[T]he former owner of Jay Peak Resort who was the mastermind of a “Ponzi-like” scheme in the Northeast Kingdom has agreed to pay back $81 million as part of a settlement with the government.
Ariel Quiros, a Miami businessman, allegedly misused more than $50 million in EB-5 investor funds for personal expenses and to purchase a ski resort. He has been ordered to pay back another $30 million for two projects that were never completed. In addition, the Securities and Exchange Commission levied a $1 million penalty against Quiros.
Quiros was also ordered to pay prejudgment interest of $2,515,798, resulting in a total judgment of $83,859,964. The SEC is also asking the judge to approve a “Fair Fund” to allow the money from the judgment to be distributed to defrauded Jay Peak investors. The interest and penalty assessments are to be repaid in cash; the rest of the money will be recouped from assets Quiros obtained with investor money.
The SEC said Quiros used investor money to pay his personal taxes and to buy two luxury condominiums in Manhattan, one of which was at Trump Place, instead of building projects promised to investors. Federal prosecutors have also alleged that the Miami businessman used EB-5 money to purchase the Jay Peak Resort and Burke Mountain Resort. He relinquishes both of those properties as part of the negotiated deal.
The judgment is subject to the approval of Judge Darrin P. Gayles, who is presiding in the case. The SEC settlement became public Friday morning when terms of the agreement were filed in federal court in Miami.
At the same time, the government announced that Quiros’ partner, Bill Stenger, has agreed to pay a $75,000 penalty. The government said Stenger did not personally profit from the scheme. Stenger cooperated with the federal investigation shortly after the charges were brought in 2016.
Commerce agency director and former Burlington police chief Mike Schirling declined to comment on the more than 10-to-1 difference in the fines between the two partners.
“I don’t have a framework of reference for that,” Schirling said. “It’s a little out of my area of expertise.”
Schirling said the settlement is the end of an important phase of the case, which hurt the reputation of the state’s EB-5 program and the local economy in the Northeast Kingdom. “I think in general it’s good news that this chapter is over and the receiver is then able to move forward with these properties,” Schirling said. “It helps us move down the road away from the troubles with the Jay Peak projects and further toward resolution for investors and everyone else involved.”
The settlement paves the way for the sale of the Burke Mountain and Jay Peak resorts. The money from the sale would be used to repay investors.
Quiros and Stenger brought more than 800 investors from 74 countries around the world into the investments, which included a series of nine projects, including developments in the Northeast Kingdom at Jay Peak Resort and Burke Mountain and a biomedical facility in Newport, a struggling small city on the Canadian border. The government said the proposed AnC Bio Vermont artificial organ and stem cell manufacturing plant was “nearly a complete fraud.”
The investors — all of whom were seeking green cards in exchange for a $500,000 investment — put more than $450 million into the projects and associated fees.
The SEC alleged in its lawsuit that Quiros used investor funds to purchase the Jay Peak Resort in 2008. Federal prosecutors did not include the Burke Mountain Resort in the original filing, which was also purchased with foreign investor money.
The 52 securities violations alleged in the SEC complaint, filed in April 2016, ranged from diverting funds from one project to another, misstating revenue projections and failing to make required contributions to developments.
The SEC said the developers’ misdeeds “jeopardized investors’ investments as well as their participation in the EB-5 Immigrant Investor Program,” by which investors receive permanent residency in the United States.”
Eric I. Bustillo, director of the SEC’s Miami Regional Office, said the settlement includes stripping “Quiros of the proceeds of his fraudulent scheme and requiring him to turn over valuable property for the benefit of harmed investors.”
Neither Quiros or Stenger admit or deny the allegations.
The settlement covers civil charges. The U.S. Attorney’s Office has also been conducting a criminal investigation and the Vermont Attorney General’s office has confirmed that the probe is ongoing. The state of Vermont has also sued Quiros and Stenger and will not settle the case. Gov. Phil Scott says that the state lawsuit will continue even though the federal government has settled with the two men.
Kraig Laporte, a spokesman for the U.S. Attorney’s Office in Vermont, said Friday that U.S. Attorney Christina Nolan, the top federal prosecutor in the state, was not available Friday to comment.
Laporte said he could not comment on the status of a criminal investigation, including confirming or denying that one is underway.
“I will say that bringing justice to those who commit large financial frauds are certainly a priority of the U.S. Attorney’s Office,” Laporte said.
