Vermont judge freezes Quiros’ assets in EB-5 case
Vermont judge has agreed to a state bid to freeze the remaining assets of Jay Peak developer Ariel Quiros who recently settled a fraud case with federal regulators.
The ruling Wednesday capped the first courtroom hearing in a lawsuit brought by the state nearly two years ago and featured attorneys hurling barbs and attacks back and forth over confidential settlement negotiations and the state’s involvement in the fraud.
The state sought the asset freeze against Quiros, fearing that were it not in place he would drain what’s left of his assets and leave little money for defrauded investors to recoup their losses.
The federal court froze Quiros’ assets in April 2016. Once Quiros turns over assets needed to fulfill his recent $81 million settlement with the U.S. Securities & Exchange Commission, the freeze will be lifted. Quiros is turning over both Jay Peak and Burke Mountain ski resorts and a number of other properties as part of the agreement.
Defense attorneys for Quiros have attempted to settle the state case, but have not reached an agreement with the Vermont attorney general’s office.
The state has argued that Quiros will have roughly $8 million in assets left after the SEC settlement, mainly in property such as houses and condos, as well as bank accounts. The Vermont attorney general’s office, in its lawsuit, is pushing to recoup that money for the state.
Washington County Superior Court Judge Mary Miles Teachout decided to impose the asset freeze in a ruling from the bench after hearing oral arguments. “All of the elements for an asset freeze have been met,” Teachout said. It will go into effect after the federal settlement is completed.
The ruling came over the strong objections of Quiros’ attorneys. Melissa Visconti, who is representing the Miami businessman, told Teachout that she planned to ask for a reconsideration or an appeal of the ruling to the Vermont Supreme Court.
During the nearly three-hour hearing, Visconti argued that Quiros had already fully disgorged ill-gotten gains in the federal case and that there was nothing left for the state to sweep up. She pointed to a court filing to be submitted by Michael Goldberg, the court-appointed receiver in the Jay Peak case, that signals he is satisfied Quiros has turned over what he owed to defrauded investors.
Visconti also objected to the court’s decision because it made no allowances for Quiros to pay mounting legal fees or living expenses.
“It’s a complete asset freeze, which means he wouldn’t be able to pay his mortgage, his groceries, his electric bills,” said Visconti, who earlier in the hearing said that her client was “beyond broke.”
Teachout said a separate motion could be filed to address that matter. Under the federal asset freeze, Quiros had been allotted $15,000 a month in living expenses.
In addition to paying for lawyer fees, Visconti said when the asset freeze lifts in the federal case, Quiros will immediately be “saddled” with costs that have been building up over two years associated with the properties that will be unfrozen.
Visconti also told the judge that Vermont courts do not have jurisdiction to impose a freeze on assets outside of Vermont or outside the country. Quiros has five properties in Vermont and, in addition, owns properties in Colombia, the Bahamas, Puerto Rico, Colorado and Florida.
Assistant Attorney General Kate Gallagher, who is representing the state, was not aware that the asset freeze might not apply to properties outside Vermont and said she would research the matter before submitting a proposed order to the judge for consideration on Thursday. Visconti has until Friday to raise any objections.
Visconti also revealed that Goldberg and Quiros have nearly reached a settlement that would include a bar order preventing other parties from bringing a lawsuit against the Miami businessman for actions stemming from the fraud case.
“It says nobody can come after Mr. Quiros for anything related to Jay Peak entities because he’s already given it all back,” Visconti said.
Visconti said federal district court cannot prohibit a state entity from suing, “but it does include anybody else who is going to come after Mr. Quiros to sue him.” That’s important, she said, because it shows Goldberg is “satisfied Mr. Quiros has given everything.” No paperwork on the settlement has been filed in federal court in Miami where that case is pending, and Visconti declined to comment further on the matter following the hearing.
Lawyers for state, Quiros, both cite Goldberg affidavits
The hearing Wednesday followed a flurry of motions filed by both sides in the case in recent days, with the war of written words becoming increasingly heated between the parties. That ongoing exchange spilled over into the courtroom during the hearing.
Most of the hearing consisted of arguments over the definition of the word disgorgement. Visconti told the judge that the term should be limited to “any ill gotten gains” already covered by the SEC settlement, which includes $50 million in money “looted” by Quiros and $29 million he made in profits.
Visconti said investors were not left high and dry. Thanks to the settlement, they now own Jay Peak Resort and six separate developments that were built with EB-5 funds, she said. The resort in Jay will be put on the market this spring.
