Courts & Corrections

Deposition details Stenger’s role in alleged fraud

Bill Stenger
Bill Stenger outside the Stateside Hotel at Jay Peak in September 2013. File photo by Hilary Niles/VTDigger

The CEO and president of Jay Peak is expected to reach a settlement with the Securities and Exchange Commission in the next few weeks, according to court filings.

If Bill Stenger makes a deal with federal regulators, the focus of the legal action in state and federal courts will shift away from his role in the EB-5 scandal and toward the alleged fraudulent activities of his partner, Miami businessman Ariel Quiros.

Much of what has been brought to light in the public record at the U.S. District Court in Miami has already focused largely on accusations by the SEC against Quiros. That’s because the Miami businessman is fighting the SEC’s allegations. Stenger, on the other hand, has been cooperating with the SEC, and his involvement in the fraud has not been fully explained. He largely avoided the spotlight in federal district court when SEC litigators brought their case against the two Jay Peak developers in documents and hearings about the alleged misuse of immigrant investor money in six development projects at Jay Peak Resort and a biomedical center in Newport.

As general partner for the limited partnerships with immigrant investors, Stenger had a fiduciary duty to protect the interests of the investors, but a deposition with the SEC shows the Jay Peak CEO was directly involved in actions that put investor funds at risk.

The fraud allegedly began when Quiros purchased Jay Peak resort in June 2008 using investor funds. A week after the closing, Stenger wired money from an investor account to Q Resorts, a Quiros company, despite requirements that the funds be held in escrow, documents show. Stenger was also aware, according to his testimony with the SEC, that his business partner leveraged tens of millions of dollars in margin loans against investor funds.

Stenger and Quiros have been accused of defrauding 700 investors from 74 countries and misusing $200 million of $350 million in investor funds. Quiros has also been charged with stealing $55 million that was supposed to be used for the development of Jay Peak and AnC Bio Vermont, a biomedical facility that the SEC has deemed “nearly a complete fraud.”

A state lawsuit against the two Jay Peak developers says Quiros “masterminded” the scheme “with substantial assistance from Stenger.” Stenger was the front man who persuaded foreign investors that the Jay Peak projects were a good investment. Investor money flowed through 100 bank accounts and 26 entities, the state alleges. Stenger collected money from immigrant investors and transferred it to Quiros, who invested the money in Treasury bills and then took out margin loans against the accounts, according to the SEC. From 2009 to 2012, Quiros used more than $100 million as collateral for loans, the SEC says.

The investors believed their money was held in escrow, and Stenger never made them aware of the financial transactions. All the while, Stenger continued to make “materially false statements,” the SEC says, to solicit new investors to the projects right up until the SEC brought charges. Stenger and Quiros have been charged with 52 counts of fraud in the SEC case and 15 counts in the state case.

The SEC alleges that the fraud started in June 2008 when Quiros bought the Jay Peak Resort. The lawsuit details how Quiros tapped investor funds for the purchase within minutes of the closing. The money was supposed to be used for the Hotel Jay and Tram Haus projects. Instead, Quiros and Stenger allegedly used money from new investors to build the two hotels, and over a six-year period finished five out of seven projects in what the SEC termed a “Ponzi-like” scheme.

The Miami businessman told the SEC when Stenger found out how he financed the Jay Peak purchase he “went crazy.” But Quiros also said repeatedly that Stenger was aware of the details of what he was doing with the investor funds. He said Stenger regularly initiated or approved financial transfers of investor funds to Quiros’ myriad accounts, which all served as collateral for loans and his main account.

Quiros maintains his innocence.

Stenger has also said he is “confident” he will be “cleared of wrongdoing.” He began cooperating with the SEC when the feds brought charges in April, and, over the past few months, he has continued to be a fixture at the resort. Stenger shows up to work every day, lives in a condo at the ski area and continues to drive his signature company car, an Audi.

But when Stenger first talked with the SEC on May 21, 2014, he wasn’t forthcoming, records show. In daylong testimony under oath with SEC investigators, Stenger repeatedly said he didn’t recall specifics about the financials at the resort; he failed to recognize documents he had signed or authored; and he contended that Quiros handled the finances for the EB-5 projects. David Gordon, the attorney who now represents Quiros, was present at Stenger’s hearing with the SEC in Miami.

