By Alan J. Keays
The Vermont Attorney General’s Office is asking a judge to toss out a lawsuit that alleges the state was complicit in a scheme to defraud EB-5 investors.
In a 100-page filing this week, attorneys for the state refer to the action brought by five EB-5 investors as a “shotgun” lawsuit with “scattershot” allegations that lacks specifics. The motion to dismiss asserts that the case is barred by the sovereign immunity doctrine, which protects the state and officials against lawsuits.
“Essentially, what you have in this complaint is somebody throwing everything, including the kitchen sink, at the wall, seeing what sticks,” Attorney General T.J. Donovan said Tuesday. “In order to go forward, you need a specific allegation of fraud.”
The class-action lawsuit has been filed by five EB-5 investors who accuse state officials of complicity in a $200 million investor fraud at Jay Peak Resort.
The lawsuit alleges that officials with the commerce agency acted as partners in the fraud. The Vermont EB-5 Regional Center, an arm of state government, was responsible for monitoring the projects to ensure that investors were protected.
State officials, however, over an eight-year period ignored allegations of financial wrongdoing and actively promoted Jay Peak projects overseas on behalf of the developers.
Federal regulators say more than 800 foreign investors from 74 countries were defrauded by the Jay Peak developers.
Without the stamp of approval from the state of Vermont, many of the investors have said they would not have invested $500,000 apiece in Jay Peak to obtain a green card through the EB-5 program.
Russell Barr, principal of the Barr Law Group based in Stowe, represents the investors suing the state. He said Tuesday that the lawsuit is as specific as it can be at this time, given that the allegations span a decade and the state has blocked his attempts to obtain depositions of witnesses and subpoena records.
“This is a 10-year fraud; this isn’t somebody slipping on banana,” Barr said.
Judge Thomas Carlson previously agreed to a state request to postpone any depositions until after a decision on the motion to dismiss the case.
The case is one of several stemming from the largest alleged fraud case in the state’s history, but is the only lawsuit that has named state agencies and employees as defendants.
Ariel Quiros, a Miami businessman and Jay Peak’s owner, is no longer contesting the allegations leveled against him by the U.S. Securities and Exchange Commission in a 52-count complaint brought in April 2016. The only matter left to be decided is how much, if anything, he must pay in damages and penalties.
SEC attorneys say Quiros took as much as $191.8 million in “ill-gotten” gains through the projects.
Bill Stenger, Jay Peak’s former president and Quiros’ past business partner in the EB-5 funded developments, has also agreed not to contest the charges brought against him by the federal regulators.
Both men are under a federal criminal investigation and face a civil action in state court in Vermont filed by the Vermont Department of Financial Regulation.