Former Gov. Peter Shumlin told federal investigators last April the EB-5 fraud perpetrated at Jay Peak and in Newport was a "huge embarrassment" to him and his administration.
"We put our names on this," Shumlin said. "It is the biggest disappointment of my political life."
Shumlin's comments were contained in 17 pages of notes taken by U.S. attorneys and an FBI special agent in two interviews, on June 17, 2019, and April 29, 2021.
The investigators' notes were unsealed on Friday by Rutland Federal Court Chief Judge Geoffrey Crawford, in response to a request made by Stowe attorney Russell Barr.
All told, the unsealed documents include interviews with 17 state officials, including Shumlin. Among the others interviewed were former Gov. Jim Douglas, former Commerce Secretary Lawrence Miller and former Department of Financial Regulation Commissioner Susan Donegan.
The Securities and Exchange Commission began investigating Jay Peak in June 2013. The Vermont Department of Financial Regulation launched its own investigation in March 2015.
Former Jay Peak President Bill Stenger pleaded guilty in August to one count of providing false documents to the Vermont Regional Center, which oversees the EB-5 program in Vermont. His co-defendants in the Jay Peak fraud case — Jay Peak owner Ariel Quiros and Quiros's attorney William Kelly — pleaded guilty to fraud charges. A fourth defendant, Quiros's South Korean business associate Alex Choi, remains at large.
The federal EB-5 program offered a foreign investor a pathway to receiving a resident visa — a green card — in exchange for a $500,000 investment in a rural or economically depressed area of the United States.
Barr is suing the state on behalf of foreign investors in the EB-5 projects in the Northeast Kingdom, alleging the state allowed them to continue pouring money into an hotel project at Burke Mountain — also owned by Quiros — despite knowing it was part of a fraudulent scheme. The state used the money "to pay Vermont contractors, and to facilitate the tax revenues that the State continues to enjoy today," according to the lawsuit.
The state denies the allegations.
An 'unmitigated success'
Stenger and his associates raised nearly $400 million for projects at Jay Peak and in Newport, about $200 million of which was misused in a "Ponzi-like scheme," according to state and federal investigators.
Quiros pocketed about $50 million for himself, to pay for everything from his taxes to a luxury condo in New York City. Stenger is not accused of taking any money for himself.
Shumlin served as governor from 2011 to 2017. He told investigators when he first took office he was unclear about how the EB-5 program worked, and the state's role in it, although he did know Vermont's was the only state-run EB-5 program.
"He knew the previous governor had promoted it and had taken a trip to Asia related to it," investigators wrote.
Shumlin was preceded by Gov. Jim Douglas. Shumlin told investigators there was a $40,000 to $50,000 bill "left over" from the previous administration's travel to Asia.
"Shumlin wondered why the Vermont taxpayers were paying for such travel," investigators wrote. "His view was that 'we promote the district, they promote the projects.'"
By "district" Shumlin was referring to the status of Vermont as a venue for EB-5 projects because of its state-run regional center. One of Shumlin's first priorities, according to investigators, was to pass an "EB-5 clean-up bill" so the state would get paid for travel related to the program.
Despite his misgivings about travel expenses, Shumlin was dazzled by what Stenger and Quiros seemed to be accomplishing in the Northeast Kingdom.
"The program appeared to be an unmitigated success, and the success seemed to defy reality," investigators wrote. "Hundreds of jobs were created. Every governor had tried to create jobs in the Northeast Kingdom (NEK). The EB-5 program seemed to be the 'secret sauce' to creating jobs."
Opaque financials
While excited, investigators wrote that Shumlin was also surprised to learn about the state's lack of access to financial data concerning the projects. That concern, however, "was not high on his radar."
Shumlin told investigators that the EB-5 projects in Newport — a biomedical facility, a hotel/convention center on the shores of Lake Memphremagog and a new block of retail and offices downtown — were never presented by Stenger and Quiros as EB-5 projects.
"Shumlin understood they were going to use their own funds for the projects," investigators wrote.
Shumlin told investigators he took two EB-5-related trips, one to Miami and one to Asia. The Miami event was an EB-5 convention where Stenger gave the opening speech about Jay Peak. He had dinner there with Quiros, Kelly and Douglas Hulme, a British national who owned Rapid Visas, a visa processing firm in Florida.
Hulme was instrumental in helping Stenger bring EB-5 investors into Jay Peak, until he broke with the project in February 2012 in a letter sent to immigration attorneys. As government prosecutors wrote in a brief prepared for Stenger's sentencing, "The letter explained that the reason for the termination was that Rapid Visas 'no longer has confidence in the accuracy of representations made by Jay Peak, Inc. or in the financial status of and disclosures made by the various limited partnerships.'"
The split between Hulme and Jay Peak surprised Shumlin and his team. Shumlin asked Lawrence Miller, then secretary of the Commerce Department, to "figure out what to do," according to federal investigators.
"Shumlin learned from Miller, who had called Hulme, that Hulme would not provide any information about the issues or why he was upset," investigators wrote.
Apparently that's as far as Miller's effort to get to the bottom of the Hulme situation went. When a U.S. attorney pointed out to Shumlin that he had mentioned the EB-5 program in his state-of-the-state address, Shumlin responded that the program was "like a 'crown jewel.'"
"Shumlin's team would visit project sites and see hundreds of hard hats," investigators wrote. "The program was working. During one event speech, Stenger started to cry when he spoke about job creation. People at the state thought that the jobs problem in the NEK had finally been solved. Even Bernie Sanders showed up at an event."
Why don't you stay at my place?
The investigators interviewing Shumlin turned next to his infamous visits to New York City, where he stayed in Quiros's apartment. Shumlin told investigators he met with Quiros at a New York restaurant because he wanted to get to know him, and also because he was hoping for a campaign contribution.
"Shumlin found Quiros to be a generous and thoughtful person who had scrapped his way to the top," investigators wrote.
During their meeting, Shumlin said he told Quiros his daughter attended The New School in New York City, and that he tried to get into the city occasionally to see her.
"Quiros offered Shumlin his New York City apartment as a place to stay, adding that it sat empty most of the time," investigators wrote. "Shumlin took Quiros up on that offer and used the apartment about two or three times."
Shumlin told investigators his trip to Asia on behalf of the EB-5 program was set up so that state employees' travel was funded by the EB-5 developers. He said he attended events at hotels with "big crowds."
"The potential investors present were mainly mothers with children — the fathers were rarely there," investigators wrote. "The potential investors were not the rich people (Shumlin) had expected to see."
Shumlin said he told the crowds that he was not going to comment on specific projects. He was not making a sale.
"The governor showing up for these events was a big deal," investigators wrote. "There is no doubt that the state had a role in marketing, but 'we thought we were on the side of the angels.'"
No one at the state was "on the take," according to Shumlin. Many who considered Stenger and Quiros to be friends felt betrayed once the fraud became clear, including Sen. Patrick Leahy, who considered Stenger a friend. Shumlin told investigators Stenger and Quiros were seen as "miracle-makers" and "saints," who were bringing tons of money to Vermont.
"It was not easy to switch from believing in them to not believing in them," investigators wrote.