied: "Their [sic] behaving This trip has surpassed my expectations. Tina did a great  job and we had many quality investors. On to the Bund. Remember what happens in Ho Chi Minh city stays in HCM City. Wish you were here. Bill" (Tina Harwood is with Harwood Law Office, which found investors for Jay Peak.)

"I'm happy it's surpassed your expectations," Raymond texted. "You all couldn't have gotten into too much trouble in HCC. Only there for 30 hours."

According to Miller, there was no partying overseas. "This is long-distance travel city to city, and working both ends of the day on the other timezone," he said in an interview last week.

On an ongoing basis, Stenger appears to have provided Raymond money for airline tickets and hotel stays. One tally of expenses shows Raymond asking Stenger for $4,200 in travel reimbursements over three months. 

Raymond reported his investor solicitation successes to Stenger, at one point exclaiming that a follow-up visit after Shumlin's trip to Asia would likely induce 10 new investors to sign up. 

In another text exchange between Jay Peak attorney Chuck Leamy and Stenger about a trip Raymond made to Brazil, Stenger asks "How's Brent doing, find any beauties?" 

Leamy wrote, “it's out of control down here B, Brent must be of Roman Descent, I got stories.” 

Reached by phone, Leamy said, "No comment." Attempts to reach Raymond were unsuccessful. 

Hulme drops out; no trust

Douglas Hulme, a Jay Peak business partner who ran RapidVisa USA, an immigration brokerage firm, started asking questions about how investor money was being used in late 2011. Hulme had made millions of dollars as a broker for the projects.

After Quiros and Stenger evaded his questions for weeks, Hulme demanded on Feb. 23, 2012, through his attorney Eugene Lindsey, that the business partners produce bank statements, source and use-of-fund reports, balances for each limited partnership account, margin loan documentation and fund transfers. He also requested written reassurances that the projects were operated in compliance with federal and state laws. (It was later determined by federal regulators that Quiros had used margin loans to borrow against investor funds for delinquent tax payments and personal purchases, including the Burke Mountain ski resort and two Manhattan condos.)

Ariel Quiros arrives at court
Ariel Quiros arrives outside federal court in Burlington for his arraignment on charges pertaining to the EB-5 fraud case on Wednesday, May 22, 2019. Photo by Glenn Russell/VTDigger

The developers did not supply the records or assurances to Hulme, and five days later he announced to 100 immigration attorneys that he was ending his relationship with Jay Peak because he said he could no longer trust the company's financial representations. 

After the letter was picked up by the media, regional center director Candido told Seven Days he spent an entire day at Jay Peak to take a "closer look." “There was absolutely nothing that was out of the ordinary,” Candido said at the time. 

A month later, John Roth, an EB-5 immigration attorney and blogger, spent a weekend skiing with his family at Jay Peak "to inspect the resort." He wrote on his blog about a two-hour meeting with Stenger and said he spent another hour and a half with Candido, during which the two men spoke "freely." Without specifying what documents he was referring to, Roth said Stenger provided "every document and data request I made."

"My initial position in this controversy was that Rapid USA's email announcement on its face was too broad and too vague to draw any firm conclusions," Roth wrote. "Still, there was cause for concern, given the fact that Rapid USA was willing to sever what had been a very profitable relationship with Jay Peak Resort. Why did they do it? Was there fire under the smoke?"

Hulme wouldn't talk with reporters, Roth wrote, and “has consistently refused to specify just what the misleading Jay Peak Resort financial representations were, or what his claimed concerns were.”

Bill Stenger
Bill Stenger arrives outside federal court in Burlington for his arraignment on charges pertaining to the EB-5 fraud case on Wednesday, May 22, 2019. Photo by Glenn Russell/VTDigger

Roth went on to laud Stenger's hands-on approach to management and the job creation numbers associated with the projects (each $500,000 investment was to create 10 jobs under federal rules). Roth quoted Stenger saying he would engage a private firm for an audit. Candido attested that the regional center had carefully overseen the projects. The regional center director said he personally reviewed Jay Peak's financial statements four times a year, and he had "not seen any financial irregularities." 

In a disclosure at the end of the article, Roth wrote that although "I perform due diligence evaluations for EB-5 projects for my clients and for other immigration attorney's clients, this article is not to be regarded as a comprehensive due diligence project review, or equivalent, and should not be relied upon for investment decisions."

Four months later, Roth received a $15,000 payment from Jay Peak, according to documents from the resort receiver, who has released a list of attorneys who received kickbacks in exchange for directing foreign investors to the Northeast Kingdom projects. It's not clear from the records what the payment to Roth was for.

