Can the state and some employees be sued over the Kingdom Con?

BURLINGTON, Vt. (WCAX) "The system and the state failed them and it's just wrong, just wrong," attorney Russ Barr said.

Barr says the state and 10 employees are partially at fault for his clients getting swindled out of millions of dollars. They were EB-5 foreign investors in the Jay Peak-Northeast Kingdom redevelopment plan. It turned into a con of epic proportions-- the largest fraud case in Vermont history.

"The state promised to administer, manage, oversee the federal and state requirements of this program," Barr said. "And they did none of that."

Barr argues the state and employees working on EB-5 here failed to oversee the projects and ignored red flags about Jay Peak owner Ariel Quiros and Jay Peak President Bill Stenger, accused in the Ponzi-like scheme. So he's suing.

But Vermont Attorney General T.J. Donovan says that suit should be tossed.

"This is a wild goose chase. This is a waste of resources. Let us focus on the case that really matters and that is the state's case against Bill Stenger and Ariel Quiros," said Donovan, D-Vt. Attorney General.

The AG argues there are no allegations of fraud against the state and state employees, so they're immune from the suit under a law that protects them.

"So take away that issue of immunity and you will effectively shut down government. Nobody will work for government, nobody will make a decision for government for fear of being sued. This is what's at stake in this case," Donovan said.

One of those people named in the suit is Vermont Financial Regulation Commissioner Michael Pieciak.

"There is going to be a very thorough and detailed review of everyone's participation in the EB-5 alleged fraud, including state actors, private developers, including third parties. So, there is a process in place that will get to the truth," Pieciak said.

Former Democratic Vermont Gov. Peter Shumlin admits he, too, was initially duped. But Shumlin says the state's response once the con was uncovered was fast and thorough.

"The EB-5 program, we sometimes forget, is overseen by the federal government, not the state government. So, I actually think Vermont did a really good job in responding when we smelled the rat," Shumlin said.

Vermont's current governor says a special prosecutor could be called in to deal with this case, but for now, he's relying on the attorney general to defend Vermont and its employees.

"We could still use utilize that at our disposal but at this point in time I'm relying on his expertise to bring us through this," said Gov. Phil Scott, R-Vermont.

Barr argues the state should be under the microscope.

"For the sake of transparency and the credibility of our government, this motion has to fail," Barr said.

He says the same group charged with regulating EB-5 also promoted it and tried to get even more investors before the scandal.

"They traveled lavishly. They promoted, they aided and abetted the sale of securities all over the world," Barr said. "Why is there no investigation into state employees working part and parcel with Quiros and Stenger? Those two gentlemen did not do this on their own."

Reporter Darren Perron: Some have wondered in the wake of all this if the EB-5 center was sort of double dipping here, playing both hands in that here they are trying to regulate and watch over the EB-5 program, yet at the same time, promote it and get more investors into the state of Vermont.

Attorney General T.J. Donovan: We can have a debate whether it was a bad thing or run well or not, that is fine. But when you talk about alleging fraud, you can't make this general complaint and throw it against the wall and see what sticks. What are the facts? Facts matter here.

In August, the feds notified the state there are plans to close the regional EB-5 center in the wake of the Jay Peak fraud. The state wants a gradual winddown so as to not jeopardize projects still in the works here.