Catch of the Week: Second Conspirator Pleads Guilty in Jay Peak EB-5 Fraud Case
William Kelly pleaded guilty to two felony charges in connection with EB-5 securities fraud in the development of the Jay Peak Biomedical Research Park, also called the AnC Vermont project. Kelly, who served as the chief operating officer for the project, was a long-time advisor to project owner Ariel Quiros, who previously pleaded guilty to related charges. Co-defendant William Stenger, the project’s CEO, pleaded not guilty and awaits trial; co-defendant Jong Weon (Alex) Choi remains at large.
The EB-5 visa program provides foreign investors with the opportunity to obtain lawful permanent residence status in the U.S. in exchange for making investments above specified amounts in ventures that create more than a specified number of U.S. jobs. Unfortunately, the EB-5 program has also proven to be a fertile hunting ground for fraudsters. The government says Kelly and his co-defendants exploited the EB-5 program and engaged in a multi-year wire fraud scheme to defraud immigrant investors seeking green cards.
The AnC Vermont project was designed to raise $110 million from 220 immigrant investors in order to construct and operate a biotechnology facility in Newport, Vermont. EB-5 immigrant investors could qualify for permanent resident status by investing $500,000 in a commercial enterprise approved by the Vermont EB-5 Regional Center. Under the program, each investor needed to demonstrate that his or her investment had created, or would soon create, ten jobs.
The government says Kelly and his co-defendants engaged in a multi-year wire fraud scheme to defraud immigrant investors seeking green cards through the EB-5 program. Kelly admitted that he and his co-conspirators misled AnC Vermont investors about how investor funds would be used, about how many jobs would be created by the project, and about the timeline for this job creation. Kelly admitted the jobs report for the project was directly based on hiring and financial projections generated by Kelly, Choi, and Stenger and that no one had assessed whether the purported financial projections in the project’s business plan were reasonable.
From 2012 to 2016, 169 hopeful immigrant investors invested approximately $85 million in the AnC Vermont project, in addition to paying $8 million in “administrative fees.” Those funds were not, however, used as promised. Instead, over $50 million in investor funds was spent on Quiros’ personal expenses and in other undisclosed ways.
In addition to the criminal charges against Kelly and his co-defendants, in 2017, the government reached a $150 million civil settlement with Raymond James Financial Inc., based on allegations that a Raymond James employee, at the direction of Quiros, inappropriately transferred investment funds to buy Jay Peak, failed to adequately supervise its employees, and did not follow its own supervisory procedures.
Status of Criminal Investigation
Kelly agreed to cooperate in the government’s ongoing matters and the court agreed to cap Kelly’s jail sentence at 36 months, so long as he abides by the terms of the agreement. Co-defendant Quiros pleaded guilty in August 2020 and currently awaits sentencing. Stenger’s trial is set for October 2021. Choi is likely to face trial once he is located or voluntarily comes forward.
SEC investigations, often overlap with criminal proceedings, and the SEC emphasizes that it works cooperatively with criminal authorities to share information and coordinate investigations. Civil and criminal enforcement authorities have different investigative tools available, and different abilities to share information. The SEC, for example, can subpoena records and depose witnesses. On the criminal side, DOJ and the FBI can issue search warrants, conduct raids, or convene a grand jury. While enforcement authorities can generally share information, if there is a grand jury investigation, that information sharing can be limited.
While parallel investigations often are conducted at the same time, it is not uncommon for one track to take precedence while the other stays. For whistleblowers reporting wrongdoing, it can be gratifying to know criminal authorities are investigating. However, whistleblowers can expect to receive little information about criminal investigations, even where their information is used in support of those investigations.
Report EB-5 Investment Fraud
Individuals with knowledge of fraudulent EB-5 investment schemes can submit a claim to the SEC Whistleblower Program. Whistleblowers may receive up to 30% of any government recovery resulting from their tip.
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