Jay Peak’s path to fraud

by Anne Galloway

April 23, 2016

This is part of a two-part series. Read part two.

Bill Stenger summoned the brightest stars in Vermont’s political galaxy to the Northeast Kingdom at the end of September 2012.

It’s not often that the governor and the entire congressional delegation visit Newport. But on Sept. 29, 2012, they all came — Sen. Patrick Leahy, Sen. Bernie Sanders, Rep. Peter Welch and Gov. Peter Shumlin – to pay a visit to this city of 4,500 on the Canadian border that is home to an animal feed factory, an undeveloped lakefront and not much else.

The gathering itself was singular, and the announcement the CEO of Jay Peak made that sunny day three and a half years ago was historic. Stenger had already secured more than $200 million and created more than 1,200 jobs as part of a redevelopment at the Jay Peak ski area.

Now, on the heels of that success, Stenger promised to bring $600 million more in capital to two other impoverished towns in the Northeast Kingdom — Newport and East Burke — as part of a massive development scheme that he declared would transform the poorest region of the state and bring 10,000 additional jobs to Orleans County.

All that money for the Northeast Kingdom Economic Development Initiative, he told reporters, politicos and locals, would come from hundreds of foreigners who were willing to invest $500,000 each in the projects in exchange for the promise of a green card and eventually permanent residency. The investors, Stenger pledged, would also get their money back with a return on investment, and in a unique arrangement, the state was charged with monitoring the projects.

With more than a half billion dollars in additional funding from the EB-5 immigrant investor program, Stenger planned to build new trails at Jay Peak, an airport terminal facility in Coventry and a hotel and elite athletic center at another ski area in East Burke. But most of the development would be centered on Newport. Stenger proposed to construct a window manufacturing plant, a five-story office building on Main Street and a hotel, marina and conference center.

The “crown jewel,” as Stenger has described it, was a state-of-the-art biomedical campus in Newport for stem cell research and the manufacture of organ replacement devices.

The proposals for the suite of seven projects were so exhaustively detailed, Stenger held a daylong press conference in three locations to explain how the plans would proceed. Everywhere he went the politicians cheered.

It was the biggest economic development scheme the state had ever seen, and the outpouring of support from local residents was immediate. His remarks were punctuated by sustained applause.

Newspapers quoted local residents and politicians who were bowled over by the initiative and used adjectives like “magnificent,” “spectacular” and “amazing.” A sign went up on the Newport municipal offices not long after thanking Stenger for bringing jobs to the area.

Congressional delegation, Stenger, Quiros

Rep. Peter Welch, Bill Stenger, Sen. Patrick Leahy, Sen. Bernie Sanders, Gov. Peter Shumlin, Ariel Quiros and Bill Kelly.

The governor and the delegation were equally effusive at the press conference.

“What we are seeing today is something of extraordinary importance,” Sen. Sanders told reporters. Shumlin, Leahy, Sanders and Welch posed for photographers with Stenger and his partner, Ariel Quiros. Three of the pols (Sanders excepted) would go on to promote the Jay Peak projects to investors on trips to China through the Vermont EB-5 Regional Center.

Shumlin declared that Stenger was the “Michelangelo” of EB-5 and had “a magical ability” to attract foreign investors. Leahy, who pushed through reauthorization of the national EB-5 program that month, said the best part was “it’s not going to cost taxpayers one cent.”

Three and a half years later, Stenger’s starstruck dream has dissolved into a black hole of pending litigation, finger-pointing and the airing of dirty laundry.

On April 14, the Securities and Exchange Commission charged Stenger and Quiros with 52 counts of fraud for misusing $200 million in immigrant investor funds out of $350 million to be used for the construction of hotels, condos and amenities at the Jay Peak and Q Burke resorts. The state of Vermont, in coordination with the SEC, is also suing the developers for defrauding investors.

The “Ponzi-like” scheme began when Quiros used investor funds to purchase the Jay Peak Resort back in 2008, the SEC alleges. The Miami businessman then backfilled construction costs for the first investor project with money from new investors, regulators say. That pattern continued over a seven-year period for seven different projects. Quiros also borrowed against investor funds, and from 2009 to 2012 incurred $105 million in margin loan debt, according to the SEC.

At a press conference last week Shumlin soberly described the chain of events that led to the state and federal investigations. The governor said he and members of the administration who were responsible for overseeing the projects “feel betrayed.”

In the same breath, Shumlin praised the state probe of the alleged fraud and took credit for making a structural change to the Vermont Regional Center in January 2015 that gave the Department of Financial Regulation jurisdiction over EB-5 projects and the authority to investigate Jay Peak. Prior to that time, the regional center was responsible for both promoting and regulating developments. Shumlin told reporters, “I realized we needed a better system that didn’t ask one state agency to promote and oversee the EB-5 programs.”

When asked if there was more the state could have done to prevent the alleged fraud — the largest in Vermont history — Shumlin said, “Obviously, we can all sit here and say who should have done what when differently and we have done a lot of inner searching in my administration over the last year as this has become more obvious to us, but I think the answer is that at the heart of it, there’s a certain amount of trust in the partnerships that we have with the private sector and government and we have found in the process we set up that that trust was misplaced, allegedly misplaced.”

But for several years the state had known that there was a problem with the finances at Jay Peak and chose to ignore it.