Gallagher laid out an expanded view of disgorgement, arguing that it should be applied to the full amount raised from investors, including money spent on building hotels and condos, plus prejudgement interest. She talked Wednesday of a figure of up to $200 million. That figure differed from several other numbers she presented in previous court filings.
“What I’ve been trying to do all along is say there’s a range here,” Gallagher said. “Is there exactitude here? No, but in fact, we’re not required to have exactitude here.”
Visconti said the state hasn’t shown a “reasonable approximation” of disgorgement needed for the imposition of an asset freeze. “They are all over the place,” Visconti said.
Gallagher said without the asset freeze Quiros’ would surely “dissipate” the remaining funds and intends to use the money to pay for his criminal defense.
“Mr. Quiros would be defending himself on the backs of the investors he defrauded,” Gallagher told the judge. “That would be highly inappropriate.”
Visconti said in court Wednesday that the fact that Quiros needed money to pay lawyers in his criminal case was brought up in settlement discussions, “which are now apparently not confidential.”
Federal prosecutors said at the time of the filing of state and federal fraud lawsuits against Quiros in April 2016 that they were conducting a criminal probe, but have been tight-lipped ever since. Quiros and his former business partner, Bill Stenger, Jay Peak’s former CEO and president, were accused in the SEC lawsuits of misusing more than $200 million of the $350 million raised from foreign investors through the federal EB-5 visa program. Quiros was accused in those filings of looting $55 million from the projects to pay his own personal expenses, including the purchase of a New York City condo. The money was meant to fund hotel, condo and water park developments at Jay Peak and several other projects in Vermont’s Northeast Kingdom.
Both parties during the hearing Wednesday used affidavits from Goldberg, the receiver, to bolster their cases.
The affidavit obtained by the state from Goldberg said that even with previous settlements in the case, including the $81 million in assets surrendered by Quiros, the anticipated sale of the properties “are not likely to be sufficient to fully repay the principal investment of investors.”
Visconti also referred the judge to an affidavit from Goldberg that stated Quiros had been “cooperatively” working with him in turning over properties that were part of the SEC settlement and that he had “no knowledge of Mr. Quiros dissipating any assets.”
Gallagher questioned whether Quiros had previously been forthright about assets and cited an October 2017 deposition in which Quiros took the Fifth Amendment, invoking his right against self-incrimination, when he was asked about $10 million in investor funds that had been sent “for no apparent reason” to Alex Choi in South Korea. Choi was the CEO of the AnC Bio parent company in South Korea and a longtime business partner of Quiros. He faced prosecution in that country for allegedly embezzling funds. Choi had planned to bring a similar proposed biomedical facility, AnC Bio Vermont, to Newport. The SEC later determined the project was “nearly a complete fraud.”
‘Unclean hands’ argument surfaces
Visconti also told the judge that the state’s own misconduct help lead to the investment fraud scheme that played out in northern Vermont, and the state should be held liable to defrauded investors as well. In a brief filed last week, Visconti asserted an affirmative defense, arguing that the state shares liability for the fraud.
“Remember,” she said, “it was the state who had the obligation to oversee all of these project and make sure there was no fraud involved and make sure there were no violations of federal law.”
Visconti pointed out that in August 2017, the U.S. Citizenship and Immigration Service issued a notice saying that it was “terminating” the state-run EB-5 regional center in Vermont because the state failed to act to stop the ongoing fraud.
“If there was fraud going on during that time,” Visconti told the judge, “then the state was part of it and the state oversaw it.”
She added, “The reason I bring up the relationship with the state is because the Jay Peak entities were submitting accounting records and audits telling the state where every dime was.”
Gallagher later responded to that allegation.
“Let’s be very clear,” she said, “Mr. Quiros never advised the state that he was siphoning off $50 million in assets.”
At another point, Gallagher told the judge she wanted to further discuss confidential information exchanged in settlement talks. (The assistant attorney general had already revealed that Quiros needed to pay his criminal defense lawyer. Visconti responded that the Vermont attorney general’s office had threatened to freeze Quiros’ assets if the defense didn’t settle the case on the state’s terms.)
That prompted Ritchie Berger, a Vermont attorney representing Quiros, to jump out of his seat.
“I’m going to object, your honor,” Berger said.
“Normally, I would not be doing this but they are the ones who actually raised the issue in their briefing papers when they said that during the course of those conversations we threatened them, even though we didn’t,” Gallagher told the judge.
“I really do want to end any reference to things that were discussed in settlement,” the judge said.
“Fair enough, “ Gallagher replied.