Stenger told investigators, for example, that he was “not familiar with any kind of margin loan account.”

But Stenger’s deposition, submitted by the SEC as part of court records, shows he actively facilitated or allowed the alleged fraud to occur in the following ways:

— Stenger helped to execute a land deal for $3.15 million that was resold with no improvements to investors for $6 million. The SEC cites the profitable real estate flip as an example of self-dealing.

— Stenger reviewed bank statements and was aware Quiros was taking out margin loans against investor funds.

— A week after the closing on Jay Peak Resort, Stenger directly wired money from a limited partnership account that was supposed to be held in escrow at People’s United Bank to a business account for Q Resorts held by Quiros at the financial services firm Raymond James Associates.

— SEC investigators pointed to evidence that Stenger gave Quiros custody of the funds for the Stateside development at Jay Peak. Contractors for the project walked off the job last summer when Quiros ran out of money to pay them.

— Stenger was warned by an accountant that as general partner of the limited partnerships with investors, he had a fiduciary duty to protect investors’ money. Instead, the Jay Peak CEO ceded control of the accounts to Quiros, who allegedly stole and misused investor funds.

What Stenger knew when

Stenger told SEC investigators that he was responsible for “quarterbacking the outreach” with investors and paying construction bills, while Quiros was the “quarterback” of the financial team. Stenger said he was authorized to sign checks for the partnership accounts at People’s United Bank and sent funds to accounts controlled by Quiros at Raymond James Associates, based in Florida.

“I would participate in the creation of the movement of funds to pay bills and monitor that, yeah,” Stenger said. “I participate in them. I — my, my partner, Ariel Quiros, is also involved in the financial structure and apparatus of our organization.”

A major part of that structure featured frequent transfers of investor funds from People’s to Raymond James. Stenger explained that the partnership funds were initially held in escrow at People’s, then wired to accounts held by Quiros at Raymond James, which Quiros invested in Treasury bills. When the resort needed money for projects, the T-bills would be sold and the proceeds would be transferred back to the People’s account, Stenger explained to the SEC.

Quiros and Stenger allegedly started using this complicated flow of money to purchase Jay Peak Resort in 2008 with investor money. The day of the closing, however, Stenger says he was in Vancouver, British Columbia, promoting the Hotel Jay project at a conference with the American Immigration Lawyers Association. The final purchase of the resort from the Canadian owners, Mont Saint Saveur International, was finalized by attorneys.

Ariel Quiros
Ariel Quiros at a groundbreaking for AnC Bio Vermont in May 2015. Photo by Anne Galloway/VTDigger

Quiros had access to capital at Raymond James “that was going to help us be able to do the closing,” Stenger said. “And, you know, that was the basis of things.”

When asked if he had any knowledge of the transfers of funds from Q Resorts to MSSI, Stenger replied, “I’m sure it came from the Raymond James accounts that (Quiros) had control over.”

The litigator asked, “And why are you sure of that?”

Stenger replied that all of Quiros’ banking was at Raymond James, and it was because of his relationship with the financial services firm that they were able to launch ambitious construction projects at the height of the Great Recession. The SEC later revealed that at the center of that relationship was Quiros’ former son-in-law, Joel Burstein, the manager of the Coral Gables branch of Raymond James, who facilitated transactions in which Quiros obtained margin loans against investor funds held in Treasury bills. (Raymond James reached a $5.95 million settlement with the state of Vermont earlier this month for “noncompliance” with state securities laws. The financial services firm did not admit to any wrongdoing associated with the Quiros transactions.)

“In 2008, no one had a substantive banking relationship,” Stenger said. “He had one. He had a substantive relationship with Raymond James, and were it not for that relationship I don’t think we could have succeeded or survived. We would have failed like a lot of companies failed in that era.”

