Montpelier
Michael Goldberg announced the agreement with Raymond James and Associates Inc., a securities broker-dealer based in Florida, at a Statehouse news conference late Thursday afternoon.
The sweeping settlement will provide money to pay contractors who are still owed millions for their work on projects in the state’s Northeast Kingdom that were funded through the federal EB-5 immigrant investor program.
The money will also be used to refund scores of foreign investors who put money into projects that were never built or were not constructed as pitched. The alleged fraud jeopardized the immigration status of investors who sought green cards, because job creation targets required for permanent U.S. residency were not met.
The settlement, if ultimately approved by a federal judge, would provide protection for Raymond James against future claims from the receiver and from investors in the EB-5-funded projects.
The agreement announced on Thursday is for $145.5 million. Raymond James resolved claims by Vermont regulators for $4.5 million last year.
Goldberg was appointed by a federal judge last April to the post of receiver for Jay Peak Resort and other properties in the Northeast Kingdom after federal regulators accused Ariel Quiros, the owner of the ski area, and Bill Stenger, the resort’s former CEO and president, of 52 counts of securities fraud.
Exactly a year ago, the Securities and Exchange Commission brought charges that the two developers misused $200 million in EB-5 immigrant investor funds. Federal regulators say Quiros and Stenger used investor money to buy Jay Peak Resort in a deal facilitated by Raymond James.
Goldberg filed a separate lawsuit in May against Quiros, the brokerage firm Raymond James, and Joel Burstein, Quiros’ former son-in-law, who served as the branch manager of a Raymond James office in Coral Gables, Fla.
That lawsuit accuses the financial services company and Burstein of helping Quiros develop a scheme to commingle and “steal investors’ funds for his own use in breach of partnership agreements.”
Burstein and Raymond James allowed Quiros to borrow $100 million in investor funds for margin loans.
The terms of the settlement announced Thursday call for Raymond James to pay the receiver in two installments, with the first $91.7 million to be followed by a $53.8 million payment.
Including the state settlement, the financial services company will pay out $150 million for the fraud claims.
Where the Money Will Go
EB-5 investors put roughly $440 million (including administrative fees) into projects pitched by Quiros and Stenger over an eight-year period at the Jay Peak and Burke Mountain resorts, as well as projects that never materialized in Newport, Vt. The most notable of those was a promised $110 million biomedical research center, AnC Bio Vermont.
A breakdown of the settlement with Raymond James announced Thursday shows that the receiver will use the Vermont settlement of $4.5 million to pay contractors owed for work they performed on the Stateside condo village project at Jay Peak, known as Phase VI.
Funds from the first settlement installment from Raymond James of $91.7 million will be broken down as follows:
$5.1 million to cover unpaid expenses associated with Jay Peak projects, including debt for services provided by vendors to Jay Peak Resort and Burke Mountain Hotel.
$19.68 million to finish the Stateside project, with $2.2 million used to pay off contractor liens on that project.
$67 million for investors not covered in a previous settlement regarding the AnC Bio Vermont research facility, which was never built. Earlier this year, a federal judge approved returning $17.75 million to investors whose money was never spent but held in escrow for the project.
A breakdown of the $53.8 million second payment from Raymond James shows:
$15.39 million to satisfy all obligations to investors in the Tram Haus Lodge, or Phase 1.
$6.6 million to cover $3.6 million in contractor claims for work building the Burke Mountain Hotel & Conference Center, and a $3 million “obligation” due to Burke Mountain Academy.
$10 million for up to 20 investors who put $500,000 each into Burke Mountain projects who are not eligible to apply for permanent residency because of lack of job creation associated with the investments.
Up to $1 million to refund two Burke investors who each invested $500,000 in Burke Mountain projects but whose residency petitions were denied prior to the filing of the SEC lawsuit against Quiros and Stenger last April.
$25 million to set up a fund to reimburse costs and compensate attorneys representing investors in class action litigation or other legal proceedings. Investors have brought several legal actions, including a proposed class action lawsuit pending in federal court in Miami led by investor Alexander Daccache, of Brazil.
Daccache invested $500,000 in 2010 in the Penthouse Suites project, which is part of the Hotel Jay.
According to the Daccache lawsuit, the action was brought on behalf of a proposed class of 836 people who invested more than $400 million in the projects headed by Quiros and Stenger.
Receiver v. Raymond James
In his lawsuit in May, Goldberg alleged Raymond James “aided and abetted” Quiros in a Ponzi-like scheme in which he misused $200 million of the $350 million in investor funds from seven of eight projects raised through the EB-5 program. In addition, Quiros stole $55 million to pay for his own personal expenses, according to allegations filed in court.
Goldberg said Raymond James improperly converted money from six Jay Peak limited partnerships and the planned biomedical facility in Newport into collateral for loans.
Those loans, according to court records, allowed Quiros and Stenger to “disguise the fact” that most of the seven projects “were either over budget or experiencing shortfalls.”
Goldberg, in the lawsuit, alleges that Raymond James profited from the scheme, ultimately earning money on margin loan interest.
Quiros had sole authority over the Raymond James accounts.
Burstein was the listed broker, according to the SEC.
The misuse of funds, according to court records, began in June 2008, when the SEC said Quiros used investor money to purchase Jay Peak Resort from Mont Saint-Sauveur International.
MSSI had collected $24.5 million from investors for an EB-5 program to fund upgrades at the resort, including the Tram Haus project, known as Phase I, and the Hotel Jay, Phase II.
From December 2007 to May 2008, MSSI raised $17.5 million from 35 investors for Phase I and $7 million for Phase II.
In the spring of 2008, Quiros negotiated a stock transfer in which MSSI moved the assets of Jay Peak to his company, Q Resorts.
In preparation for the closing on the purchase of the Jay Peak resort, Quiros asked MSSI to open brokerage accounts for the Tram Haus and Hotel Jay projects with Burstein at Raymond James, the lawsuit alleges.
At the time of the bank transfer, MSSI said in a letter that the money “may not be used in any manner, including as collateral or a guarantee, to fund the purchase of the Jay Peak Resort.”
Goldberg alleges in his lawsuit that Quiros directly used $21.9 million in investor funds to buy Jay Peak.
“Raymond James knew that the monies in the Jay Peak Limited Partnership accounts were investors’ funds and could not be used by Quiros for Quiros’ purchase of Jay Peak,” Goldberg writes. “Despite the fact that MSSI clearly explained to Quiros and Stenger that they could not use investor money to purchase Jay Peak, Quiros — aided by transfers made by Stenger and Burstein and Raymond James — did exactly that.”
Quiros, in a later deposition with the SEC, testified that “Raymond James was a great supporter of mine. They’re the ones who developed my banking structure in 2008.”
Goldberg asked the court to award compensatory damages, to be determined at trial, “at the maximum rate allowable.”
The SEC case and the separate lawsuit Goldberg brought against Quiros, Raymond James and Burstein are both pending in federal court in Miami, where Quiros lives and many of his businesses are located.
Stenger has settled his case with the SEC, while Quiros is challenging the allegations against him. He also recently fired his legal team and obtained new counsel.