A former business consultant, Douglas Hulme, who worked closely with Jay Peak, warned immigration attorneys of the suspected misuse of funds. In the spring of 2012, the Shumlin administration spoke with Hulme about his concerns, documents show.  Although it is not known what was said at the meeting, it is clear that state officials did not investigate Hulme’s allegations, nor did they respond fully to questions from an immigration attorney and an EB-5 financial adviser.

Four months later, the Shumlin administration and the state’s congressional delegation gathered in Newport to support Stenger’s plan to bring an additional $600 million in investor funds to the state at the much ballyhooed daylong press conference.

Overwhelming political support at the highest levels of government and the close relationship between developers and state officials gave the developers time, and the opportunity, to perpetrate the fraud, EB-5 analysts say.

Lax state oversight gave the developers room to maneuver and allowed the deception to go undetected for more than seven years.

Politicians who wanted Stenger’s job creation plans to succeed unwittingly helped to facilitate the alleged fraud by attending promotional events with the Jay Peak CEO in China, Vietnam, South Korea, Hong Kong and Taiwan.

As Stenger put it in a 2013 promotional video disseminated to investors: “One of the reasons our EB-5 projects have been so successful has been the wonderful relationships we have at the local, state and federal level.”

Shumlin appeared in that video and told investors that all of the Vermont Regional Center projects were audited by the state. “Vermont is the only EB-5 program that covers the entire state of Vermont and is audited by the state of Vermont,” Shumlin said. “We make sure that our EB-5 programs are good investments for the investor and good economic development job creators for the state of Vermont.” In the summer of 2014, the state asked Stenger to take the video down.

Watch Promotional Video:

In fact, the Jay Peak, Q Burke and AnC Bio Vermont projects were never audited, as advertised, and the state failed to collect quarterly reports from Stenger and Quiros, as required under an agreement with the developers.

Michael Gibson, a registered financial EB-5 adviser who has written extensively about the immigrant investor program, says that if the state had reviewed the financials from the beginning, “They would have discovered in one hour or less, the misappropriation of funds.”

“This fraud went on almost 10 years, to me that’s unconscionable,” Gibson said.

Investors say they were drawn to the Northeast Kingdom EB-5 developments because the state of Vermont was charged with monitoring the projects, and the backing of prominent politicians gave the projects an air of respectability and safety. Both Leahy and Shumlin, for example, wrote letters of support for the Jay Peak projects and the AnC Bio Vermont biomedical campus, which the SEC alleges is “nearly a complete fraud.”

In all, about 700 foreign investors from 74 countries were duped. It’s not clear whether they will recover their money, and several hundred investors who are in the middle of the immigration process may not be able to obtain residency in the United States as a result of the alleged fraud.

Mohammed Adil, an Indian investor who is a CEO of a company in Dubai, said, “For someone sitting so far away, the governor’s promise means something.”

Adil, an investor in the Stateside project at Jay Peak, says he was attracted to the EB-5 program in Vermont because he thought it would be a safe investment.

“I come from a country where citizens cannot always count on the government and corruption abounds,” Adil wrote in a letter to Sen. Patrick Leahy. “But America is supposed to be different, that is why we are so trusting in giving over our savings to Vermont, knowing it would be protected by the appropriate state and federal agencies.”

Adil holds a degree from Harvard University and he brought his family to the United States to give his four daughters an opportunity to obtain a first class education. Now, he doesn’t know if his family’s applications for permanent residency have been jeopardized by the fraud, let alone whether he’ll get his money back.

“I personally believe the senator [Leahy] and the governor [Shumlin], who have sold this, should come to our rescue, because who can you trust more than the government?” Adil said.

Boosterism from Vermont’s pols

Economic development in Vermont is priority No. 1 for Vermont governors and members of the congressional delegation. With the exception of IBM, the state has not traditionally had a strong manufacturing base. For six decades, tourism has been a major source of revenue for the state and the ski industry is a prime driver.

Stenger and Quiros proposed both tourism and high tech manufacturing jobs for the state’s poorest region, and that combination proved irresistible for the state’s leaders, all of whom were taken in by the prospect of creating thousands of jobs.

When Quiros bought Jay Peak resort in 2008, Vermont had the only state-run EB-5 regional center in the country. The developers promoted the Vermont Regional EB-5 Center’s oversight as a big plus for investors who were concerned about the riskiness of the investment.

Stenger enhanced that false sense of security and safety in the Jay Peak investments by enlisting the state’s top politicians in a marketing campaign that lured hundreds of investors into the program.

Bill Stenger, Jim Douglas, Alex Choi (owner of AncBio Korea), Ariel Qurios

Bill Stenger, Jim Douglas, Alex Choi (owner of AncBio Korea), Ariel Qurios

Republican Gov. Jim Douglas flew to South Korea, in October 2009 and signed an agreement that gave Quiros the go-ahead to solicit funds from investors for AnC Bio Vermont. In an interview last year about his trip, Douglas recalled that there was a surprising lack of activity at AnC Bio Korea, the Korean plant that was directly affiliated with AnC Bio Vermont.

Five and a half years after Douglas’ tour of the facility, the headquarters of AnC Bio Korea was sold in a liquidation auction.

Sen. Patrick Leahy, D-Vt., who described Stenger as a “friend” after the SEC allegations came out, has a long-running relationship with the Newport businessman. Leahy invited Stenger on a trade mission to Ireland in 2009, and in a letter of support written later that year, Leahy congratulates Stenger “on the tremendous growth you have shepherded at Jay Peak and throughout Northern Vermont.” The senator says he is pleased to have “worked with you to make this effort a success.” The letter was part of promotional materials given to investors who subscribed to the Q Burke resort project.