Stenger said he believed Quiros used his own money to purchase the resort. When the SEC asked Stenger what evidence Quiros had shown of “his personal wealth,” Stenger replied, “You know I never asked him to show me that because, you know, I just — you know, I have a certain amount of just trust that, you know, he was going to be able to pull it together, and I had no reason to doubt that.”

One of the investigators asked if any of the investor money was used as collateral to purchase the resort on June 23, 2008. Stenger told the SEC, “I don’t know. You said could the. (sic) I don’t know — could — does could mean they were or does could mean they could? I don’t know if they could have been used.”

Later, he told the SEC that using someone else’s money “that I don’t have a right to, I mean, obviously, that wouldn’t be the right approach.”

Jay Peak: Tram Haus Lodge
Jay Peak’s Tram Haus Lodge.

The SEC then showed Stenger a bank receipt for a $600,000 wire transfer on July 1, 2008, from the Hotel Jay escrow account at People’s to an account held by Q Resorts at Raymond James. The transfer was made eight days after the purchase of Jay Peak Resort.

“I’m the one who initiated the wire, because, yeah that’s my signature, but I don’t recall the purpose or the particulars of what was — what was involved,” Stenger said.

Stenger downplayed the significance of the SEC’s implication that investor money was used to purchase the resort and fingered Quiros. “The project got built, and we accomplished an incredible task of buying a resort in 2008, investing and building a magnificent hotel and another magnificent hotel. And the exact account or how it was formulated, you should ask him specifically,” Stenger said.

Stenger also denied having seen any margin loan activity in spite of the fact that he reviewed bank statements showing the loans. “I didn’t get involved in that aspect of our operation,” he told the SEC. “I’ve heard the term ‘margin loan’ thrown around. I don’t know if that had anything to do with this transaction. I don’t.”

The SEC referred to a memo from former accountant Mike Dupont to Stenger. Dupont complained in an email on Jan. 27, 2009, that he hadn’t been able to get bank statements from Quiros starting in August 2008 in order to reconcile the accounts. Stenger said he didn’t remember the conversation the email referred to and that they were operating at a “very high rate of speed.”

Stenger said the statements were faxed to him directly so he could review them before he gave them to Dupont.

Dupont referred to a shortfall in the accounts and pointed out the statements showed “ready access margin loans” had been taken out against the investor funds, and said, “I have no idea as to what they pertain to.”

The SEC pointed out that Stenger had said he didn’t recall any conversation about margin loans. “Any specific recollection now that you’ve seen this email as far as … margin loans?”

“Well, he’s identifying a line item in the statement, and that is clearly, you know, stated here. No doubt. It’s listed there,” Stenger said. “This looks like it was — I have familiarity with the Raymond James statements and this does appear to be the typeface that they use, so I suspect it was put together. So — but I don’t — I don’t know more.”

Investigators then pressed Stenger about a discussion Dupont referred to in an email about whether investor money was used as collateral. Stenger said he had “no recollection,” and that he and Dupont had daily conversations about “a host of things” but that everyone was very busy with operations at the resort in what he described as a “tornado of activity.”

Quiros, from 2009 to 2012, leveraged $105 million in investor funds for margin loans, according to the SEC lawsuit.

Jay Peak: Hotel Jay Conference Center
Hotel Jay Conference Center. VTDigger photo

Dupont reminded Stenger about a conversation in which he explained “it is not appropriate” for Quiros to control the accounts because he wasn’t the general partner. Stenger again said he didn’t recall the conversation.

Dupont left later that year. His replacement, accountant John Carpenter, described a similar pattern in a deposition with the SEC. Carpenter said he didn’t get bank statements in a timely way either, and when he did, he realized the developers were commingling funds and using money from new investors to pay for previous projects and for operating expenses at the resort.

Carpenter, too, raised alarms, but was ignored by Stenger. The accountant left in March 2011.

The pattern of dodge and delay established by Stenger continued right up until the federal government charged Stenger and Quiros with fraud on April 12.

The two developers refused to respond to requests for financial documentation for eight years.

