Ribbon cutting at the Burke Mountain Hotel in September 2016, five months after the EB-5 fraud was exposed. Courtesy photo.
by Timothy McQuiston, Vermont Business Magazine Today, Jay Peak Receiver, Michael Goldberg, reached a $32.5 million settlement with Mitchell Silberberg & Knupp LLP, generally known as MSK, for its role in providing legal advice to Ariel Quiros and the EB-5 projects in the Northeast Kingdom. This comes on the heels of a settlement with Raymond James over ownership of Burke Mountain Hotel and in guilty pleas related to a separate development.
Resort-owner Quiros and co-conspirator William Kelly have pleaded guilty to defrauding immigrant investors in one aspect of the broad, $200 million alleged "Ponzi-like" scheme centered on Jay Peak Resort. They await sentencing. Former Jay Peak President Bill Stenger has vociferously claimed his innocence and is expected to go to trial later this year. A fourth person indicted, Alex Choi, is still at large.
Immigrant investors put up $500,000 each, plus fees, in order to invest in several developments at Jay Peak, Burke Mountain and in Newport. Several of the developments involved in the grand EB-5 plan have been completed.
But the most egregious case involves the proposed AnC Bio Vermont biotech plant, from which about $100 million was siphoned off by Quiros. It was for that development that the four men were charged in 2019. The plant was never built. Goldberg is attempting to make those immigrant investors whole by moving them to another, unrelated development in New York City.
Also, Goldberg revealed on Tuesday that he had received an offer of $6 million for the hotel, which is part of the EB-5 fraud case. Because the USCIS has decided that the hotel does not meet EB-5 employment requirements, none of the immigrant investors will qualify for the program. Goldberg thus has set aside an assumed value of $6 million for the hotel and divvied it up on a pro rata basis. To that end, Raymond James would be owed nearly $1 million. In order to close the books on any ownership claim by Raymond James, Goldberg is simply paying the financial firm off for its presumed share. The immigrant investors will not get any money yet. The hotel has not yet been sold.
Vermont Department of Financial Regulation Commissioner Michael S Pieciak issued the following statement related to the MSK settlement:
“This is a significant settlement that will benefit both the Jay Peak investors and help mitigate any financial uncertainty to the ski resorts as a result of COVID-19.”
“We are very grateful to Michael Goldberg for securing this settlement and hope it is approved by the court in due course.”
“The fraud in the Northeast Kingdom caused significant harm to the investors and the community and today’s settlement is another big step forward toward healing and financial restitution.”
Quiros Law Firm MSK Settlement (click HERE for full document)
On October 5, 2018, Kozyak Tropin & Throckmorton and other counsel filed a putative class action, on behalf of the putative class plaintiffs named therein (“Putative Class Plaintiffs”), in the United States District Court for the District of Vermont captioned Qureshi, et al. v. Mitchell Silberberg & Knupp, LLP, People’s United Bank, et al., Case No. 2:18-cv-163 (the “Putative Class Action”). The defendants included, among others, Mitchell Silberberg & Knupp, LLP, as successor-in-interest to Richardson & Patel, LLP, Mitchell Silberberg & Knupp, LLP, David B. Gordon, and David B. Gordon, a Professional Corporation (collectively, “MSK”). Subsequently, the Kozyak firm was appointed Interim Class Counsel in the Putative Class Action (“Interim Class Counsel”).
On May 8, 2019, the Receiver commenced an action in the United States District Court for the Southern District of Florida captioned Michael I. Goldberg, not individually, but solely in his capacity as Receiver v. Mitchell Silberberg & Knupp, LLP, et al., Case No. 19-cv-21862-MGC (S.D. Fla.) (the “Receiver Action”). On December 3, 2020, the court in the Receiver Action issued an order staying the Receiver Action.
The Receiver is pleased to report that, after years of litigation in two separate fora, extensive discovery, and two separate mediations, the Putative Class Plaintiffs, MSK, and the Receiver have settled the Putative Class Action and the Receiver Action for Thirty Two Million Five Hundred Thousand Dollars ($32,500,000.00) (the “Settlement Amount”). As set forth below, the Putative Class Plaintiffs have requested that the Settlement Amount be disbursed by the Receiver on their behalf as set forth in the settlement agreement attached to this Motion as Exhibit “1” (the “Settlement Agreement”).