Roth did not respond to requests for comment. The blog post link now leads to a dead URL. 

Meanwhile, state officials defended the projects in March 2012 to Michael Gibson, an investment adviser, and Terenik Koujakian, an EB-5 attorney who asked whether a state probe was underway. John Cronin, securities director for the Vermont Department of Financial Regulation, wrote, "To be very clear, the Vermont Securities Division is not conducting an investigation of Jay Peak." 

Commerce agency staff also continued a tense back-and-forth with RapidVisa through the spring of 2012. Roth's blog post ran directly counter to information from Hulme, who told state officials by phone on April 6 that "Rapid USA had concerns with the expenditure and use of funds by the limited partnerships and reconciliation of accounts, including transfers of funds."

'I don't feel a need'

Hulme briefed commerce secretary Miller, then-deputy commerce secretary Pat Moulton, agency general counsel John Kessler, and directors Candido and Raymond about the allegations of financial impropriety. 

In a follow up email from Lindsey, Hulme’s attorney, there is no indication that state officials asked Jay Peak for detailed financial records, even though Lindsey had expressed concern about Quiros and Stenger taking out margin loans against the investor funds.  

At the time, Stenger offered to provide more financial documentation to Miller. In an email exchange after the Hulme call with the commerce agency on May 17, 2012, Stenger wrote that he had been briefed by Candido about the conversation and "wanted to ask your perspective on it and if you want anything from me. I have a paper trail an [sic] all our interaction. If you would like that or anything else please let me know. Best regards. Bill"

Lawrence Miller
Lawrence Miller is the former secretary of the commerce agency. File photo by Erin Mansfield/VTDigger

Miller replied, "I don't feel a need for further information at this point Bill. Everyone is consistent with each other." 

Reached by phone Tuesday, Miller said after Hulme's declaration, the agency asked for documents "like right away" that were "associated with the transfer." Miller said the financial records — an unspecified transfer from Chittenden Bank — demonstrated "where the money was and it had not disappeared."

Miller confirmed that he was confident that everything was OK at that point. 

"The numbers matched exactly between what Rapid was saying and what we saw," Miller said.

"We were concerned with the allegations that had come up," he said. "But we were not concerned when they were able to demonstrate that the funds were still in custody … and were still titled, in the names of projects."

Miller couldn't recall whether the transfer was associated with a particular project. "It was a specific amount of money that was asserted to have disappeared," he said. 

No documents yet made available support the former commerce secretary's assertion. 

Other information, Miller said, was not forthcoming and he said the state didn't have the authority to require that Jay Peak provide an audit of the EB-5 projects. Agreements between Jay Peak and the state, however, show that if the developers had balked at providing more information, the agency had the right to cancel projects if there was a material breach of the contract or a material misrepresentation. 

No such action was taken. While two projects were temporarily suspended for a few months — Burke Mountain and AnC Bio Vermont — the Jay Peak developers were allowed to continue marketing the projects to investors overseas during the period after Hulme’s red flags were raised. Unsuspecting immigrants were lured into the Ponzi-like scheme right up until the SEC brought charges against the developers — four years after Hulme blew the whistle. 

Instead of getting to the bottom of the allegations in 2012, Miller and the commerce agency  embarked on a plan to drive Hulme and RapidVisa out of the state. They forced the company to give up its website URL, which was similar to the state's, and severed ties with EB-5 developers at Mount Snow over use of the state logo on marketing materials, according to records provided to VTDigger.

"We had a longstanding challenge with Rapid misrepresenting themselves and appropriating the marks of the state," Miller said in the interview. "They were well out of line, and noncooperative relative to that problem. For a long time their website … was set up to look like it was a state website. And we had a problem with that."

'Hulme should snap in line'

Deputy Secretary Moulton said in an email obtained by VTDigger that the idea of pressuring Rapid came from Stenger, who suggested that they make surrendering the URL a condition of the state's approval of Mount Snow's memorandum of understanding. Moulton "endorsed" the idea in an internal email in January 2013. Miller wrote in response:  “...I like it...tough to hold Mount Snow ‘hostage’ but Hulme should snap in line versus lose that client...” Six months later, Raymond took that approach a step further. "I’d like to discuss methods to ensure no approval of the Mount Snow project is granted as long as Rapid Visa is a representative associated in any way with their private offering,” he wrote in an email response.

Federal regulators didn't catch up with the developers until 2016.  

