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How Jay Peak's Alleged Ponzi Scheme Exploited A Growth Plan Once Championed By Bernie Sanders

How Jay Peak's Alleged Ponzi Scheme Exploited A Growth Plan Once Championed By Bernie Sanders

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“The most popular sport in America is complaining about the federal government. What you are seeing here is a marriage and partnership between private business and federal, state and local government.” Those were Vermont Senator Bernie Sanders’ words in October 2012 when it came to a once-glittering economic development plan to revive the northeast part of his state.

A bi-partisan partnership between private business and federal, state and local government to be sure, but also allegedly a sophisticated multi-million dollar Ponzi scheme, according to a 52-count complaint unsealed Thursday by the Securities and Exchange Commission.

The alleged Ponzi scheme ties an EB-5 investor program championed by Jay Peak Ski Resort, a popular 78-trail mountain in Vermont’s Northeast Kingdom, which raised over $350 million from foreign investors to expand its facilities and create local jobs. The EB-5 program, supported by the State of Vermont and both of its Senators, Bernie Sanders and Patrick Leahy, offered foreigners the opportunity to invest between $500,000 to $1 million in developments that projected returns of 2% to 6% and a pathway to U.S. citizenship within two years.

Now, however, the SEC says more than $200 million was misappropriated by the owners of Jay Peak, Ariel Quiros and William Stenger, in a Ponzi-like fashion.

Quiros, with the assistance of Stenger, misappropriated money for recent projects in the development plan in order to fund deficits from earlier projects, the SEC said on Thursday. Its complaint alleges that Quiros’s scheme included $50 million that he spent on personal expenses, including buying Jay Peak from its previous Canadian owners, and the funding of credit lines, income tax payments, purchases of real estate, and the repayment of sizable margin loans.

“The alleged fraud ran the gamut from false statements to deceptive financial transactions to outright theft,” said Andrew Ceresney, director of the SEC’s Division of Enforcement, in a statement.

“[T]he defendants diverted millions of EB-5 investor dollars to their own pockets, leaving little money for construction of the research facility investors were told would be built and thereby putting the investors’ funds and their immigration petitions in jeopardy,” he added.

For years, Jay Peak was championed by Democratic and Republican officials including Senators Sanders and Patrick Leahy, in addition to Governors Jim Douglas and Peter Shumlin, as a smart marriage between foreign investors, business and government. Senator Leahy is one of the strongest supporters of EB-5 programs in Washington. Shumlin, at great lengths, highlighted the Jay Peak program in his gubernatorial address after re-election in 2013.

The Sanders campaign did not immediately respond to an email seeking comment, nor did Stenger.

However, the SEC’s 82-page complaint indicates that foreign investor funds were misappropriated as early as 2008, well before Jay Peak became one of Vermont’s most important development projects.

The development plan at Jay Peak included multiple hotels, an expansive indoor water park, an ice rink, a golf club, a wedding chapel, 30 vacation rental townhouses, 90 cottages and other capital investments. Outside of the resort’s mountainous winter playground and summertime golf links, the plan even proposed a 40-acre, $110 million bio-medical research facility along the shores of Lake Memphremagog, in Newport, Vermont.

When the Jay Peak revitalization project began, it pitched EB-5 investors in Europe and Asia on the notion that they would be financing specific developments, with Stenger as a general partner overseeing their funds. However, early on in the program, the SEC alleges that Stenger ceded control of investor money to Quiros through a Raymond James brokerage account, facilitating the eventual misappropriation of funds.

By 2012, the project was on track to raise hundreds of millions from foreign investors, garnering broad praise across Vermont’s political spectrum. At a September 27, 2012 town hall at Jay Peak Resort, attended by Sanders and Leahy, Stenger projected as much as half a billion dollars in total investment and over 10,000 jobs, something that likely would have amounted to a economic transformation in the region.

However by 2014, a local blog, VTDigger, began to report extensively on dissatisfaction among EB-5 investors who claimed they’d been misled and eventually launched litigation alleging fraud. Some early on projects have been restructured, according to VTDigger, with investors having their funds converted into unsecured loans or promissory notes.

A worsening drip of lawsuits and bad press caused Governor Shumlin to increase oversight of the EB-5 program within Vermont’s Department of Financial Regulation in 2014. This eventually culminated in an investigation that deepened last year, with the help of federal authorities.

The EB-5 program at Jay Peak has all but ground to a halt, throwing green cards and investor money into jeopardy. It’s also caused Senator Leahy to become an leading advocate of reforming EB-5 programs amid alleged abuse not only in Vermont, but nationwide.

This week it was governor Shumlin who addressed the media on Jay Peak’s woes. “We all feel betrayed. It is a dark day for Vermont,” Shumlin said in a 25-minute press conference with reporters Thursday. Leahy who will eventually need to spearhead EB-5 reform. Meanwhile, Vermont’s Secretary of Commerce Patricia Moulton said the state’s other EB-5 programs will remain active.

Nonetheless, the failure of the Jay Peak program may also become a hot political football for Sanders, who has become a national political figure and a contender for the Democratic Presidential nomination due to his sharp criticism of finance. 

For a political candidate who has spurred populist anger against large financial firms and multinational corporations, Jay Peak’s woes are a reminder that ethical misconduct is not solely the purview of Wall Street. A seemingly well intended economic revitalization plan has backfired in spectacular fashion, rife with allegations of fraud and theft, in Sanders’ own backyard.


Source: http://www.forbes.com/sites/antoinegara/2016/04/14/how-an-alleged-ski-resort-ponzi-scheme-exploited-a-growth-plan-once-championed-by-bernie-sanders/#2adf7c8bb172

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