The precise terms of the settlement are more fully set forth in the Settlement Agreement, but in broad terms, the settlement provides recoveries to the Putative Class Plaintiffs, payment to their attorneys, an allocation to certain of the Receiver’s claims, and reimbursement of a portion of the Receiver’s attorneys’ fees. Even after payment of such amounts, the settlement results in a recovery to the Receivership Estate of nearly $30 million, from which at least $20 million shall be used for an interim distribution to eligible investors with allowed claims. Needless to say, all Investors and Putative Class Plaintiffs will benefit from this settlement. The residual funds have been designated in the Settlement Agreement to be used for the general administration of the receivership. Based on the current outlook of the Receivership Estate’s financial situation, and given previous settlements, it is possible that the Receiver will not need all of these residual funds for general administration purposes and they can, instead, also be distributed to holders of allowed claims, but given the uncertainties associated with the COVID- 19 crisis, the funds will be held for such purposes at this juncture in an abundance of caution.
In exchange for the Settlement Amount, the Putative Class Plaintiffs have agreed to: (i) provide the MSK Released Parties4 with broad releases; and (ii) dismiss their claims against MSK with prejudice and waive any right(s) of appeal. The Receiver has agreed: (i) to distribute the net settlement proceeds in accordance with the Settlement Agreement (as defined below) and future orders of the Court; (ii) to provide the MSK Released Parties with broad releases; (iii) to seek entry of a bar order enjoining claims relating to the Jay Peak Resort, AnC Bio, the Burke Mountain Hotel and/or the SEC Action (as described more fully below) (the “Bar Order”); and (iv) to dismiss his claims against MSK with prejudice. The Bar Order would not apply to any actions brought by federal or state governmental bodies or agencies. The Bar Order also excludes claims that Ariel Quiros (“Quiros”) has asserted in his individual capacity only, if any, in the arbitration captioned Quiros v. Mitchell Silberberg & Knupp LLP and David B. Gordon, JAMS NY Reference No. 1425032114 (the “Quiros Arbitration”). Importantly, as set forth below, the settlement is expressly contingent on the entry of the Bar Order.
As was the case with the prior settlements brought before this Court (with parties such as Citibank, Raymond James, Ariel Quiros, Carroll & Scribner, and Ironshore), the Receiver requests, by way of this Motion, that the Court approve the Settlement Agreement and Bar Order by means of a two-step process.
First, the Receiver requests that the Court enter an order substantially in form and substance as Exhibit A to the Settlement Agreement (the “Preliminary Approval Order”). The Preliminary Approval Order preliminarily approves the Settlement Agreement and establishes approval procedures—including providing notice to parties potentially affected by the settlement, along with an opportunity to object and participate in the final approval hearing. The Receiver believes that the Preliminary Approval Order can be entered without a hearing on the basis of the substantial matters of law and fact set forth in this Motion, as was the case with the Receiver’s previous settlements. Second, the Receiver requests that, after the procedures delineated in the Preliminary
Approval Order have been met, the Court enter the Bar Order substantially in the form and substance as Exhibit B to the Settlement Agreement, which shall serve as the Court’s final order approving the Settlement Agreement and barring all non-governmental claims against the MSK Released Parties, as further described below. (click here for full document).
The principal financial terms of the settlement are as follows: the settlement is for $32,500,000.00, from which the Putative Class Plaintiffs receive $70,000.00; Interim Class Counsel receives $1,500,000.00; the Receiver receives $780,000.00 for his fraudulent transfer claim and $750,000.00 for attorneys’ fees; and the balance, $29,400,000.00, being used for the benefit of the Receivership Estate, with at least $20,000,000.00 (unless funds are needed to support other assets of the Receivership Estate) going towards an interim distribution to eligible investors with allowed claims and $1,750,000.00 being held as an escrow reserve for a limited period of time in the event anyone violates the Bar Order. And, as stated above, it is a condition precedent to the effectiveness of the Settlement Agreement and to the Receiver’s receipt of the Settlement Amount that the Court issue the Bar Order.
(i) MSK pays, or causes to be paid, $32,500,000.00 after the Bar Order is issued and becomes Final.
(ii) The Putative Class Plaintiffs, MSK, and the Receiver exchange the mutual releases set forth in Section 5 of the Settlement Agreement.
(iii) The Receiver supports, and MSK agrees not to object to, a payment by the Receiver to each of the Putative Class Plaintiffs in the amount of Ten Thousand Dollars ($10,000.00), for a total of Seventy Thousand Dollars ($70,000.00), for their efforts in bringing the Putative Class Action and procuring the settlement memorialized in the Settlement Agreement.
(iv) Interim Class Counsel recovers $1,500,000.00 in attorneys’ fees from the Settlement Amount so the Investors need not pay such amounts.
(v) The Receiver shall use $780,000.00 to reimburse the Receivership Estate for the fraudulent transfer claim brought by the Receiver in the Receiver Action.
(vi) The Receiver shall use $750,000.00 to reimburse the Receivership Estate for the attorneys’ fees associated with the Receiver bringing the Receiver Action.