In April 2017, Raymond James Financial settled with the SEC for $150 million in the case. The financial services company did not admit or deny allegations that it had provided Quiros with a vehicle for leveraging margin loans against tens of millions of dollars in investor money.
The Vermont EB-5 Regional Center was responsible for approving and overseeing the developments at Jay Peak and in Newport. State officials ignored complaints about financial improprieties at Jay Peak in 2011 and 2012. Meanwhile, the state’s top politicians, Sen. Patrick Leahy, Rep. Peter Welch and Gov. Peter Shumlin, actively promoted the projects overseas.
Last August, the U.S. Citizenship and Immigration Service said it planned terminate the center because of the state’s inadequate supervision of the projects. Petitions filed by a number of investors were denied by USCIS earlier this year. A group of investors has sued the state for breach of contract and negligence. Doug Hoffer, the state auditor, is investigating the state’s role in allowing the fraud to continue from 2008 to 2016, despite red flags early on in the Ponzi scheme.
It is the biggest swindle in Vermont history and the largest defrauding of foreign investors in the history of the EB-5 program.
Quiros bargained down the number
Melissa Visconti, a Miami-based attorney representing Quiros, said late Friday morning that the financial terms of the settlement were a result of negotiations between the parties.
“The way settlements work is everybody walks out of there a little unhappy, but we think it is a good settlement, it’s good to have this litigation behind him,” Visconti said. “He’s happy to be one step further along in resolving all the claims against him, and this is a big step.”
Quiros will be “satisfying the judgment” in the case by turning over a slew of properties, including two northern Vermont ski areas, and bank accounts to the federal government.
“He is turning over Jay Peak, he is turning over Burke Mountain, those will have to be marketed and sold,” Visconti said.
Visconti said she is in talks to resolve other litigation involving her client, including a case brought by state regulators in Vermont.
“Ideally, we would like to resolve that,” she said of the state case. ‘We are hopeful that can get done without expending any further cost on litigation. We’re just trying to get all litigation, all claims against him, behind him.”
In addition to the two Northeast Kingdom ski resorts, Quiros is also turning over homes in Vermont as well as luxury condos in New York City.
The settlement with the SEC was reached reached in November, though its terms remained secret pending final approval from members of the federal commission. SEC attorneys were given 90 days to get that approval, which would have been Feb. 15.
In May 2016 attorneys for the SEC said that figure should be as high as $191.8 million in “ill-gotten gains” from the development schemes, with his attorney contending that figure should be much lower.
Stenger in the dark?
Stenger, the front man for the Ponzi-like scheme, told investors in Jay Peak, Burke and AnC Bio Vermont that they would get their money back after five years, a return on their investments and green cards. Only the first group of investors in the Tram Haus Lodge have been compensated and have obtained permanent residency in the United States. The rest have not gotten their money back and about half only have temporary green cards.
Stenger, who was general partner for the limited partnerships with immigrant investors, 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. Documents show Stenger gave immigration attorneys kickbacks for bringing more foreign investors into the scheme.
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.
The government’s court-appointed receiver, Michael Goldberg, concluded that Stenger did not personally profit from the Ponzi-like scheme, unlike Quiros.
“Our forensic analysis indicates that Bill Stenger never diverted or otherwise personally transferred investor money to himself other than his salary,” Goldberg said in 2016. “He is also not a wealthy man as his home is mortgaged and the funds were used to pay his children’s and grandchildren’s education. This is much different from Quiros who wrongfully diverted investor money for his personal benefit.”
David Cleary, a Rutland lawyer representing Stenger, said Friday that not only did his client not profit from the scheme, he wasn’t part of it. The attorney said Stenger wasn’t aware what Quiros was doing with the investor funds in Florida.
“There was a clear effort to keep Bill Stenger from knowing what was going on at Raymond James, which is again why he’s not part of the scheme,” Cleary said. “He didn’t know what the hell they were doing.”
Quiros has said Stenger was aware of the details of what he was doing, claiming Stenger regularly initiated or approved transfers of investor funds to Quiros’ many accounts.
Cleary said the difference in the penalties handed down to Quiros and Stenger is telling.
“It was $75,000 versus the $1 million penalty,” the attorney said.
Cleary said he didn’t believe his client should have had any penalty, but federal regulators contended that Stenger, as a general partner in the partnerships had fiduciary obligations to the investors, and they needed to levy some kind of civil penalty.