The state never audited the projects as advertised by Gov. Peter Shumlin in a 2013 video used to promote the projects overseas. When the Vermont Regional EB-5 Center, which was supposed to monitor the developments, finally did ask for financial information in 2014, Stenger balked and found ways to circumvent the requests. He used the same tactics to put off the Tram Haus investors who raised questions about the Jay Peak finances over a nearly two-year period.

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Anne Galloway

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  • David Pardo

    “Oh, what a tangled web we weave…” Crooked dealings have been around for ever. The most troubling statement i see is in the last paragraph. Where was the oversight by the state that was promised?

  • Shumlin and others knew of this and is as guilty as Stenger And Quiros, looks like to me. Will they answer to the law and depositions also?

    • Mr. Sweatt: Likely not. Our system of justice is rigged which is why white collar criminals are on the loose in Vermont. United States Attorney Eric Miller is in the pocket of Sen. Patrick Leahy who nominated him to be our top federal prosecutor and is very close to Gov. Shumlin as Mrs. Miller worked for Governor Shumlin. Mrs. Miller is now becoming a prominent fundraiser for Sen. Leahy(!). Federal prosecutors don’t actually enforce the law but rather “selectively” enforce it just as the media “selectively” reports the news. You would never know that two large criminal fraud investigations are underway in Vermont though the EB-5 matter is the only one being continually reported. The fraud investigation of The Brattleboro Retreat approaches a full year and little focus by any media is being spent on the “allegations” which include the theft of hundreds of patients who were denied refunds of their patient credit balances for a decade. Indeed, our rigged justices system is brought home by the fact that Vermont imprisons those with mental health and substance abuse (often with inadequate care) while those who steal from the same population are allowed to escape justice.

      Thomas Joseph
      http://www.brattlebororetreat.info
      Twitter: relator_joseph

  • Pete Novick

    Here are two links, one to the basic federal conspiracy statute, and the other a recent Congressional Research Service (CRS) report on federal conspiracy laws. Both are worth your time.

    18 U.S. Code § 371 – Conspiracy to commit offense or to defraud United States

    https://www.law.cornell.edu/uscode/text/18/371

    Federal Conspiracy Law: A Brief Overview

    https://www.fas.org/sgp/crs/misc/R41223.pdf

    (Note: The CRS, a branch of the Library of Congress prepares research papers as requested by members of Congress. These reports, while not public, often find their way onto the internet where the rest of us poor fools can read them. Over many years of reading them, I can tell you, CRS reports are absolutely the most professionally written, non-partisan documents you can read to “get smart” on an issue.)

    Why didn’t the US Department of Justice go after Stenger and Quiros with a criminal indictment? Surely a grand jury, hearing testimony in secret regarding the activities of these two men, would have found evidence of a criminal conspiracy.

    I am not a lawyer, and this question has intrigued me since I read the SEC complaint earlier this year.

    Cheers

  • William Geller

    Nothing about this looks or sounds legit by all parties . It is hard for me (no knowledge of legalism) to think any kind of settlement is the answer , seems to be fraud by Stenger, Quiros, with major help and even more fraud by Raymond James and complete lack of over site by the state. My conclusion Raymond James = huge fine and shut down & jail time ( they are supposed to be financial experts) . The principals loss of assets some jail time. The state new administration and and hopefully new executives that are not afraid to speak out publicly when they are aware of problems in projects ( there is no way some state employees did not smell big problems }.

  • Anne: Thanks for the great reporting on the Jay Peak fiasco. It is clearly written and understandable. Based upon your reporting I personally feel that Quiros and Stenger
    should spend some time incarcerated in prison and fined.
    John M Farrell

  • John Germaine

    How does someone not remember what a $600,000 wire transfer is for? How does someone not remember a conversation about whether investor money was used for collateral? Stenger was just as much responsible for stealing investors money as Quiros is. It makes me sick to think he thought this was okay to do. Stenger has ruined thousands of people’s lives and needs to be held accountable.

  • Kim Fried

    Are we or are we not going to see some accountability for the involvement of our ethically stressed Politian’s and the Shumlin administration for their involvement in this illegal scheme? The developers and contractors are being punished but Shumlin and his political incompetents walk free???? Only in Vermont, land of high ethics.