Leahy asked Stenger to testify in Congress in December 2011 to tout Jay Peak as a shining example of what EB-5 funds could do to boost economic development in rural areas, and in 2012, Vermont’s senior senator held his 50th wedding anniversary party at Jay Peak.

Two years later, the senator traveled to Shanghai with Rep. Peter Welch, D-Vt., to promote the Vermont Regional Center in general and the Jay Peak projects in particular, according to fliers provided by an investor.

At the press conference last week, Shumlin, a Democrat, said he inherited the problems with the program, which started before he took office in 2011, implicating his predecessor, Douglas.

But Shumlin, in his capacity as governor, accepted more in campaign contributions from Stenger and Quiros than any other state politician, and he went to great lengths to promote the Vermont Regional Center and by proxy the Jay Peak projects.

In 2011, the governor went to Miami with Stenger to give a presentation about the regional center at a seminar for immigrant investors, and he wrote a letter of support for the biomedical project in October 2012 that was included in a packet Stenger gave to investors. “I look forward to the future success of the AnC Bio Vermont project and am available to meet at any time to assist in its development,” Shumlin wrote.

Alexandra MacLean

Alexandra MacLean

Alex MacLean, a close aide who ran Shumlin’s election campaign, announced she would be taking a job with Stenger in November 2012. In her new role at Jay Peak, MacLean worked alternatively as an investor relations manager, strategic communications director and project manager of the Renaissance project, the proposed office building in Newport.

Two months later, Shumlin gave an extensive shoutout to Stenger and Quiros in his State of the State address.

In September 2013, the governor went on a weeklong trip with MacLean, Stenger, Lawrence Miller, the secretary of the Agency of Commerce and Community Development, to China and Vietnam. Jay Peak paid $100,000 for travel expenses.

At some point in 2013, MacLean was involved in the production of a promotional video of the governor in which he explains to investors that the state audits all of the EB-5 projects in Vermont. The video was translated into Chinese. In a statement released when VTDigger reported on the video in October 2014, the governor’s office said Shumlin recognizes the agency “does not audit these projects, but provides independent oversight.”

What the state knew when

On Feb. 28, 2012, Douglas Hulme, through his Florida-based company Rapid USA, sent notification to over 100 immigration attorneys who had represented investors in Jay Peak programs that he was severing ties with Stenger and Quiros. Hulme stated in his February 2012 missive that “he no longer had confidence in the accuracy of representations made by Jay Peak Inc., or in the status of and disclosures” made by the Jay Peak developers. Hulme had worked with Jay Peak developers for over five years but has since consistently refused to comment to press on what eroded his faith in the Jay Peak developers.

In early March 2012, just over a week after Hulme’s missive, James Candido, who was the Vermont regional center director at the time, told Seven Days that he “spent the entire day at Jay after that letter.”

“There was absolutely nothing that was out of the ordinary,” he said.

In the same article Candido laments, “Within EB-5, if there was any fraud happening, we would find it very quickly.”

In retrospect, Candido’s daylong vetting of Jay Peak financials stands in stark contrast to the 15-month investigation conducted by the Department of Financial Regulation that resulted in a suit leveling $185,000 in fines against Stenger and Quiros.

But back in the spring of 2012, behind the scenes, the state was starting to take heat from EB-5 attorneys and consultants who were raising questions about how the regional center was vetting projects, internal memos show. An attorney for a Jay Peak immigrant investor wrote on March 29, 2012, to John Cronin, the former director of securities for the state, asking to talk about the Rapid USA email and what it meant for his client. Cronin thanked Terenik Koujakian, the attorney from California, for writing and told him that the Vermont Securities Division was collecting information about the private placement offerings provided to investors but “is not conducting an investigation of Jay Peak.”

Lawrence Miller

Secretary of Commerce & Community Development Lawrence Miller. File photo by Hilary Niles/VTDigger

On April 4, 2012, James Candido wrote to Hulme on behalf of Lawrence Miller, the secretary of the Agency of Commerce and Community Development, to request a conference call with Hulme, according to emails obtained through a public records request.

Shortly afterward, state officials arranged a telephone conference call with Hulme, documents show. In an email, Candido explained the purpose of the call to Hulme. “Lawrence wants to discuss in detail the reasons for the departure from the Jay Peak project and your direct concerns about the project that led to the company’s departure. Go over some of the marketing exercises you currently are employing with Vermont projects.”

Meeting minutes for the conference call that was scheduled for May 4, 2012, have not been made available. Public records requests indicate that participants scheduled to be on the call included Miller, Candido, Deputy Secretary Patricia Moulton, Hulme and Hulme’s attorneys.

Miller declined to comment on the substance of the meeting.

Public records show that Miller met with Stenger on May 17. In a subsequent email, Stenger wrote that he spoke to Candido following the call and asking for Miller’s input.

“James [Candido] briefed me somewhat on the Douglas [Hulme] call. I wanted to ask your perspective on it, and if you want anything from me. I have a paper trail on all our interaction [sic]. If you would like that or anything else, please let me know. Best regards, Bill.”

On May 21, 2012, Miller responds to Stenger’s email: “I don’t feel a need for any further information at this point Bill. Everyone is fully consistent with each other.”