“I kind of argued, ‘No, you don’t, really,’” Cleary said. “They said, “Yeah we do,’ and so finally they said, $75,000. We discussed that, agreed to it, period. That was the end of it. It was not done happily, but done.”
His client, Cleary said, is still “advising and working” with the court-appointed receiver at the ski resorts.
Stenger, reached Friday, declined comment, except to say, “In no way did I benefit from any of this wrongdoing and I’m doing everything I can to help Jay Peak and Burke Mountain succeed and help the investor value the best I can as I continue to work for the receiver. That’s all I can say right now.”
State keeps lawsuit going
The settlement clears the titles for the Burke Mountain and Jay Peak resorts and paves the way for the sale of the two properties, according to Mike Pieciak, the commissioner of the Vermont Department of Financial Regulation.
Pieciak explained that the SEC got to a settlement number with Quiros through a negotiation on a total amount. While there is an inventory of the assets, no cash value has been assigned to each item on the list.
“The SEC looked at the asset side,” Pieciak said. “Even if he did cause more harm, it was more like what was he capaple of of repaying with the assets remaining. That became a big focal point of the negotiation.”
The SEC valued the Jay Peak resort at $42 million, based on average profits, in a May 2016 court hearing.
Pieciak said the state does not plan to settle with Quiros. The case will continue because, he said, Quiros has “significant assets in Vermont and in Miami and internationally there is money in Colombia, Bimini and Puerto Rico as well.”
The state is seeking “financial justice as we can,” Pieciak said, and Quiros “will continue to have assets.”
In a joint statement, Gov. Phil Scott and Vermont Attorney General TJ Donovan said “more must be done to seek justice for Vermonters and the communities that have been harmed.”
“The state’s separate civil enforcement case continues against Ariel Quiros and Bill Stenger for alleged violations of Vermont law and we remain committed to pursuing it, seeking maximum financial justice for Vermonters,” Scott and Donovan said.
Pieciak said he estimates there could be between $5 million and $10 million in assets that the SEC has left on the table. “The SEC has different considerations [and] didn’t see the impact on the contractors. We know people were severely impacted emotionally and financially and we wanted to get as much a financial benefit as possible to the impacted parties as we can.”
The state has used the litigation exemption of the Vermont Public Records Act to block the release of specific documents requested by VTDigger. The ongoing lawsuit has nothing to do with delaying the release of records to the public, Pieciak said. Any suggestion to the contrary, he said, would be a “cynical” interpretation of events.
“The document transparency plan proceeds as normal,” he said. The records will be released to the court in a few weeks, Pieciak said, at which point the first 5,000 pages of records will be available for public inspection after they have been redacted by a private firm under a pilot contract of $475,000 in taxpayer money. The state has said there are more than 1 million pages of records in the EB-5 case. A superior court judge approved a request from the Vermont Attorney General to extend a Dec. 31 deadline to Nov. 15 of this year for the release of all the records.
Assets handed over by Quiros
A document filed Friday in the SEC case against Quiros lists the properties he will be handing over as well as bank accounts, but does not provide values for each of the assets, according to his attorney Melissa Visconti.
“We all had to use appraisals, best guesses based on the real estate market, based on purchase value,” Visconti said. “We just did a combination, it depends on the property … It was a property by property analysis.”
In addition to money held in several bank accounts, the properties listed in the SEC case Quiros is turning over to satisfy the judgement include:
-His entire interest in Jay Peak Resort 830, Jay Peak
-Burke Mountain Resort Q-Burke Mountain, Burke
-Quiros Land 199 Acres Cross Rd. Revoir Flats Road., Jay
-Cross Road 4 Acres Cross Rd. Revoir Flats Road, Jay
-River Bank 15 Acres Revoir Flats Rd. Rte. 105, Jay
-Jay Ranches 261 Revoir Flats Rd. TH4, Jay
-Bogner Property 172 Bogner Drive, Newport
-White House 986 Lake Road, Newport
-Setai Condominium 400 5th Avenue, New York
-Jay Peak Resort Unit V417 A/B Jay Peak Resort VC 417, Bldg. 11, Jay
-Bella Vista Cross Road TH 1, Troy
-Cross Road J Cross Road J, Jay
-Trump Place Condominium 220 Riverside Drive, New York, New York
-Renaissance Property Downtown Newport
-Heavens Bench 2266 Darling Hill Road, Burke
-Village Land 1645 Cross Road, Troy
