Jay Peak receiver Michael Goldberg has reached a $32.5 million settlement in a lawsuit he brought against former attorneys for Ariel Quiros, the resort’s past owner.
The lawsuit alleged those lawyers allowed millions of dollars to be bilked from investors in projects in Vermont’s Northeast Kingdom headed by Quiros.
The proposed settlement outlined in a Friday court filing is among the largest reached yet in the financial scandal with the various parties associated with it, including other law firms, banks and the developers.
Other larger ones include a $150 million settlement reached with Raymond James & Associates, a financial institution that had been used by Quiros in carrying out the alleged fraud.
The latest proposed settlement stems from a lawsuit filed nearly two years ago in Miami, where Quiros lives and many of his businesses are based. The suit was brought against lawyer David Gordon of New York City and the firm where he works, Mitchell Silberberg & Knupp, LLP.
The proposed settlement agreement calls for the firm to pay the receiver $32.5 million. After fees and other expenses, according to the filing, about $10 million will go to operations of the receivership, which includes running the properties at the center of the fraud scandal, Jay Peak and Burke Mountain ski resorts.
Roughly $20 million will go to investors who put money into development projects headed by Quiros and his former business partner Bill Stenger, Jay Peak’s former CEO and president, who have “allowed claims.”
Exactly which group of investors that includes was not clear in the filing, and Goldberg could not be reached for comment. How much each investor would receive would be determined by the court, according to the settlement agreement.
More than 800 foreign investors put at least $500,000 each into a series of projects led by Quiros and Stenger over a decade.
The investors made their investments through the federal EB-5 visa program with the hope of obtaining green cards, or permanent U.S. residency, if the money they put into the projects created a required number of jobs.
Many of the investors were left out of their investments and their chance of green cards after regulators brought the projects to a halt in 2016, terming the financing by the developers a “Ponzi-like” scheme.
The proposed settlement filed Friday stated that Golberg and his receivership may not need all of the $10 million set aside to keep the resorts afloat, in which case additional funds can go to those investors with “allowable claims.”
“Given the uncertainties associated with the COVID19 crisis, the funds will be held for such purposes at this juncture in an abundance of caution,” the filing stated.
The deal is contingent on a federal judge granting a bar order, which would protect the law firm from any future lawsuit by investors related to the Jay Peak EB-5 projects. The bar order would not apply to any legal matter brought by federal or state agencies.
“In colloquial terms,” the proposed settlement agreement stated, “MSK’s willingness to settle — for $32,500,000 — is contingent upon ‘global peace’ with respect to all claims that could be asserted against the MSK Released Parties relating in any way whatsoever to the EB-5 Actions, the Receivership Entities, or MSK’s Activities.”
Gordon and MSK could not be reached for comment.
Michael Pieciak, commissioner of the Vermont Department of Financial Regulation, called the agreement a “significant settlement” that will benefit Jay Peak investors as well as the resorts facing financial uncertainty due to the Covid-19 pandemic.
“The fraud in the Northeast Kingdom,” Pieciak said in a statement issued Friday, “caused significant harm to the investors and the community and today’s settlement is another big step forward toward healing and financial restitution.”
Goldberg’s lawsuit brought against MSK accused the law firm of playing a role in the scandal.
“MSK’s and Gordon’s conduct fell below the standard of care for any attorneys, let alone those holding themselves out as experts in the areas of securities and corporate law, and breached fiduciary duties owed to the Receivership Entities,” the lawsuit stated.
The lawsuit included claims against Gordon and the firm of legal malpractice and breach of fiduciary duty. The law firm, according to the proposed settlement, denied wrongdoing in reaching the agreement.
Gordon represented Quiros and other entities connected to Quiros from mid-2013 through March 2017 and, according to the lawsuit, had racked up along with “local counsel” nearly $3 million in legal bills.
In March 2017, Quioros fired Gordon as well as other members of his legal team representing him at that time, accusing them of keeping him in the dark and overcharging him.
According to the receiver’s lawsuit, shortly after signing up to serve as counsel, Gordon and the firm learned “Quiros had directed the commingling of tens of millions in investor funds among the projects’ various phases and entities in an effort to cover construction shortfalls.”
In addition, according to the lawsuit, “MSK also learned that Quiros had financed his purchase of the Jay Peak resort in 2008 by diverting millions of dollars of EB-5 investor funds held by certain Receivership Entities.”
Those receivership entities included other EB-5 financed projects that foreign investors had put money into, including hotels and condos at Jay Peak as well as a water park and ice rink.
“Defendants failed to advise the Receivership Entities that violations of the private placement memorandum and securities laws were occurring,” the lawsuit stated.
“As a result of Defendants’ breaches,” the lawsuit added, “investor money continued to come in, increasing the Receivership Entities’ exposure. That exposure increased by tens of millions of dollars after Defendants began representing Quiros and the Receivership Entities in mid-2013.”
MSK and Gordon learned about the misuse of funds related to AnC Bio Vermont, a failed project to build a $110 million biomedical research center in Newport, “no later” than May 2014, according to the lawsuit. That’s when Quiros testified during an “investigative session” conducted by the U.S. Securities and Exchange Commission.
At that deposition, according to the lawsuit, Quiros testified about transferring $18 million in funds from investors in that biomedical research facility project to help cover debt from earlier projects. Despite being aware of this action, the lawsuit stated, Gordon did not warn the “decision makers” associated with the other entities what Quiros was doing.
“Quiros testified that ‘once [an individual] invests, it is now my money. It is totally my money,’” according to the lawsuit. Quiros further testified that once investor funds were transferred to a Quiros-controlled account, he could ‘do whatever I want’ with them.”
Gordon and MSK fired back at Goldberg in a filing in response to the lawsuit, calling Goldberg, the man now overseeing Jay Peak and other properties at the center of the EB-5 investment scandal, greedy.
“[Goldberg’s] avarice cannot be overstated,” the filing stated, adding, “The Receiver crosses the line of zealous advocacy and seeks to gain advantage in this civil case by trying to link a defense lawyer to his former clients’ alleged criminal conduct.”
In addition, that filing stated, Goldberg’s legal action uses terms like “concoct,” “mislead,” and “cover-up” to ascribe “nefarious” intent to Gordon and MSK where none exists.
“In reality,” according to the filing, “the MSK Defendants did exactly what attorneys are hired to do: vigorously defended the clients against potential government overreach.”
Goldberg filed the lawsuit in 2019 two weeks ahead of criminal charges that were brought against Quiros and Stenger and two of their associates in connection with the AnC Bio Vermont project that, despite raising more than $80 million from about 160 EB-5 investors, never got off the ground.
Quiros has since pleaded guilty and is awaiting sentencing. Stenger has maintained his innocence and is set to stand trial in the fall.