Instead of investigating allegations that Hulme may have brought during the call, Miller appeared to have ignored them. In June 2012, Miller sent a letter to Hulme accusing him of “unfair and deceptive marketing.”

And then, just four months later, in September 2012, with the backing of the state’s highest level politicians, Stenger announced $600 million in additional immigrant investor funded projects which included the AnC Bio and Q Burke projects.

Michael Gibson, USA Advisors

Michael Gibson, USA Advisors

Also in April 2012, Gibson had sent a three-page analysis of SEC regulations to Cronin. He alleged that Jay Peak was violating state securities laws. The Jay Peak developers hadn’t filed a Form D with the SEC for any of the projects, for example, he said. The Form D notifies federal regulators that a business is exempt from standard securities offerings.

The email was forwarded to John Kessler, the regional center attorney, who replied: “As I explained in my earlier email, there are certain limits to what James and I can do for the Vermont Regional Center, and naturally we pay attention to USCIS and other informational resources, such as AILA,” Kessler wrote. “We’ll continue to keep up, and hope that, on balance, more attention to EB-5 leads to greater awareness and support when it comes time for program renewal.”

State could have prevented fraud

Gibson says he wasn’t surprised when news broke last week about the SEC fraud case. It’s the largest incidence of fraud, he says, in the EB-5 program so far.

“To me, it was inevitable there was going to be a time when they could no longer repay the investors,” Gibson said. “The only way to repay the early EB-5 investors was to take money from new investors coming in – through a Ponzi scheme.”

Gibson says federal regulators stepped in when the state abdicated its responsibility to shut down Jay Peak and the situation started to spiral out of control.

“The SEC saw this as being an extremely dangerous situation,” Gibson said. “Their concern was not just the $200 million loss — they saw they could be facing a $400 million to $500 million loss if it had been allowed to go unchallenged.”

The state, he said, should be held accountable for the fraud because the regional center was “completely negligent in the monitoring and compliance of this offering.”

David-North, a fellow with the Center for Immigration Studies, is an internationally recognized authority on immigration policy.

David-North, a fellow with the Center for Immigration Studies, is an internationally recognized authority on immigration policy.

David North, a fellow with the Center for Immigration Studies, says the Jay Peak fraud case is one of the three biggest in the short history of the EB-5 program, pointing to similar problems in Chicago and South Dakota. North says the Vermont Regional Center was “oblivious to what was going on,” and obviously didn’t do enough.

“For years it was much too relaxed,” North said. “If someone had looked at where the money was stored and had found it in margin accounts — well, that’s not really where they were supposed to put investors’ money.”

Spot audits would have quickly shown that Quiros was taking out margin loans against the investor accounts, he said. AnC Bio, he says, was the most outrageous of the projects. “It was totally on paper,” North says. “The people working on it hadn’t done work for the FDA approvals. One of the things that could have been done is call the FDA and ask how the FDA approvals were coming, and nobody did that either.”

While the state waited years to take action, North gives the state credit for “eventually owning up to the problem” by pursuing an enforcement action and splitting the oversight and promotional functions of the regional center.

Like other EB-5 investment experts interviewed for this story, North says the case in Vermont will have a big impact on the program nationally because it comes at an awkward time for supporters of EB-5.

A major part of the program — the $500,000 investment program for rural areas — is up for renewal and will terminate Sept. 30. South Dakota and Vermont were the only rural regional centers, and the program “didn’t work in either place,” North says.

Leahy is a principal backer in the Senate, and the Jay Peak fraud, North says, strengthens the hand of Sen. Chuck Grassley who is trying to reform EB-5.

“If it can go wrong in Vermont, it can go wrong anywhere,” North says.“$50 million going missing in Vermont under state government oversight? In New Orleans that’s not so surprising, but it’s a shocker in Vermont.”

Too good to be true

To many locals, Stenger’s grand plan seemed too big and too good to be true from the beginning. Skeptics wondered whether Orleans could house 10,000 workers. No one understood how hundreds of thousands of square feet in new construction could be completed on an aggressive four-year timetable.

Others questioned the legitimacy of a program that allowed wealthy foreigners to buy citizenship in America where populism is a fundamental value. But most looked the other way.

Since that fateful day in 2012, many of the promises Stenger and Quiros made to investors, politicians and the public proved too good to be true long before the SEC caught up with the Jay Peak developers.

Along the way, partners reneged on deals with the developers, projects stalled, contractors walked off the job and disgruntled investors filed formal complaints with state officials.

Not one of the projects in East Burke and Newport Stenger promised to build three and a half years ago came to fruition.

Stenger and his partner, Ariel Quiros, only made partial progress on only one of the original Northeast Kingdom Economic Development Initiative projects — the Q Burke Hotel and Conference Center. A brand new hotel at the base of Burke Mountain now sits empty, subject to legal wrangling, and the elite athletic center is all but a pipe dream.

One by one, potential development partners pulled out. Menck Windows got cold feet in September 2013 and built a manufacturing plant in Springfield, Massachusetts, instead. Real estate mogul Tony Pomerleau nixed the sale of land for the Newport hotel, marina and conference center less than a year later because, he said, they didn’t have the money.

When the developers held a groundbreaking ceremony for AnC Bio Vermont in May 2015, the governor and members of the congressional delegation who once so enthusiastically championed Stenger and his grand plan were conspicuously absent.

