After criminal cases against the alleged ringleaders and a massive settlement by a rival wealth manager, Merrill Lynch has reached an agreement to resolve its part in a giant investment scheme involving a Vermont ski resort.
The wirehouse agreed to pay $4.5 million to settle a case from the Vermont Department of Financial Regulation and any client claims stemming from the hundreds of millions of dollars raised from foreign investors through the federal EB-5 Program for the Jay Peak Resort,related projects at a nearby ski slope and biomedical research facilities. An SEC-appointed receiver, Michael Goldberg, filed the
Raymond James will get $2.1 million of the settlement from its competitor if it receives approval in court. Raymond James settled its own case with Jay Peak investors in
“There were red flags that should have been picked up a lot earlier in the process,” said Michael Pieciak, commissioner of the state Department of Financial Regulation.
In an interview, he described the allegations against Raymond James as similar to other financial firms but “the most egregious” of any of the brokerages due to the length of time involved and the family connection. The firms didn’t follow their own supervisory procedures for investigating suspicious transactions, Pieciak said. “Had they done that sooner, our contention is they would have put a stop to the fraud sooner,” he added.
Representatives for Merrill Lynch declined to comment. In the motion for settlement, Goldberg cites the firm’s stance on any allegations of liability as a reason for striking the deal.
“Merrill denies any wrongdoing whatsoever with respect to its handling of the brokerage accounts or its interactions with the various receivership entities,” Goldberg wrote, noting the firm’s intention to “vigorously defend” itself against any cases.
The legal publication Law360 first
The parties have been negotiating the Merrill Lynch agreement for nearly two years, according to the filing. They engaged in full-day sessions before a mediator in February 2020 and in the fall. Goldberg’s team “has diligently investigated all claims he believes he could have brought against Merril,” he wrote in a section about facts supporting the settlement.
“The receiver’s potential claims against Merrill involved disputed facts that would require substantial time and expense to litigate, with significant uncertainty as to the outcome of such litigation and any ensuing appeal,” Goldberg added in the filing. “Merrill was represented by experienced counsel at a well-known national firm that repeatedly advised the receiver that he would not prevail on his potential claims as a matter of law.”
Under the proposed settlement, the receiver and other attorneys will receive a fee of nearly $1.2 million after contributing $400,000 out of their payment to the receivership estate for victims’ restitution. In lieu of collecting a penalty of $500,000 from Merrill Lynch, Vermont regulators agreed to provide the money to the receiver for the payouts to victims as well. The receivership estate would get just over $1.2 million under the agreement.
The terms of the earlier settlement by Raymond James dictated that the firm would receive a significant portion of future agreements with other third parties. Its payment enabled the receiver to pay contractors and other vendors owed money by the resort, along with the first restitution to about 800 investors worldwide who purchased more than $350 million in notes tied to Jay Peak and the other projects as part of the EB-5 immigration program. In June, a law firm that worked with Quiros
Quiros, former Jay Peak CEO William Stenger and a third alleged conspirator, William Kelly, have all pleaded guilty to criminal charges in connection with the case,
About a quarter of the investors have received restitution so far, according to Pieciak, who noted that hundreds more will receive payments through the proceeds of the estate’s eventual sale of Jay Peak and a hotel located nearby in the state’s Northeast Kingdom. The scheme displayed “the need for reforms” of the EB-5 program, harmed hundreds of investors seeking to come to the U.S. and left the rural area in Northern Vermont without a lot of expected jobs, Pieciak said.
“It’s not so much the impact of the projects, it's the projects that were promised that were never built,” Pieciak said. “If they had run their investments in a way that was in compliance with the law, they very well may have been successful in some of the goals they were trying to achieve in terms of the economic development of the region. That is certainly a tragedy.”
