UPDATED: EB-5 investor lawyer says state official committed child sex crime in China
HYDE PARK — An attorney who is suing the state on behalf of defrauded EB-5 investors told reporters after a court hearing Monday that an official involved in the state EB-5 program had sex with a minor in China.
Russell Barr, of Barr Law Group, made the claim to reporters after a two and a half hour hearing at the Lamoille County Superior Court.
Barr refused to name the individual or provide other details. He said he would submit evidence to the court in two weeks showing that an official was arrested after committing a sex crime while on state business overseas in 2013 or 2014. One of the other employees on the trip bailed out the other official, Barr said.
“We have solid information that an official from our regional center on Jay Peak business was arrested for a crime and then it was apparently covered up,” Barr said. “We’re only just trying to find out all the details.
“It’s been very hard to get to the truth simply because you have state officials who have tried to hide this,” Barr said. “Let’s think about this, the state filed its case against Quiros two years ago. Why has there been no discovery? That never happens in a plaintiff’s case. Why is it there has been no investigation of this regional center? Why has there been no releasing of documents, of the USCIS forms? Why aren’t these documents coming forward? We’re starting to understand why.”
The state has filed a motion to dismiss the case based on sovereign immunity case law that protects states and state officials from civil claims. The AG’s office argues that Barr has not provided enough specific evidence to show that state officials were not acting in good faith.
The latest allegations made by Barr are part of an attempt to show state officials were involved in unsavory activities and benefited from their relationships with the Jay Peak developers.
Barr is suing the state on behalf of foreign investors who were defrauded in an elaborate Ponzi scheme perpetrated by those developers over an eight-year period from 2008 to 2016. About 800 investors lost money in the projects, which included a biomedical facility in Newport, a massive expansion of Jay Peak Resort and the overhaul of Burke Mountain Resort.
Bill Stenger, former president and CEO of Jay Peak, and Ariel Quiros, the owner of Jay Peak, allegedly misused $200 million in foreign investor funds. Both men have settled with the SEC.
Investors say they believed the Northeast Kingdom developments were a safe investment because the projects were approved, monitored and administered by the state of Vermont, and that they never would have invested in the projects if it hadn’t been for the state’s stamp of approval.
State oversight distinguished the Jay Peak projects from hundreds of other developments around the country. Vermont is the only state that has its own EB-5 program. In most states, nonprofit and for-profit entities oversee EB-5 foreign investor projects. The national program has been rife with abuse.
Many investors saw the seal of Vermont (the state logo was featured on Jay Peak promotional materials, along with promises that the state audited the projects) as a guarantee that they would be protected from fraud.
But instead of finding safe harbor in the state of Vermont, the investors became enmeshed of the biggest fraud in the history of the EB-5 program.
Many investors blame state officials — especially Sen. Patrick Leahy and former Gov. Peter Shumlin — for touting the projects and ultimately drawing so many innocent foreigners into the scheme.
Last summer, a handful of the investors turned to the courts for recourse. The lawsuit, led by Barr, maintains that state officials had a duty of care for the investors. Investors were told that quarterly reports would be filed with the state for review, and their investments would be protected.
They sued state officials for negligence, breach of contract and violation of state securities fraud (other related charges have been dropped).
Sovereign immunity arguments
On Monday, Judge Thomas Carlson heard arguments from Barr and the AG’s office, which is defending the three state agencies and 10 individual state officials from the Department of Financial Regulation and the Agency of Commerce and Community Development.
Barr and Chandler Matson, an attorney with Barr Law Group, asked to submit more facts in the case, including information about the alleged sex crime, but Judge Carlson rebuffed a recounting of new evidence in oral arguments. “We can’t introduce new facts,” he said.
Barr raised questions in the hearing about gifts to Vermont EB-5 Regional Center employees in the hearing, which he later told reporters included free ski passes. In addition, he made a reference to former Gov. Peter Shumlin’s use of a luxury Fifth Avenue apartment in Manhattan that was bought by Quiros with investor money.
Carlson said the allegation regarding Shumlin was irrelevant because he isn’t a named defendant in the case. He had a similar reaction to the ski pass information.
“Is there any allegation in the complaint that a state official took a ski pass?” Carlson asked. When the answer was in the negative, Carlson said: “I’m trying to figure out what’s more grandiose, a ski pass or your description of it.”
Barr and Chandler argued that the state was negligent in its duty and caused harm to investors. They asked the judge to allow claims of negligence, breach of contract and violations of state securities laws to stand.
The plaintiffs allege that the state pledged to monitor the Jay Peak projects as part of an agreement with the developers that was provided to investors as part of the offering memorandum. The Vermont EB-5 Regional Center, however, did not require Stenger and Quiros to file quarterly reports until the summer of 2014 — about a year into the SEC investigation.
In addition, the state was required to file form 924 with the U.S. Citizenship and Immigration Service. The form asks regional centers to provide documentation regarding administration, oversight and management functions.
The Vermont Attorney General’s office and the Scott administration have refused to release copies of the annual report from the Vermont EB-5 Regional Center to the press or the Barr Law Group.
Judge Carlson asked Barr to point to state or federal laws that require regional centers to audit projects.
Barr said couldn’t point to a specific provision in state statutes or the federal code. Instead, he cited the 924 form as proof that regional centers must provide oversight under USCIS regulations. The 924 form, he said, was submitted with the signatures of the commerce agency secretaries under penalty of perjury.
“The Vermont EB-5 Regional Center lives by the pleasure of USCIS,” Barr said.
The state-run regional center violated USCIS rules, Barr said, citing a letter from the federal agency from August 2017 threatening to shut down the Vermont EB-5 Regional Center as a direct result of the state’s inadequate oversight of the Jay Peak projects.
Carlson questioned whether the notice of intent to terminate the regional center was enough to go on. The judge said the state merely had to demonstrate to USCIS that it was promoting economic growth.
“You can’t promote growth if you’re allowing the funds to be stolen,” Barr said.
Vermont Assistant Attorney General Benjamin Battles told Carlson that the investors’ claims had no merit.
State officials promoted Jay Peak projects “too hard and brought the hammer down too late, and while the fraud was occurring, they didn’t enrich themselves in any way,” Battles said.
Battles argued that the individual state officials could not be held liable for the fraud at Jay Peak because they are shielded by immunity laws. Two secretaries named in the lawsuit as defendants, Lawrence Miller and Patricia Moulton, are protected by absolute sovereign immunity, he said. Department commissioners, including Michael Pieciak and Joan Goldstein, are protected by qualified immunity.
In addition, he said that the Barr Law Group failed to provide specific evidence that individual officials had failed to comply with Rule 9B under the federal rules of civil procedure. Battles argued that the investors also failed to differentiate between the individual defendants with specific allegations of breach of contract, negligence and violations of state securities laws.
“If anything, the state was inconsistent in controlling the projects and failed to stop the fraud, but state officials didn’t direct the developers to commit the fraud,” Battles told the judge.
“The state securities law doesn’t apply because the state was not engaged in the business of selling securities,” Battles said.
Carlson questioned the state’s role in promoting Jay Peak and its oversight of the projects to investors and invited Barr to submit more information in the case.
The AG’s office argued that sufficient evidence had been provided to the court (this will be the fourth amendment to the complaint) for the judge to make a decision on whether to dismiss the case.