Townhouses at Jay Peak remain half finished. Plans for the airport terminal have been shelved. The developers razed a historic block on Main Street in Newport, and in its stead is an enormous hole in the ground.

EB-5 In Vermont: The Timeline

This is part of a two-part series. Read part two.

  • Nick Spencer

    Amazing article, a damning indictment on Shumlin and Miller’s negligence starting back in the spring of 2012.

  • Gary Shattuck

    Anne and Mark, great effort in pulling together a lot of complicated information and making it understandable. While the culpability of Quiros and Stenger are questions that will play out in the criminal and civil arenas, we as a state need to take an immediate lesson from all of this.
    First, it is clear that the EB-5 program was both terribly ambitious and implemented without sufficiently defined parameters for its oversight. It was something ripe for abuse as the lines between federal and state oversight remained fuzzy throughout resulting in each scurrying to put out fires (if they were even noticed in the first place) while on the run. The compartmentalization of responsibility in each without an active line of communication between the two jurisdictions only restricted the flow of information that could have addressed concerns early on and not allowed it to play out for the length of time that it did.
    Second, and federal concerns aside, this need not have happened on the state level if we had a watchdog in place, separated from the political process and which was not beholden to any party. The fact that our state regulators appear to have had an early indication of wrongdoing and then did not forcibly intervene indicates that the desires of the administration (read: blinded politics and legacy concerns) played a role in their silence.
    Third, we need a strong, apolitical oversight mechanism capable of early inquiry into allegations of fraud and abuse of the public’s resources. The auditor’s office does an admirable job with the limited jurisdiction and budget that it is allowed and it has served us well to this point. But when projects such as this present themselves we have to recognize that they will require an equal amount of oversight from the government and respond accordingly.
    As mentioned in prior posts, and while some may understandably object to yet more bureaucracy, it may be time to consider some aspect of an inspector general role that allows it to aggressively anticipate problems and deal with them in a timely fashion. We do not need to be in this constantly responsive mode that we seem to find ourselves; just how many more “studies” to right a deficiency that could have been avoided in the first place do we need?
    Either we accept this added responsibility in order to gain what are the hoped for economic benefits coming out of such a project or we leave ourselves open to a repeat performance. And who needs that?

  • Bruce S. Post

    Vermont’s new motto:

    “We are all Jeremy Dodge!”

    • Neil Johnson

      if the state had reviewed the financials from the beginning, “They would have discovered in one hour or less, the misappropriation of funds.”

      “This fraud went on almost 10 years, to me that’s unconscionable,” Gibson said.

      See, it’s basic accounting, basic oversight and handling of money that our state is so terrible at.

      Jeremy Dodge was used, and the state of Vermont has it even worse. If we can get to the bottom of the healthcare fiasco and state taxing, it will make the EB5 program look like child’s play. The plot to monopolize marijuana and come to form the largest private drug cartels in the state and east coast ……will make the EB5 program akin to someone stealing your lunch at school.

      There is a reason why we got a D- in ethics. There is a reason why many of us want to make common sense changes. It’s the reason why we have formed the Green Mountain Party. 802-496-4470; 6971 Main Street, Suite E Waitsfield, VT 05673

      We need your help, the state needs to be run by Vermonters, not lobbyists and crooks.

  • Jim Christiansen

    Great job Anne. Thanks for the detail that is beginning to fill in some of the holes in this saga/tragedy.

    FYI, I think you want “pattern”, and not “patterned” in the 16th paragraph

  • Kristin Haskins

    Quote (partial, from above article): (Adil): “…who can you trust more than the government?”

  • chris jensvold

    great reporting! Complete snowball of optimistic incompetence.

  • Kim Fried

    Thank you Anne and Vermont Digger for such great and detailed reporting.
    The pictures in themselves tell the whole story, the text just elaborates on the cooperation between our politicians and the developers.
    It’s just plain ludicrous that Shumlin would blame Gov. Douglas for the problems and then he, Shumlin, produces videos on behalf of the Vermont EB5 programs, attends work shops and travels to foreign countries to sell the programs, write letters of support, and then claims he saved the day by calling his EB5 friends into court for breaking the law and fraud. He was Vermont’s under cover agent that saved the day.
    These politicians should be be held fully responsible for their participation and cooperation in this fraud, not just the developers. Part two will probably get into the money aspects, contributions, involved with this fraud.
    Well shame again on Vermont’s regulators and administration. Shumlin once again is first in the nation in his involvement in the largest EB5 scandal. Shame, what an embarrassment.

  • Kathy Callaghan

    Why is that everywhere Lawrence Miller goes there are questionable ethics, obfuscation, and outright deception? First EB5 and then Vermont Health Connect.

  • Steven Farnham

    In the 11th or 12th paragraph after the heading, “WHAT THE STATE KNEW WHEN,” an email of Stenger’s is quoted: “James briefed me somewhat on the Douglas call…”

    This is a bit confusing. From context, it appears to mean the “Douglas [Hulme] call,” but that’s not clear. Given previous statements of former Gov. Jim Douglas’ involvement, and the current administration’s apparent hope to pin some of it on him, this line might be construed to be referring to a call involving (former Gov. Jim) Douglas,” which I don’t believe is the case.

    It might be helpful to clarify a bit, like so:

    “James [Candido] briefed me somewhat on the Douglas [Hulme] call…”

    If my interpretation of this is wrong, then it is obvious that, at the very least, I need some clarification.

