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.
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.
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.”
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.
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.