Legal problems for Raymond James Financial Inc. are mounting in the fallout over the financing of a failed ski resort and real estate project in Vermont.
Last month, the Securities and Exchange Commission filed a complaint claiming fraud against Ariel Quiros and William Stenger, alleging that they and their companies made false statements and omitted key information while raising more than $350 million from investors to construct ski resort facilities and a biomedical research facility in Vermont. The SEC also froze the assets of the resort and related businesses.
While neither Raymond James nor any of its employees were named as a defendant in the SEC complaint the firm was named in a lawsuit filed last Friday by the SEC-appointed receiver.
Investors were told they were investing in one of several projects connected to Jay Peak Inc., a ski resort operated by Mr. Quiros and Mr. Stenger, and their money would only be used to finance that specific project, according to the SEC. Instead, in the manner of a Ponzi scheme, money from investors in later projects was misappropriated to fund deficits in earlier projects, according to the SEC.
Raymond James & Associates was mentioned throughout the SEC's lawsuit as the firm that received wire transfers beginning in 2008 from a bank in Vermont to brokerage accounts controlled by Mr. Quiros. Those wire transfers were investors' money slated for the Jay Peak resort. Mr. Quiros later borrowed against the money in the Raymond James accounts with high interest margin loans, according to the SEC's complaint.
In its lawsuit, the SEC appointed receiver for Jay Peak, Michael Goldberg, named as defendants Raymond James, Mr. Quiros and Joel Burstein, a Raymond James branch manager for the firm in South Florida. Mr. Burstein is the former son-in-law of Mr. Quiros. The receiver's complaint alleges that Raymond James was involved in the misuse of Jay Peak investor funds.
“Raymond James assisted [Mr.] Quiros and [Jay Peak CEO Mr.] Stenger in stealing and misusing funds of various receivership entities by actively enabling [Mr.] Quiros and [Mr.] Stenger's intricate web of transfer and margin loans to defraud many” of the investors in the limited partnerships used to raise money for Jay Peak, according to the receiver's complaint.
“Through their fraudulent scheme and with the aid of Raymond James, [Mr.] Quiros and [Mr.] Stenger have misused over $200 million and systematically looted $50 million of the more than $350 million that has been raised from hundreds of investors” through an investor program for wealthy foreign nationals who want a green card, called the EB-5 Immigrant Investor Program, the complaint states.
“Raymond James denies the allegations and intends to defend itself vigorously,” said company spokeswoman Anthea Penrose in an email.
A call to Mr. Quiros' attorney, David Gordon, was not returned. Mr. Burstein also did not return a call. Stephanie Anne Casey, a lawyer for Mr. Stenger, did not return a call on Friday to comment.
CLASS ACTION CLAIM?
At the start of the month, a potential class action claim was filed against Raymond James making similar allegations to the receiver's complaint.
“Investors who invested in these limited partnerships, thought they were investing their funds in hotels, cottages, a biomedical research facility and other projects,” according to the receiver's complaint. “In reality, while some of the funds were used for the projects, the majority of the funds were commingled, misused, and diverted to pay for other projects and to cover [Mr.] Quiros' personal expenses.”
“The Jay Peak Limited Partnerships' money was also improperly converted into collateral for loans to [Mr.] Quiros by Raymond James,” according to the complaint. “Raymond James enabled [Mr.] Quiros and [Mr.] Stenger's attempts to disguise the fact that most of the seven projects were either over budget or experiencing shortfalls. In doing so, Raymond James profited from the fraudulent scheme.”
Using investor funds, Mr. Quiros paid nearly $2.5 million in margin interest on loans to Raymond James, according to the complaint.