  • Joe Perry

    Aaah, the classic Sergeant Schultz excuse, and the bad part about this all is NO ONE in the state government is being held responsible or investigated for the GROSS mismanagement of this fiasco. Why is there no uproar on the upcoming lawsuit that the State will lose due to negligence? Remember, we the taxpayers will pay for all this in increased fees and taxes, anyone who thinks otherwise, I have a bridge to sell you in NYC.

  • victor ialeggo

    “The state never audited the projects as advertised by Gov. Peter Shumlin in a 2013 video used to promote the projects overseas.”

    wow, truth in advertising. Were Q&S scamming the governor as well as investors? Is it possible Shumlin had any idea of the inaccuracy of his statements which making his sales pitch?

    and, incidentally, is it odd that Moulton was just appointed as president of VTC, site of another fairly recent financial meltdown which required outside intervention?

    • Jamie Carter

      “Is it possible Shumlin had any idea of the inaccuracy of his statements which making his sales pitch?”

      Do you suppose him requesting emails deleted a week before the story broke was a coincidence?

      “incidentally, is it odd that Moulton was just appointed as president of VTC,”

      Is it coincidence that Donegran retired and Moulton found another job?

      Lots of coincidences usually indicates it wasn’t a coincidence at all.

    • Richard M Roderick

      As a VTC alumni — Moulton at the helm of VTC scares me. But I am not surprised, She was appointed by Jeb Spaulding who thought renaming Castleton State – Castleton University was a good idea and would transform Castleton. Instead of unifying the State college system it divided it and created a US vs Them atmosphere. Johnson and Lyndon are merging administrations but Castleton isn’t part of it. ( I didn’t include VTC in the merger because, VTC already has several campuses and nursing sites around the state, and it’s mission has a different focus than the State colleges.)

      VTC is emerging out of tough financial times, I hope it doesn’t slide backward again. Philip Conroy, President before Dan Smith, is blamed for VTC financial crisis but where were the VT State College trustees during all of this.

  • victor ialeggo

    “while” not “which.”
    edit function? please?

  • John Freitag

    “The state never audited the projects as advertised by Gov. Peter Shumlin in a 2013 video used to promote the projects oversees”.
    What responsibility, legal or moral does Peter Shumlin bear? Has he ever admitted his complicity and/or incompetence in this sad affair?

  • Another question is why the state and feds never questioned or audited the use of EB-5 money starting with the original purchase in 2008 and the compounding the problem latter on? Purchasing a ski area is not an everyday event. This was a major high profile project in the state, and not something that could easily fly under the radar. It would seem there was inexcusable gross negligence at the very least.

  • Robert bonnell

    This obviously will not end well for anybody in the end you will see the state facing a billion dollar law suit …it is hard to believe that they continued to let S raise money when they knew it was a Ponzi scheme …..where o where did all the money go …the harm that has been done to the area ..the state …every politician in Montpelier should resign and never be allowed to seek elected office again

  • Dave Fortin

    Once again. A rich guy does something that the rest of us would go to prison for. He just has to write a check.

    • walter moses

      I agree, but beside the money he has been hugged by lots of politicians that considered him a golden boy. He is “connected”. Shumlin, Leahy, Sanders, Welch…………….

  • This is why billy wants a plea deal because he knows he was guilty!! He is being treated different because of his relationship with Leahy, they don’t want him exposed too. Why no e-mails would be released! Bill had lots of conversations with him on his projects, trade free zone for ANC bio in Newport….. Seeking help to push through the FDA approvals for ANC bio. Which were never even started even though the memorandum states they were awaiting approval.
    Oh ya that great land deal buying for 3.5 million and selling for 6 million, when the state was paying for the IT and Newport city for sewer. Why did they deserve that much money and retain around 15 acres after selling it for double the cost. Which billy was on both sides of the deal, buyer for JPI and seller to ANC bio, plus he was not sure how they determined it to be worth 6 million he told the SEC.. Just for the trade free zone.
    Anne can you tell us if they really got the proper documents for this or is this billy just spewing out his mouth again?
    So much mis-leading information on so many levels!!!
    Somehow he can’t remember why he signed that paper… But could recall the meeting with Douglas Hulme, Arie, George G, Mr. Kelly about why Douglas wanted to see changes in accounting practices to great detail even though it was years before some of his signed docs he could not recall.. Only remembering what he wants too. Come on now and we are still paying this guy to be a part of Jay Peak. No wonder that place is running into the ground. Goldberg please step up and re organize jay. Time to make it right for all those hard working employees. Not the protected ones in stengers inner circle receiving preferential treatment gas, cars, food. If we keep this conversation going something will come of it.

