Valley Information – Receiver settles with attorneys in EB-5 fraud case

After nearly three years of legal wrangling, 23 foreign investors in the scandal-plagued Jay Peak projects have settled with their former immigration attorneys, Carroll & Scribner, according to an agreement provided by the parties.

The immigrant investors sued Ed Carroll and Mark Scribner, claiming the two attorneys gave the developers of Jay Peak the legal tools to hoodwink them.

The Burlington-based firm had a built-in conflict of interest: Carroll & Scribner served both as corporate attorneys for Jay Peak and as immigration attorneys for the investors.

In a lawsuit filed in 2018, investors alleged negligence, breach of contract and breach of fiduciary duty.

As part of the proposed settlement with Carroll, Scribner and their legal entities, neither man admitted any wrongdoing.

The settlement totals $8 million, but the immigrants who invested in projects that were part of a Ponzi-like scheme perpetrated by the developers of Jay Peak will only get a small fraction of that amount.

The deal calls for the 23 investors to get refunds on the money they paid for the legal services from Carroll & Scribner, and covers the investors’ legal fees in bringing the lawsuit.

A breakdown shows in total the investors will receive $350,000 from the proposed settlement. Specifically, the investors who were part of the earliest of the Jay Peak projects will receive $12,500 each, or about half the fees they paid to Carroll & Scribner. The investors who were part of two following partnerships financing additional upgrades at Jay Peak will get $25,000 each, or the full amount they paid, according to the proposed settlement.

A number of the plaintiffs who bought into the earliest projects, which were proposed in 2006, have not recovered their original $500,000 investment in the Jay Peak projects. The Securities and Exchange Commission charged Jay Peak CEO and President Bill Stenger and the owner of the resort Miami businessman Ariel Quiros with 52 counts of securities violations and the misuse of a total of $200 million in immigrant investor funds in April 2016.

More than 700 of the 900 foreign investors from 73 countries who put up more than $450 million in capital for the developments in the Northeast Kingdom have not been repaid. About half have not yet received permanent residency as promised under the federal EB-5 investment program. The immigrant investors are in green card limbo because the federal government has shut down the state-run Vermont EB-5 Regional Center for failing to stop the fraud, which is the largest of its kind in the nation.

Michael Goldberg, who was named the court-appointed receiver for the Jay Peak projects in 2016, oversees the assets. Over the past several years, he has recovered funds through legal actions from a number of entities tied to the fraud case along the way. Those include an $82 million settlement with Quiros for properties regulators say he stole, Raymond James Financial Services for $150 million and Citibank Bank for $13.3 million. As with the Carroll & Scribner case, all of the receiver’s lawsuits have been filed in the Southern Florida District Court in Miami where Quiros based his business operations.

As part of the proposed $8 million settlement with Carroll & Scribner, the receivership overseen by Goldberg will get the largest share, or $5.2 million. That money will go to help pay for general operating expenses for the Jay Peak ski area and the Burke Mountain ski resort. Both resorts have struggled financially during the pandemic. About $2.5 million will go to the three law firms, led by Barr Law Group in Stowe, that took on the class action investor lawsuit in 2018.

“This liquidity will thus enable the Receiver to maintain the Jay Peak Resort and Burke Mountain Hotel properties for the benefit of all Investors,” Goldberg wrote.

The deal is contingent on a federal judge granting a bar order, which would protect Carroll, Scribner and their legal entities from any future lawsuit by investors related to the Jay Peak EB-5 projects. The bar order would not apply to any legal matter brought by federal or state agencies.

A built-in conflict of interest

Most of the settlement monies came from an insurance policy held by the law firm Primmer Piper Eggleston & Cramer, which hired Scribner in 2013. Another payout came from a policy held by Carroll.

Scribner, who is now a partner at Primmer, continued to provide corporate legal services to Jay Peak into 2014. That year investors went public with allegations that they had been swindled by Stenger and Quiros with the assistance of the state commerce agency, which promoted the projects to investors overseas and ignored red flags about financial improprieties for years.

Robert Hemley, a Burlington attorney for Gravel and Shea who is representing Primmer, said last week that “the reason that this was an attractive arrangement for Primmer (is) because it just ends all possible litigation and allows Primmer to put it once and for all behind it.”

The firm does not acknowledge any wrongdoing, Hemley said. Primmer settled because litigation would be “extremely complicated, expensive and distracting,” he said.

Carroll & Scribner served as the attorneys for Jay Peak from 2006 to 2013. During that period the developers of the resort, Stenger and Quiros brought in more than $250 million in cash, according to federal regulators.

The money came from immigrants seeking permanent residency in the United States through the federal EB-5 investment program. Each of the investors put up $500,000, plus $50,000 in administrative fees for a series of projects in the Northeast Kingdom.

Quiros illegally used money from the plaintiffs that was to have been held in escrow for the Phase I Tram Haus Lodge and Phase II Hotel Jay projects to purchase the resort in 2008, according to the SEC. He and Stenger then used immigrant investor money from future projects to pay for the construction of those two developments.

Carroll was the immigration attorney for early Jay Peak investors. His partner, Scribner, represented the interests of Stenger and Quiros.

That built-in conflict of interest was at the heart of the lawsuit brought by the investors. Scribner wrote the offering memorandum, or sales package, for Jay Peak. He also wrote the limited partnership agreement, which investors say gave Stenger enormous power and abrogated their rights.