    Thank you.

  • Wow, what a powerful story!

    This story needed to be told and Anne Galloway and the vtdigger crew have gone well beyond doing an extraordinary job in uncovering and reporting events.

    We now see Mr. Shumlin for what he is……..a failed politician, a failed man who will look the other way when money for him is involved. If he looked the other way for Stenger and Quiros, it’s a safe bet he is doing the same with others who have contributed to him.

    Please someone tell the people of Vermont why Peter Shumlin should be allowed to stay in office for one more day.

  • This is what happens when we let the business of government become business, when the business of government should in part be laying out the framework and oversight of business.

    This story reeks of a typical confidence game: promise so much people can’t possibly say no. As things start to fall apart all those who were conned spend their time in utter disbelief they were so conned. And then finally at the end … acceptance.

    Our various Governors were simply too intent on setting an economic agenda. They made themselves easy marks.

    • Neil Johnson

      This is what happens when politicians are bought and government doesn’t do their job. 1 hour of basic accounting oversight would have stopped this fiasco.

      Another example, prescription drugs, the state stopped oversight. This would be the easiest abuse to bring under control but the state turns a blind eye, just like they’ve done with the EB5. Passing laws doesn’t do anything. You have to have a priority other than raising taxes and spend citizens money.

      Want another example? Drugs in schools and prison. My lord, that shouldn’t be so difficult it’s one building. Again it’s not a priority, so nothing gets done.

  • Annette Smith

    Our government in Vermont seems like a very friendly club, or perhaps we should learn about their dinner parties. Congressman Welch’s wife serves on the Public Service Board, his former staffer is now Deputy of Public Service. Senator Leahy’s former staffer is no Secretary of Agriculture. Senator Sanders’ former energy policy staffer is now the governor’s Chief of Staff. Former Commissioner of Public Service, then Governor’s Chief of Staff’s husband was appointed by Sen. Leahy to be the Vermont US Attorney.

    These are all appointed positions, and should raise further concerns about how other policies and programs are being carried out. No wonder so many towns (now more than 140) have signed onto the Rutland Town Resolution saying they want more say in energy siting. All this top-down money-driven development is ruining our democracy in so many ways.

    What is most troubling is so far nobody is taking any responsibility, nobody is saying “I am sorry.”

    • Wendy Wilton

      Annette, you are right on. It’s a tight club of Leahy-Welch-Sanders-Shumlin gang and the legislature are the wannabes, including many Republicans who fear to call out the political class. No 2 year elected term is worth giving up your principles and allowing this kind of government to continue.

      The ‘clubbers’ are too wrapped up in their egos to admit they are wrong on many issues–health care, renewables, EB5, state budget and general management of the state. They need the voters to remind them!

  • John Grady

    http://wolfstreet.com/2016/04/23/9-billion-unicorn-theranos-imploded-blood-tests-sec-doj-investigations/

    http://wolfstreet.com/2016/03/30/ever-checked-out-your-advisers-disciplinary-record/

    The mortgage crises is another example of Yuppism run wild. Real estate agents sold houses to people who couldn’t afford to pay for them while banks loaned them money and Pension Funds blindly bought the mortgage backed securities.

    Overall people are probably blinded by dollar signs flashing and dreams of hitting the big time. People will believe their stock broker is some financial guru and tune out the fact the odds are their broker is a wind bag.

    Health care reform.
    People believed they could fix the system because narcissism has exploded in the country. Tons of people fell into success, it was handed to them so they grew to believe in their own greatness. It’s evident by the problem solving skills people have they should have never been put in charge of anything.

    The Carbon Tax cheerleaders believe some simpleton solution is going to be a win, win situation.

    Overall what we have is a country full of people in denial the whole economy is a farce while deep down knowing it is and dreaming there is some magical painless fix to the problem which opens the door wide to people with pie in the sky dreams which fail.

    Jay Peak wasn’t a Ponzi scheme because if they could have gotten the cash flow going, they might have been able to fund the rest of it. They over extended themselves and lacked the ability to borrow more money or raise more from investors to tide them over until the revenue flow increased as earlier projects came online.

    We have 5 people running for governor and nobody has even a rough draft of a plan to address the economy, environment & energy usage while all must support the school spending status quo because not one of them has a plan to slash it over 50%.

    We are all like EB-5 investors. Our future is based on people believing in myths, folklore and fairy tales.

  • stephen whitaker

    I sense a pattern here!

    Let’s have some perspective, and make an effort to recount the frauds, neglect, mismanagement, opportunism and failed legislative oversight perpetrated on Vermont by this and prior administrations’ inept planning, or lack thereof:

    *EB5 as admirably examined by Digger in this series;

    *V-Tel Wireless Open World;

    *Vermont Information Technology Leaders medical records infrastructure hijack;

    *Slack to non-existent enforcement, planning and oversight of thousands of toxic chemicals used in manufacturing, such as, but not limited to PFOA in Vermont PRIOR to their massive release into the environment and groundwater;

    *The five years missing Vermont Health Information Technology Plan annual updates, including intellectual property analysis of the Health Information Exchange claimed to be owned now by VITL and vendor Medicity;

    *FairPoint’s recurring ‘Incentive Regulation Plans, approved by the DPS and the Public Service Board absent the statutorily required consistency with a complete, current and duly adopted Ten Year Telecommunication Plan. (30 VSA 226b)

    *The Department of Public Service sham Act 56 report on the ‘adequacy of advocacy’ which totally ignores the continuing Telecommunication Planning failures of the last decade and the $.25B in public funds invested in Vermont absent the guidance of the Plan, resulting in massive fiber overbuilds in some areas, not now available in accordance with the statutory goal of Open Access to competitors.