  • William Hays

    Ariel Quiros, and the current Shumlin administration: beware oncoming Greyhound buses! NEK school buses, too!

  • christopher hamilton

    That is some outstanding journalism, there.
    A sordid tale that will continue to unfold.
    The question will eventually be “What did (insert politician name) know about the financial shenanigans and when did they know it?”

  • Michael C. Vinton

    Ms Moulton and Stenger have a history, they should be given cells beside eacj other. Shumlin used his office to puta buffer between the thiefs and the regulators.

  • Darlene Rondeau

    Stenger had Shumin in his right pocket. He gave Shumlin money for his campaign to keep the EB-5 program going.

  • Funny how this “Great Business Man”, “Man of the People”, Savior of the NEK, has no memory until you show him the ole black & white.

    -Stenger repeatedly said he didn’t recall specifics about the financials at the resort
    -Stenger had said he didn’t recall any conversation about margin loans.
    – but I don’t recall the purpose or the particulars of what was — what was involved,” Stenger said.
    -Carpenter, too, raised alarms, but was ignored by Stenger.
    -Stenger balked and found ways to circumvent the requests
    -same tactics to put off the Tram Haus investors
    -Stenger said he had “no recollection,”

    I submit Stenger sounds more and more like some of the Politicians we’ve all heard under oath……the Rich and the Ruling Class (unholy Siamese Twins) are allowed to be sneaky, forgetful, and tell those little white lies..

  • Steve Merrill

    WHY is Stenger STILL there, much less getting a $2,000 a week paycheck? Why has Goldberg kept him there? Or does he get paid by “Leisure Resorts” on Goldberg’s approval? If the state KNEW and kept the fraud alive until “completion”, then aren’t THEY liable too? We wait and wonder why, and the perp keeps his high-paying “job”? OK THEN!! SM, N.Troy.

    • Jon Kliegman

      So the crooks will talk their way out of financial responsibility, the pols will look the other way and say “What? I never knew…….”
      My father was an attorney and spent many a morning whilst shaving to explain why I shouldn’t follow in his tracks. The upshot was “EVERYBODY LIES!”
      I have been coming and staying at Jay for the last 7 or 8 years and I LOVE IT. I have not yet made reservations for the 2016-2017 season, however, and won’t until I see some progress in the management of the resort.
      Will someone please tell me who now has operational responsibility for Jay Peak Resort?
      And the basis for their appointment?

  • Steve Beck

    I will never forget sitting in a meeting in Newport, VT hearing all about the amazing development that was going to occur in the NEK. And then going on a walking tour of Newport and learning about all the amazing things that were going to happen to that city. And quietly thinking to myself, really?

  • Business is much like firefighting, as I have many years in both…and when’s there’s smoke, there’s fire – and it often takes peeling back several layers to get to the source before you can remedy the problem. Good thing this wasn’t arson where less the 10% are actually ever caught, so it’s especially great that investors pulled the alarm before the whole resort went up!

  • Glenda Nye

    Just like George Soros has the title of “the man that almost broke the bank of England,” you Bill Stenger have a Scarlet Letter “T” for thief and the title “Stenger, the man that broke the back of the NEK.”

  • Linda Quackenbush

    VT has the largest USCIS in the US~Sen Leahy is a BIG advocate of EB-5. In 2015 the EB-5 program was cited to be closed by Senator Chuck Grassley but Senator Leahy vehemently opposed the closure saying it could survive by being “reformed”. It makes you wonder if he was getting kickbacks~