In 2017, after USCIS warned the state it would shut down the Vermont Regional Center, Department of Financial Regulation Commissioner Mike Pieciak and commerce agency Secretary Michael Schirling defended the state's decision to ignore red flags raised in 2012 and the offer by Stenger right afterward to give them more financial documents. Pieciak and Schirling doubled down on the notion that the agency had "requested pertinent documents from the projects, which did not provide it."

"ACCD ultimately decided it lacked clear legal authority under the existing MOU to force the projects to do so," they wrote.

USCIS responded by shutting down the regional center, leaving in limbo investors in several Jay Peak projects and the von Trapp Brewery and Bierhall. 

AG balks at records production

Plaintiffs' attorney Barr says he has enough evidence to move ahead with depositions. But the state is insisting that document discovery should take place first. Ultimately, Judge Mary Miles Teachout, who is presiding over Lamoille Superior Court, will decide. 

Barr has asked for yet-to-be-disclosed public documents — the SEC depositions of state officials, USCIS communications, job impact reports (each investment was required to produce 10 jobs) and commerce agency communications about Jay Peak — all of which were created at taxpayer expense and, he said, have already been provided to federal agencies or have been part of court actions. 

The state argues that all of the records have already been produced through other lawsuits and disclosures. Bill Griffin, the special assistant attorney general who wrote the brief, argues that records production would be time-consuming and expensive. 

"It is unreasonable to permit plaintiffs to inspect all records and depose all witnesses tangentially related to the state's relationship to the Jay Peak projects," Griffin wrote. "If plaintiffs are permitted to engage in their wide-ranging fishing expedition, they should have to pay for it." 

If the state is granted the request for a protective order, Barr said, it "would impose unnecessary delay and expense on the already victimized plaintiff-investors." The protective order, he wrote, "seeks to illegitimately strip them of their right to orderly discovery."

Russ Barr
Russell Barr of Barr Law Group of Stowe. Courtesy photo

"The defense is determined not to let deposition discovery move forward," Barr wrote in a court filing last week. "The only thing that the plaintiffs are asking — and truly the only thing that the defense is resisting — is to move forward with depositions."

The state has produced 15,000 pages of records so far, none of which were responsive to specific requests made by Barr. In all, the attorney general says there are 300,000 documents and 2 million pages that could be responsive to requests. Under Griffin's proposal, investors would be responsible for 50% of the costs to redact records above a $10,000 threshold. Barr said it is "insulting" to ask defrauded investors to pay for the records.

The Vermont Attorney General’s Office insists that document production precede depositions and complained in a court filing that the plaintiffs' requests were "expansive" and "vague." Records for just one of the witnesses would exceed 50,000 pages, the attorney general said. 

While it's customary to seek records first, Barr said, there is nothing to preclude the plaintiffs from proceeding with depositions. 

"Plaintiffs can only draw the conclusion that they are being stymied, obstructed, and faced with both discovery and motion practice that is not meant to serve legitimate advancement of this case, but rather, efforts that are simply meant create illegitimate burdens and foist expense on an adversary," Barr wrote in the opposition filing. 

The 18 people the plaintiffs' attorneys wish to depose reads like a who's who of the all-but-defunct EB-5 program: Shumlin; Alex MacLean, a former Shumlin campaign manager and project director for Jay Peak; former Shumlin chief of staff Liz Miller; former general counsel for the governor's office Sarah London; four directors of the regional center, Raymond, Candido, Eugene Fullam and Joan Goldstein; three commerce secretaries, Miller, Moulton and Lucy Leriche; an administrative assistant, international trade representative Becky Fu; and two commissioners of the Department of Financial Regulation, Susan Donegan and Mike Pieciak. 

The state has asked to depose 20 plaintiffs. 

The proposed discovery schedule runs through the end of December. The two parties agree the case will not be "trial-ready" until September 2022.

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Anne Galloway

About Anne

Anne Galloway is the founder and editor-at-large of VTDigger. Galloway founded VTDigger in 2009 after she was laid off from her position as Sunday editor of the Rutland Herald and Times Argus. VTDigger has grown from a $16,000 a year nonprofit with no employees to a $2.8 million nonprofit daily news operation with a staff of 32. In 2017, Galloway was a finalist for the Ancil Payne Award for Ethics, the Al Neuharth Innovation in Investigative Journalism Award and the Investigative Reporters and Editors FOIA Award for her investigation into allegations of foreign investor fraud at Jay Peak Resort.

Email: [email protected]

Follow Anne on Twitter @GallowayVTD

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