    *The on-going distribution of Universal Service Fund money to support already obsolete DSL internet service which will never meet the FCC definition of ‘Broadband’ and in direct conflict with the statutory goals of 30 VSA 202c regarding investments ‘soon to be outmoded’;.

    *The pending proposal in the Capital Bill to spend another $750,000 in bonded funds on more dubious semi-broadband investment absent the required Plan, again required by law to be consistent with those investments. This amounts to nothing more than corporate welfare for FairPoint and other telcos;

    *The newly convened Telecommunications and Connectivity Board, created to advise the DPS Commissioner on the Telecommunications Plan and grant programs, yet packed with Governor appointees with blatant conflicts in direct violation of the Act which created the body;

    *The pending House Commerce Committee bill (H-870) to raise millions in taxes through the USF charge on all telecommunications to further invest public money down the rat-hole absent a credible, complete and duly adopted plan to achieve the 2024 statutory goal of 100 mbps symmetric broadband speed to every Vermont address.

    *The recent dismemberment and cannibalization of Vermont Interactive Television (VIT), again absent the required Telecommunications Plan, undermining civic participation in government as is required by law specifically enabling use of such technology, including Budget preparation, with no provision made for replacement technology;

    *I could go on, but lack confidence that the Gubernatorial candidates or the press will adequately address the need to examine these problems to anywhere near the degree that Digger has done with EB5, and begin to hold both elected and appointed officials accountable.

    When will it end?

  • Douglas Shane

    Peter Shumlin’s gubernatorial legacy will possibly be the worst in Vermont’s history. As others have noted, virtually everything he’s touched has gone wrong. At the least, Shumln has been a very poor administrator, but corruption may soon taint even that more benign criticism.

  • Terrific reporting. Terrible news but terrific reporting.

    Why is Lawrence Miller still employed by the State of Vermont? The roots of the EB-5 scandal go right back to his negligent leadership. Subsequently, after being moved to chief of health care, the Vermont Health Connect system continues to flounder and bleed money. Unbelievable failure of leadership at so many levels, but the buck stops with the Governor.

  • Michael Burak

    Brilliant! Thank you so much.

  • Its pretty clear that Gov. Shumlin and key members of his administration failed to carry out their oversight responsibilities on these EB-5 projects. This occurred in light of assurances made by Gov. Shumlin that such state oversight was indeed happening. The Governor used these assurances to entice more investors to pour money into the pockets of Stenger and Quiros.

    Now, if a doctor, lawyer, banker or other professional had abdicated his/her responsibilities the way Mr. Shumlin apparently has, the malpractice suits or worse would be flying from all directions.

    So what are the consequences of these failures and misrepresentations made by Gov. Shumlin and his key lieutenants? Have there been laws broken?

    Who is looking into the very likely negligence of Gov. Shumlin, etal?

    Is it the Attorney General’s responsibility to investigate or some other authority? Who is responsible for investigating what Gov. Shumlin and his administration did and didn’t do in this matter?

    As this matter progresses and federal authorities start putting heavy pressure on Stenger and Quiros, it will be interesting to hear what they have to say about Mr. Shumlin’s role in this matter. When rats are cornered they can quickly implicate others in an attempt to minimize their own liability and punishment.

    This looks like a needed next chapter of the Galloway & vtdigger story of” Great Plundering that Hit Vermont while the Governor and other Politicians Looked the other Way”.

    More to come on the Governor’s and his key aides’ exposure???????

  • Pete Novick

    A standing ovation for VTDigger!

    I wish every person holding elected office at any level in the State of Vermont would take the time to read the SEC complaint filed against Stenger and Quiros on April 12 in the US District Court for the Southern District of Florida. Here it is:

    https://www.sec.gov/litigation/complaints/2016/comp-pr2016-69.pdf

    As today is Sunday, and I an STILL trying to stay warm on an otherwise sunny day in late April, I thought I might list certain key events in chronological order as contained in the SEC complaint. The information below is in Paragraphs 62 – 69, if you prefer reading the original. I like starting with the dates, as it helps me visualize the complete sequence of events. Here goes:

    May 12: Stenger signs an amendment to remove the requirement of an FDIC-insured bank account from the Suites Phase I limited partnership agreement.

    May 20: At the request of Quiros, and acting on behalf of MSSI (the seller of Jay Peak), Stenger opens Suites Phase I account at Raymond James.

    June 16 & 17: MSSI transferred $11 million in Suites Phase I investor funds from Peoples Bank escrow account to Raymond James.

    June 17: Quiros opened two accounts at Raymond James under his name and control, (one for Suites Phase I and one for Hotel Phase II).

    June 18: MSSI writes a letter to Raymond James, Stenger, Quiros and others, stating that the funds in the MSSI Raymond James Suites Phase I account were investor funds and could only be used in the manner specified in the limited partnership agreement.

    June 20: At the request of Quiros, and acting on behalf of MSSI (the seller of Jay Peak), Stenger opens Hotel Phase II account at Raymond James.

