Category Archives: Securities Fraud

SEC: Ski Resort Operators Abused Immigrant Investor Program (EB-5)

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The SEC recently announced it would pursue fraud charges and freeze the assets of the Jay Peak, Inc. Vermont ski resort. The SEC alleges that Ariel Quiros, of Miami, and William Stenger, of Vermont, conducted an illegal Ponzi-like scheme in connection with the funds raised for the resort. The total amount of money in question with these activities is $350 million, a large portion of which was raised through the EB-5 Immigrant Investor Program, a program designed to incentivize foreign investment by promising a fast track to a green card.

According to the SEC, Quiros and Stenger diverted money from the ski resort project to other projects in an attempt to finance them. In addition, an alleged $50 million was spent on Quiros’s personal expenses, such as his personal income taxes and a luxury condominium. There appears to be little money left to fund the ski resort renovations.

Further, the actions of Quiros and Stenger could put many investors’ funds and immigration petitions in jeopardy. In order to get their green card the investors need to fund at least 10 new jobs, which may not happen here.

Given these charges, it is unclear whether investors who were considering committing capital to U.S. projects under EB-5 will still do so. It is also unclear as to whether this is a continuing problem or isolated incident.

Here’s the link to the SEC news release.  https://www.sec.gov/news/pressrelease/2016-69.html

 

SEC Sues R.I. Agency and Wells Fargo Claiming They Misled Investors in Curt Schilling’s Video Game Company

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The SEC has sued the Rhode Island Economic Development Corporation (RIEDC) and bond underwriter Wells Fargo alleging that RIEDC and Wells Fargo misled bond investors in connection with their investments in Curt Schilling’s failed video game company, 38 Studios. RIEDC had lured 38 Studios to Rhode Island with significant incentives, including the bond deal, only for 38 Studios to fail.

According to the SEC, investors, who poured $75 million into 38 Studios, were not told that it needed substantially more money to produce a video game. In addition, Wells Fargo allegedly failed to disclose that it had a side deal with 38 Studios, which presented a potential conflict of interest. When the company went belly up, the investors were left with the bag. Although neither Schilling nor his company is accused of any wrongdoing in the SEC action, they have been sued civilly.

Municipal finance deals face increased SEC scrutiny. This applies to issuers and underwriters. As SEC Director of Enforcement Andrew Ceresney has stated, “[m]unicipal issuers and underwriters must provide investors with a clear-eyed view of the risks involved in an economic development project being financed through bond offerings.”