Judge dismisses EB-5 investor lawsuit against state

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HYDE PARK — A superior court judge dismissed an EB-5 investor case against the state Friday that alleged officials were negligent and violated state and federal securities laws.

Lamoille County Superior Judge Thomas Carlson ruled that the state is not responsible for harm caused to investors by the fraud at Jay Peak Resort. Ten state officials and two agencies named in the lawsuit are immune from claims made by the investor plaintiffs in the case, Carlson said in court documents filed Friday in Hyde Park.

While Carlson recognized "the scale of the alleged harm done to investors" as a result of the $200 million fraud at Jay Peak Resort under the auspices of the state-run Vermont EB-5 Regional Center, he says the five investors in the case have recouped their losses through a lawsuit brought by the receiver in the Jay Peak case. The developers, former CEO Bill Stenger and former owner Ariel Quiros, have settled with federal regulators, but still face an ongoing legal battle in state court.

"It is easy to see that the hundreds of millions of dollars of investment that caused such promise and excitement for Vermont's economically struggling Northeast Kingdom would prove to be an all-too tempting pile of money for one or more of the players," Carlson wrote.

But while the plaintiffs alleged that state employees received favors from Jay Peak, such as ski passes and travel, Carlson said "it is important to note that this case is not about state employees diverting, stealing or otherwise taking investor funds for personal use."

The question, he writes, is whether the state and state officials "can be held financially responsible for promoting, facilitating and then failing to sooner subdue what came to be a monster of promise gone bad."

Citing the state's absolute immunity from third party civil claims, Carlson ruled against all 16 counts brought by Barr Law Group of Stowe, which represented five investors, including Tony Sutton, a British investor, in the case. The counts included negligence, fraud, willful misconduct, breach of fiduciary duty and breach of contract.

Michael Pieciak, the commissioner of the Department of Financial Regulation and a defendant in the lawsuit, said the plaintiffs could appeal, "but I think if you look at the judge's detailed and thorough analysis it doesn't look like that would have much success."

"I don't see anything that wasn't in our favor Then on top of that, the judge appeared to cast great skepticism on the underlying merits of Mr. Sutton's allegations as well, so a total win from that perspective for the state," Pieciak said in an interview. "It certainly allows us to focus on the continued efforts of cleaning up the situation that was left by the defendants in the case, Mr. Quiros and Mr. Stenger."

Pieciak said he had "a good sense that there was nothing that had been done to the level that was described by Mr. Barr and Mr. Sutton."

He described the eight-year period of inadequate state oversight as "a breakdown in structure, a breakdown in resources, a breakdown in authority, but that there weren't individuals that were corrupt, or individuals that were complicit in what was going on at Jay Peak, the true culprits and perpetrators of the alleged fraud were Mr. Quiros and Mr, Stenger."

Russell Barr, of Barr Law Group, said in a statement that the investor lawsuit is "the first step in our pursuit of justice."

"Inconceivably, there has been no investigation of the state employees directly involved in this decade long half billion dollar Ponzi-scheme," Barr said. "Our clients invested in Vermont's program because the Defendants promised, in writing, the state government would properly manage and oversee their investments. Obviously those promises were false."

Barr said the ruling ignores the "wrongdoing" of state officials, which is not "only damaging to our clients but immeasurably damaging to anyone who cares about the reputation of our state, the integrity of our government, the economic viability of our region and the fundamental democratic values we as a country strive to achieve."

"We will persevere until the truth is revealed," Barr said. "This massive fraud was not perpetrated by just one or two people, there was direct and complicit activity up to the highest level of the government and this will come out. This is round one."

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