Receiver Michael Goldberg answers a question, as Governor Phil Scott and Commissioner Michael Pieciak listen during a press conference late Thursday afternoon. Photo by Vermont Business Magazine.
Vermont Business Magazine All the creditors, immigrant investors, contractors and vendors who were caught up in the massive fraud in the Jay Peak EB-5 case will be made whole "100 cents on every dollar they were owed." Governor Phil Scott, Vermont Department of Financial Regulation Commissioner Michael Pieciak and Jay Peak Receiver Michael Goldberg this evening announced a $150 million settlement agreement with financial firm Raymond James Financial, Inc, over its role in the alleged fraud relating to EB-5 projects in Vermont’s Northeast Kingdom. The fraud case was announced by Governor Peter Shumlin a year ago Friday in the same Ceremonial Office at the State House.
The settlement, which was achieved exactly one year from the date the case was filed in Miami, represents the nation's largest recovery of EB-5 investor losses, according to Goldberg's law firm Akerman LLP.
The unusual timing for the 5 pm press conference was due to Raymond James, which is a publicly traded financial firm. It needed to announce the setttlement first, but after the stock market closed at 4 pm. Raymond James Financial Inc (market cap: $10.1 billion) fell about a dollar Friday after the news from its Thursday close of $73.76. Its 52-week hi-low is $46.30 - $81.92.
This sum includes $4.5 million from a settlement VDFR reached in June 2016, and $145.5 million the company agreed to pay in a settlement, executed Thursday. The settlement agreement will be filed in the US District Court in Miami, Fla., early next week and is subject to final approval by the Federal Court. SEE SETTLEMENT HERE
“This is significant for the hundreds of businesses, contractors and investors that have been harmed by this alleged fraud,” said Governor Scott. “I want to thank our Department of Financial Regulation and Mr. Goldberg for their work in securing these settlement funds, which will make whole many of the impacted individuals and businesses. There is still more work to do to seek justice in this matter, but this is an important step that means a lot for the state and the Northeast Kingdom.”
Settlement funds will be used to pay approximately 42 contractors, 513 trade creditors and 169 project investors who were financially impacted by the alleged fraud.
The impact in Vermont will be significant, with 241 Vermont-based businesses, nonprofits and municipalities receiving approximately $9.06 million. Burke Mountain Academy will receive $3 million for a deferred compensation agreement entered when it sold the Burke Ski Resort in 2005, $1 million of which will be used to construct a new ski lift. An additional $17.5 million will be used to complete cottages, a recreation center and fields as part of the Stateside Hotel at Jay Peak. Vermont-based DEW Construction will serve as the contractor for these projects.
“DFR is tremendously pleased with Mr. Goldberg’s efforts to achieve this settlement for Vermont businesses and municipalities, and all those impacted in this matter,” said Commissioner Pieciak. “To achieve this type of a settlement – one that fully reimburses all unpaid creditors in a year’s time – is truly unique, and it also represents the largest recovery settlement ever for an EB-5 fraud case.”
All 42 contractors who were owed money for work completed on the Stateside Hotel and Burke Mountain Hotel and Conference Center projects will be fully reimbursed, receiving a total of approximately $5.8 million. This settlement supersedes a previous repayment arrangement for contractors announced in January 2017, meaning all contractors will be paid 100 percent of their claims. The settlement also repays approximately 513 businesses, nonprofits and municipalities that were owed money for products and services previously provided to Jay Peak, totaling approximately $5.1 million.
Approximately 169 investors in Tram Haus Lodge at Jay Peak and AnC Bio – a biomedical research facility planned for Newport – will receive $81.2 million, representing a full repayment of their investment. An additional $1 million will be used to refund three Burke investors whose I-526 Immigrant Petition by Alien Entrepreneur was denied related to an investor-specific matter. The Receiver will hold $10 million for Burke investors in the event the United States Citizenship and Immigration Services (USCIS) – which oversees EB-5 projects at the federal level – determines construction of the hotel does not create sufficient jobs for all investors.
“Repayment of contractors, municipalities and businesses has been a top priority for me, along with ensuring the ongoing viability of the resorts in support of the local economy, and this is an important milestone towards those goals,” said Goldberg.
"This settlement would not have been possible without Raymond James stepping up to the plate from the very beginning of this case in an effort to do the right thing," Goldberg said. "At all times throughout our negotiations, Raymond James acted professionally and honorably in a good faith effort to resolve the litigation. The way Raymond James approached this case is a benchmark for how other firms in a similar situation should handle such a case. I want to further thank my counsel, Jeffrey Schneider of Levine Kellogg and lead class counsel, Harley Tropin and Tucker Ronzetti of the Kozyak Tropin firm for their tireless work in helping me resolve this case and benefitting hundreds of investors and creditors. Finally, I want to thank the officials at the SEC and the State of Vermont for their unwavering commitment to protecting the defrauded investors and creditors since the very beginning of the case and helping us structure a settlement that is in the best interest of the receivership estate and the investors. The SEC's investigation and lawsuit was the catalyst for this settlement."
The settlement agreement was filed on the one year anniversary of the date securities fraud charges were filed against Jay Peak owner Ariel Quiros and resort President and CEO Bill Stenger.
The mood at Thursday's press conference was decidedly different from the one a year ago, with Goldberg even getting a round of applause in the crowded and ornate State House meeting space. Pieciak called this, "A good day."
Goldberg said he expects to start the process of gathering bids for the vast resort, which will include the real estate, ski operations, resort amenities and recreation facilities, including the ice arena and popular water park, next September. He said the process will last six to nine months, which means the resort could be sold by summer 2018.
Goldberg suggested the resort could be valued at a 10-fold value of profits. He said the resort has increased profits from $1 million to about $10 million, so the value could be about $100 million now, but he said they will keep working to increase its profitability and therefore value.
Goldberg especially praised Jay Peak President Steve Wright "who didn't even know if was going to get paid, as he worked tirelessly last summer," as well as all the staff at Jay and Burke staff and the state's "team."
The settlement amount will be utilized as follows:
· $15.3 million will be used to satisfy the promissory notes payable to the investors of Jay Peak Hotel Suites L.P.
· $5.1 million will benefit Jay Peak Hotel Suites Phase II L.P., Jay Peak Penthouse Suites L.P., Jay Peak Golf and Mountain Suites L.P., Jay Peak Lodge and Townhouses L.P., Jay Peak Hotel Suites Stateside L.P. and Q Burke Mountain Hotel and Conference Center, L.P. by satisfying past due trade debt on the Jay Peak Resort and the Burke Mountain Hotel.
· $19.6 million will be used to complete the construction of the Stateside Phase VI project of which up to $2.2 million will be used to satisfy existing contractor liens.
· $67 million will be used to return the $500,000 principal investment each investor made in the Jay Peak Biomedical Research Park L.P.
· $6.6 million will be used to satisfy contractor claims against the Q Burke Phase VIII project and to repay other debt on the Burke Mountain Hotel.
· $10 million will be posted in a separate interest-bearing escrow account and be used if needed to repay up to twenty Q Burke Phase VIII Investors who may not be eligible to apply for permanent residency through the United States Citizenship and Immigration Services’ EB-5 Immigrant Investor Program.
· $1 million will be used to refund the $500,000 investment of two investors in the Q Burke phase VIII whose I-526 petitions were denied prior to the date of the SEC Action.
· $25 million will be set aside to pay the fees of class counsel and other attorneys who brought suits on behalf of individual victims.
For more information on the settlement, see the attached document and visit https://jaypeakreceivership.com/.
Source: Montpelier 4.13.2017