Judge agrees to freeze Quiros properties in Bahamas, Colombia in EB-5 case
Vermont judge has sided with the state in its bid to freeze the assets of Jay Peak developer Ariel Quiros, issuing an order Monday that applies to property in Vermont as well as outside the state and country.
The order against Quiros freezes not only five properties in the state, but others in Florida and Colorado as well as Colombia, the Bahamas and Puerto Rico.
The state had asked a judge to freeze the assets valued at roughly $8 million as they seek disgorgement, or “ill-gotten gains,” from Quiros in its case against him for allegedly defrauding investors in a series of EB-5 funded projects in Vermont’s Northeast Kingdom.
The properties and bank accounts that are part of the state freeze are those that will remain after Quiros surrenders $81 million in assets, including Jay Peak and Burke Mountain ski resorts, to fulfill an earlier settlement with the U.S. Securities and Exchange Commission.
The state contended without the freeze, Quiros could spend down his remaining assets on expenses, such as his mounting legal bills, including the hiring of a criminal attorney.
No criminal charges have been brought, but federal prosecutors in Vermont have said at the outset of the filing of the civil actions against Quiros two years ago that they were investigating the matter.
Melissa Visconti, Quiros’ attorney, vowed at a hearing last week to challenge the imposition of a freeze order in the state action against her client, saying she planned to file a motion to reconsider the ruling or appeal to the Vermont Supreme Court.
She also argued in court and in recent filings that a state judge didn’t have the authority to issue a freeze order that applied to assets beyond Vermont’s or the country’s borders.
“Although federal courts are vested by the United States Constitution and federal law with interstate jurisdiction that comports with those laws, the Vermont Superior Court is a court of limited jurisdiction,” Visconti wrote in filing submitted Friday before the judge’s order.
Visconti added that there is no authority cited by the state “authorizing the expansion of this Court’s jurisdiction over assets located outside of the State, and, therefore, the Statute should not be construed to extend the Court’s jurisdiction beyond that provided by Statute.”
Assistant Attorney General Kate Gallagher, representing the state, said Monday that she believes the Quiros case may be a “case of first impression,” meaning the issue has not been raised before in a state securities action.
“Essentially, the rationale is all they are doing are restraining the defendant from doing anything with his assets,” she said of her argument for permitting the freeze of assets beyond Vermont. “It’s really only jurisdiction of the defendant that is required.”
Michael Pieciak, commissioner of the Department of Financial Regulation, said Monday he couldn’t think of such a case, either.
“This case is unusual in many ways, oftentimes we don’t even get to an administrative action, let alone bringing a case in civil court, nor have we had a case of this size and magnitude,” Pieciak said. “In Vermont, fortunately we don’t have to deal with these cases with great frequency.”
Visconti declined comment Monday on the judge’s ruling.
Judge Mary Miles Teachout didn’t include an explanation along with order.
Teachout agreed following a three-hour hearing in Washington County Superior Court last week to freeze Quiros’ assets while the state’s fraud case against him is pending.
However, the judge agreed to allow attorneys for the state to file a proposed order for her to consider and permit Visconti to submit any objections, with a Friday deadline.
The freeze will go into effect after one currently in place by the federal court is lifted to allow Quiros to surrender the $81 million in property and bank accounts in the SEC case.
The freeze order issued Monday by Teachout includes, “but is not limited to” 13 properties as well as any bank accounts at “Merrill Lynch, Citibank, Wells Fargo, Davivienda and Raymond James,” not being turned over to the SEC.
The properties in Vermont include:
• Jay Peak Village Townhouse, Jay, Vermont
• Shallow Brook Land, Shallow Brook Road TH 40, Jay, Vermont
• Okcha Land, Route 105 in Jay, Vermont
• Aquiros Farms, 1294 Loop Road, Troy, Vermont
• Burke Mill, 4452 Darling Hill Road, Burke, Vermont
Properties outside of Vermont include:
• G81 Offices at 111 NE 1 St., Miami, Florida
• Residence at 19 Grand Bay Estate Circle, Florida
• Tower A, 105 Key Biscayne, 121 Crandon Blvd., Florida
• 5 acres of land located in Costilla County, SLVR Unit 22, in Colorado
• Timeshare at 5000 Avenue of the Stars in Florida
Properties outside the country include:
• Bimini Bay Condo Building 37 in the Bahamas
• PRAO Condo Trust, Rio Mar, Rio Grande, Puerto Rico
• COLAO Condo Trust, Karibana Beach Club, Colombia
Also, according to Teachout’s order, the state commissioner of the Department of Financial Regulation, Pieciak, “or his designee” can take appropriate action to “preserve and maintain” the properties that are part of the state asset freeze.
Visconti contended in a court filing submitted Friday that only Quiros should be “bound” by a freeze order, as, “No other company, employee, affiliate, agent, officer or employee was given notice or an opportunity to be heard, and, therefore, there is no basis to bind them in the instant order.”
Visconti also argued at the hearing last week that her client has already paid out all the disgorgement he should owe as part of the SEC settlement.
She said Quiros should not be shouldering all of the blame.
The state should also be held liable to investors, Visconti said, for failing to properly oversee the Vermont EB-5 Regional Center and monitor projects that spanned eight years and raised more than $350 million through the EB-5 immigrant investor program.
She cited a notice issued last summer by U.S. Citizenship and Immigration Service that it was “terminating” the center for failing to act to stop the ongoing fraud.
The money was raised by Quiros and his former business partner, Bill Stenger, Jay Peak’s CEO at the time, to pay for massive upgrades at the ski resort, a hotel at Burke and two failed projects in Newport, including a $110 million biomedical center deemed by the SEC “nearly a complete fraud.”
Quiros, regulators say, pocketed $50 million for himself meant for the projects.
Gallagher has said that it was Quiros who committed the fraud and letting him off the hook because he wasn’t caught sooner was “absolutely an absurd argument.”
The asset freeze handed down by Teachout on Monday does not provide Quiros an allowance for living expenses.
The federal court freeze had allowed for $15,000 to Quiros a month for such costs. Visconti, speaking at last week’s hearing, described her client as “beyond broke,” and no longer receiving that $15,000 in living expenses in the federal case due to the pending settlement.
That would leave Quiros unable to not only cover his daily expenses but also his legal bills, with Visconti saying she hadn’t been paid for some time for her work representing him.
The judge said during last week’s hearing that Visconti could file a motion to address that issue of her client’s living expenses.
The hearing last week between the parties was combative, with legal bickering bouncing back and forth before the judge.
It appears from the latest filings that the parties remain at odds.
Visconti wrote in her motion submitted Friday that prior to filing it with the court she contacted the state and provided her suggested changes to their proposed draft order.
She added that she requested that “counsel for the State confer regarding the proposed edits in an effort to reduce the number of differences for the Court’s review. Counsel for the State has indicated that they are unwilling to confer in an effort to reduce the number of differences for the Court.”
Gallagher said Monday that after looking at Visconti changes she didn’t believe that the parties would be able to reconcile their differences.
“We felt the disagreements were really fundamental,” she said. “We felt this was something that was going to have be decided by the court.”