(vii) The balance of the Settlement Amount, $29,400,000.00, shall be used for the benefit of the Receivership Estate from which all Investors and the Putative Class Plaintiffs benefit and which payments are being made on behalf of the Investors and the Putative Class Plaintiffs; provided, however, that unless funds are needed to support other assets of the Receivership Estate, and approval has been obtained by this Court, at least $20,000,000.00 of this amount shall be used for an interim distribution to eligible investors with allowed claims, the exact distribution of which shall also be subject to the approval of this Court.
(viii) The Putative Class Plaintiffs and the Receiver dismiss their claims against MSK with prejudice after the Bar Order is issued and becomes Final.
(ix) The Receiver maintains an escrow reserve from the Settlement Amount of $1,750,000.00) for one year after the Bar Order becomes Final to hold the MSK Released Parties harmless, and indemnify and defend the MSK Released Parties, in the event any person or entity seeks to bring a claim against any of the MSK Released Parties that may be prohibited by, or in violation of, the Bar Order (other than, again, claims asserted by Quiros in his individual capacity in the Quiros Arbitration, which are excluded from the Bar Order).
Raymond James Settlement and Burke Mountain Hotel (Phase VIII, click HERE for full document)
The Receiver and Class Counsel, with the consent of the SEC, have entered into a second agreement with Raymond James & Associates, Inc. (“Raymond James”) to amend the Settlement Agreement and Release between them that was approved by this Court on June 30, 2017 [DE 353]. The precise terms of the Second Amendment to Settlement Agreement and Release (“Second Amendment”) are more fully set forth in the Second Amendment, a copy of which is attached as Exhibit A, but in broad terms, the Second Amendment amends Sections 3(d)(vi), 5(d)(iii) and 7 of the original Settlement Agreement and Release by (i) eliminating the $10 million Phase VIII Escrow requirement; (ii) paying Raymond James $991,735.54 of the Phase VIII Escrow in exchange for it releasing its rights to the Phase VIII Escrow and its rights to require Phase VIII investors who receive a payment from the Phase VIII Escrow to assign their interest in the Burke Mountain Hotel to Raymond James; and (iii) permitting the Receiver to seek the Court’s authorization to make a distribution of the remaining Phase VIII Escrow to all Phase VIII investors on a pro-rata basis. The reason for this Second Amendment is that the basis for the establishment of the Phase VIII Escrow has changed since the Settlement Agreement was signed and approved.
More specifically, when the Settlement Agreement was entered into, it was anticipated that up to 20 Phase VIII investors may be denied their desired immigration status due to a lack of the requisite number of jobs. Therefore, the Receiver insisted that Raymond James place $10 million in escrow (the “Phase VIII Escrow”) to assure that the Receiver would have sufficient funds on hand to return the original $500,000 investment to those 20 investors. Since that time, however, the United States Citizenship and Immigration Services systematically started denying all investors’ immigration petitions based on its position that the requisite number of jobs had not been achieved for all investors due to the fraud perpetrated prior to the receivership. As a result, at this juncture, potentially all Phase VIII investors (as opposed to 20 or fewer) may be affected, so the Receiver believes it is more appropriate to make a pro-rata distribution to all Phase VIII investors rather than having 20 investors receive one hundred percent of the Phase VIII Escrow while the remaining Phase VIII investors receive nothing from the Phase VIII Escrow.
Under the original Settlement Agreement, any investor that received a payment from the Phase VIII Escrow was required to assign their interest in the Burke Mountain Hotel to Raymond James. There are a total of 121 Phase VIII investors. Therefore, if the Receiver paid the Phase VIII Escrow to 20 investors, Raymond James would have owned approximately 16.5% of the Burke Mountain Hotel (20/121 = 16.5289%). To date, the Receiver has received one unsolicited offer for the Burke Mountain Hotel of $6 million. 16.5289% of $6 million is $991,735.54.
Therefore, to compensate Raymond James for the Receiver’s use of the Phase VIII Escrow for all investors, the Receiver and Raymond James have agreed that the Receiver would pay Raymond James $991,735.54 of the Phase VIII Escrow rather than having each investor assign 15% of their ownership interest in the Burke Mountain Hotel to Raymond James. The net economic effect to Raymond James and the Receivership Estate is the same; the benefit is that it will dispense with an inordinate amount of paperwork while at the same time eliminating Raymond James’s contingent rights in the Phase VIII Escrow and Burke partnership..1 The Receiver plans to seek authorization to make an immediate pro-rata distribution of the remaining Phase VIII Escrow to all Phase VIII investors who hold an interest in the Burke Mountain Hotel.
Sources: Miami, FL. Jay Peak Receiver. Montpelier, VT. Vermont Department of Financial Regulation website. 6.4.2021