    June 20: MSSI transferred $7 million in Hotel Phase II investor funds from Peoples Bank escrow account to Raymond James.

    June 23: Jay Peak real estate closing. MSSI transferred $11 million from its Suites Phase I account at Raymond James to Quiros new Suites Phase I account.

    June 23: Peak real estate closing. MSSI transferred $7 million from its Hotel Phase II account at Raymond James to Quiros new Hotel Phase II account.

    Late June: MSSI closes the two Raymond James accounts. (Note the SEC complaint does not state the day the accounts were closed and only states these accounts were closed “within days” of the Jay Peak real estate closing.)

    June 23: Quiros transferred $7.6 million of Suites Phase I investor funds from his Suites Phase I Raymond James account, and $6 million of Hotel Phase II investor funds from his Hotel Phase II Raymond James account to another account that he had just opened at Raymond James in the name of Q Resorts.

    June 23: Quiros wired $13.544 from the Q Resorts Raymond James account to the law firm representing MSSI in the Jay Peak purchase as partial payment for the purchase of Jay Peak.

    There is much moron the paragraphs that follow in the SEC complaint, but I think you get the idea.

    ————

    Note that in the June 18 entry, MSSI is performing due diligence as the seller of Jay Peak.

    You might think these movements of large sums of money through brokerage accounts for convenience and not for investment would have triggered a Raymond James review and audit, as broker dealers are required to comply with anti-money laundering laws and to report suspicious activity via a suspicious activity report [SAR] if, “the the broker-dealer knows, suspects, or has reason to suspect: 1) involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity as part of a plan to violate or evade any Federal law or regulation, 2) is designed to evade any requirement of the Bank Secrecy Act, 3) has no apparent business or lawful purpose or is not the sort of activity in which the particular customer would normally be expected to engage, or 4) involves the use of the firm to facilitate criminal activity.”

    https://www.sec.gov/news/speech/anti-money-laundering-an-often-overlooked-cornerstone.html

    Cheers

  • Great work, Anne. Excellent documentation and a very strong article all together. Thanks.

  • Meredith Potter

    Excellent reporting. Terrible headline. We love Jay Peak.

  • David Dempsey

    Vermont is lucky to have reporters like Anne Galloway at Vtdigger and Paul Heinz at Seven Days. Other news media outlets, WCAX being a prime example, do very little investigative reporting. Keep up the outstanding work.

    • Dart Everett

      WCAX and the other media in the state have been to mesmerized for decades by the high-ranking politicians in our state to ask the tough questions. Elections come and go without any delving into what a candidate has done during his term(s) to warrant reelection. For example, I see Sen. Leahy making his once-every-six-year trek around the state and sending out newsletters/solicitations. Where has he been since 2010? I must add that Rep. Welch gets around regularly to talk AND LISTEN to folks. Gov. Shumlin is around when there is a photo-op.

  • Peter Dannenberg

    Kudos to VTDigger on its laudable reporting about this scandal. If one government agency is both cheerleader and watchdog, expect failure. As President Reagan said, “Trust, but verify.” If it seems to good to be true, it is.

  • Gerald Hall

    This is a very professional report by Anne which must have taken hundreds of hours to put together in an understandable manner, followed by very perceptive and revealing comments by many. Maybe this is a little early to ask it, but in my view the big question is ……..Where do we go from here? Is Vermont going to let Jay Peak, Burke and Newport become “ghost towns” or more depressed areas than they are now because of this fiasco, or does Vermont look for a person or entity to step up to the plate, pick up the pieces and go forward with these projects, which have the potential to eventually become a “boon” to the northern half of our state.

  • Sandra Miller

    This is deeply disturbing, starting with enticing people to “buy” their way to American citizenship. Horrible for the communities affected by this scheme and horrible those hoping for citizenship.

  • Bill Guenther

    “Their children were born while Quiros was assigned to Spandau prison in Berlin, where he guarded war criminal Rudolf Hess.”
    Hmmmm…. here is yet another lie of Ariel Quros.. No US troops were “assigned” to Spandau Prison (in Berlin Germany) to guard Rudolph Hess. Under the Four Power Agreement, the USSR, Great Britain, France and the US each did a month long rotation of guard duty at Spandau Prison. US Army forces had guard duty the months of December, August and April. The prison was actually in the British Sektor of West Berlin. I think I would know this as I was guarding Rudolph Hess over Christmas in 1973 as part of the US Army’s Berlin Brigade,
    (formerly ) Sergeant Bill Guenther, US Army Berlin Brigade
    now thankfully in Newfane, Vermont

  • Jim Hynes

    Anne, perhaps you could team up with Peter Schweizer, the author of “Throw Them All Out”, the 2011 expose of financial corruption & cronyism in Congress. Is it any wonder that another “plan” resulting in financial malfeasance has Sumlin’s fingerprints (and DNA) all over it?? How this guy wasn’t thrown out of office is beyond me. The legislature went along with seating him again !! I’m ashamed….and our “representatives” should be as well. Throughout government…..from the top to supposed “down-ballot” we’re being ripped off. All these “representatives” fight over is who controls the graft. Well, looks like Shumlin won that fight ! No matter how many hundreds of millions of dollars in other peoples money is involved, no impeachment. Wonder what’s in those e-mails, huh?? Think Alexandra MacLean’s still exist? Anyone seen Bryan Pagliano in Vermont lately?

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