Vermont to pay up to $16.5 million to resolve EB-5 claims by defrauded Jay Peak investors

By ALAN J. KEAYS

VTDigger

Published: 07-06-2023 6:20 PM

The state of Vermont has agreed to pay up to $16.5 million in a global settlement to resolve legal claims made by defrauded investors in a series of Northeast Kingdom development projects centered around Jay Peak Resort and funded through the federal EB-5 program.

The settlement involves the state, a federal court-appointed receiver and 64 people who sued Vermont, according to Attorney General Charity Clark. The agreement, according to a statement issued by her office late Wednesday afternoon, was reached to settle all “pending and potential” lawsuits against the state by the roughly 850 investors in the Northeast Kingdom projects.

The deal is conditioned on obtaining a bar order, which still must be approved by the federal court in Florida overseeing the Jay Peak receivership.

The $16.5 million settlement would be structured over three years and paid into the Jay Peak receivership, according to the Attorney General’s Office.

The state agreed to a separate settlement last month with eight defrauded Jay Peak investors. That agreement resolved a case that had gone to trial but came to a close after two days when the settlement was reached. The amount of that settlement was not disclosed at the time, but Clark’s office said in Wednesday’s statement that it amounted to $750,000. 

Russell Barr, an attorney for the investors in that case, had alleged that the state and several of its employees and officials were at best negligent in the oversight of the state-run EB-5 regional center overseeing the Northeast Kingdom projects and at worst active participants in it. 

The state’s Agency of Commerce and Community Development operated a regional center charged with promoting the projects, which led some investors to believe that the developments had the state’s seal of approval and full oversight, they’ve said. Former Gov. Peter Shumlin, a Democrat, and his predecessor, Gov. Jim Douglas, a Republican, as well as former U.S. Sen. Patrick Leahy, D-Vt., all traveled abroad to promote Vermont’s EB-5 projects. 

The proposed settlement agreement, if approved, would prevent additional trials and keep any current and former officials from having to testify about what they may have known and when about wrongdoing with the EB-5 projects. 

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The Vermont Attorney General’s Office argued that state agencies, officials and employees had acted in “good faith.”

The global settlement also calls on the state to continue supporting investors’ attempts to secure permanent U.S. residency, or green cards. If successful, the state could pay out up to $4 million less. 

Each EB-5 investor put at least $500,000 into one of the eight Northeast Kingdom projects with the expectation that, if their investment created a certain number of jobs, they would become eligible for green cards. Due to the fraud associated with the projects, many investors’ efforts to obtain permanent residency were imperiled. 

The projects were led by former Jay Peak owner Ariel Quiros, former resort president and CEO Bill Stenger and attorney William Kelly, a close adviser to Quiros. All three were indicted on federal criminal charges and sentenced to prison for their roles in the EB-5 cases. 

“As I’ve said before, Vermonters, investors and the State of Vermont were all deceived by the fraud of Ariel Quiros, Bill Stenger and William Kelly,” Clark said in the statement issued Wednesday.

“This civil settlement will bring a global resolution to the State’s involvement in this matter, which will protect the State from additional EB-5 lawsuits, preventing further financial harm to Vermont,” Clark said. “This settlement removes the State’s exposure to financial risk and gives Vermont the opportunity to move forward from this chapter.”

Clark, in an interview Wednesday, said the $16.5 million settlement figure was arrived at through a mediation process between the parties. 

Asked how the money will be divided up among investors, Clark deferred to Michael Goldberg, the court-appointed federal receiver. Goldberg could not immediately be reached late Wednesday afternoon for comment.

As of late Wednesday afternoon, the settlement agreement had not yet been filed in federal court, where the receivership is pending.

A four-page settlement “term” sheet, which Clark provided to VTDigger and outlines the terms of the agreement, spells out that government officials deny wrongdoing. 

“As the claims in the Barr Actions are based on alleged negligence and alleged breach of contractual duties, the Parties agree that neither the State of Vermont nor its current and

former officials and employees engaged in fraud, self-dealing or other intentional misconduct,” the document states. 

“The Parties understand and agree that the State of Vermont and its current and former officials and employees deny liability for all claims made in the Barr Actions,” it continues.

Barr could not immediately be reached late Wednesday afternoon for comment. 

In total, Stenger and Quiros solicited more than $450 million in EB-5 money from more than 800 foreign investors over the eight-year span of the Northeast Kingdom projects.

In separate lawsuits brought by state and federal regulators in April 2016, the two developers were accused of misusing $200 million of the money they raised through the EB-5 program. The U.S. Securities and Exchange Commission said Quiros siphoned off $50 million himself to pay for personal items, such as a New York luxury condo.

Criminal charges were brought by federal prosecutors against Stenger, Quiros and Kelly in connection with a proposed project to build a $110 million biomedical research center in Newport, Vt., later termed by federal prosecutors “nearly a complete fraud.”