Documents obtained by VtDigger from investors in 2014 show that Scribner also wrote the amendments in 2008 to the limited partnership agreement with the Tram Haus investors that enabled Quiros to move investor money out of escrow, commingle the funds and invest them in Treasury securities, which he leveraged for margin loans. Another amendment Scribner wrote in 2013 paved the way for Stenger to dissolve the Tram Haus investors’ stake in the project, enabling Quiros to seize ownership of property, documents show.

The Tram Haus investors were not asked to vote on any of these changes to their agreement as required under state securities law. In fact, they were not informed of the amendments and ownership stake until after the fact, the 2014 documents show. Limited partners must be provided information about “any events upon happening” that result in the dissolution of a limited partnership under state law.

Stenger said in 2014 when VtDigger first reported complaints lodged by the Tram Haus investors that he had no legal obligation to tell investors about the amendments. He said in retrospect he should have informed investors about the changes as a courtesy. The amendments were made in the best interest of the limited partners, Stenger says.

At the time, Pat Moulton, the secretary of the Agency of Commerce and Community Development which oversaw the Vermont Regional Center, said Stenger acted within his authority. “We haven’t found anything to suggest illegal behavior, there just has not been good communication, and that’s a problem,” Moulton said.

The amended limited partnership agreement for the first Jay Peak project became the template for the subsequent six developments at the resort, Burke and AnC Bio Vermont. At one point, Quiros borrowed more than $100 million in margin loans against investor funds. Cash flow became so tight that payment to contractors slowed and construction came to a halt, according to SEC filings.

Scribner also wrote the offering memorandum and limited partnership agreement for a new project in 2010 — Penthouse Suites, planned for the fifth floor of Hotel Jay, which had already been paid for by Phase II investors, documents show. Investors say the sham project was used to raise $32.5 million to backfill cost overruns at the waterpark and cover up the larger scheme.

When former Jay Peak business owner Douglas Hulme notified Carroll & Scribner in February 2012 that he no longer had faith in the financials of the company and laid out how the investors were being defrauded, Carroll & Scribner did not notify the investors they had a legal obligation to represent.

On a parallel track, state officials used many of the same tactics. Vermont had a state-run regional center, which vetted and reviewed the EB-5 projects. Many of the Jay Peak immigrant investors have said they put their faith in the officials who ran the Vermont EB-5 Regional Center. But like the claims against Carroll & Scribner, the commerce agency wasn’t looking out for investors’ best interests. Officials, including the general counsel, the secretary, deputy secretary, regional center director and international trade representative, were focused on promoting the Jay Peak projects, rather than ensuring that best accounting practices were employed and quarterly reports were filed.

When allegations of fraud surfaced in 2012, state officials doubled down on promotion. No effort was made to protect investors after immigrant complaints were filed in May 2014, and the commerce agency secretary attacked VtDigger’s reporting later that year. Several hundred investors were lured into the projects between 2014 and 2016 when regulators brought the scheme to a halt.

Quiros and Stenger settled with the federal government in 2018 and were criminally charged in 2019 for conspiracy to commit wire fraud, money laundering and concealing material information. Quiros, who stole tens of millions of dollars from investors, has pleaded guilty to three of the 12 charges and faces a maximum of 97 months in prison.

Stenger, who the SEC says deceived investors as the front man for the operation, has maintained his innocence and faces a criminal trial in fall 2021. His attorneys argue that Stenger was left in the dark by others, including Quiros, about the misuse of investor funds.

Details of the settlement

Bar orders have been part of other settlements Goldberg has reached with parties, including the deal he reached two years with Raymond James for its role in the Jay Peak investor fraud scandal.

The settlement with Carroll & Scribner was reached after months of negotiations and following a full-day mediation session, according to Goldberg’s court filing.

According to Goldberg’s filing, Carroll and Scribner had two insurance policies totalling $12 million available to cover claims for actions related to their work on the Jay Peak EB-5 projects.

A chunk of that money, according to the filing, had already been used by the attorneys to pay for their costs in defending themselves in the lawsuit.

The settlement document stated that Goldberg had “diligently investigated” all the claims that could have been brought against Carroll & Scribner.

“This investigation revealed,” the filing stated, “that the Receiver’s potential claims against the Attorneys involved disputed facts that would require substantial time and expense to litigate, with significant uncertainty as to the outcome of such litigation and any ensuing appeal.”

Goldberg is asking a judge to grant preliminary approval of the settlement and schedule a hearing to consider any objections to the proposed bar order.

Goldberg could not be reached for comment for this story, and has not returned messages from VtDigger for well over a year.

Andrew Maass, a Rutland attorney representing Carroll, said because the case still remains pending there was little he could say about the matter. He did say that all of Carroll’s clients had received their green cards.

“His immigation work achieved for them exactly what they wanted him to do,” Maass said. “That was 10-plus years ago and he’s just looking to move on this.”

Christopher Ekman, a Burlington lawyer representing Scribner, could not be reached for comment.

The Ponzi-like scheme ultimately involved the construction of three hotels and two condo complexes at Jay Peak Resort, and the purchase of Burke Mountain, along with the development of a hotel there. A third condo complex at Jay was held up because of the fraud, and an athletic center at Burke Mountain and a biomedical facility in Newport were never built.

Leave a Comment