Documents Show Feds Were Onto Quiros Long Before State Launched Probe

Federal authorities launched an investigation into Jay Peak’s EB-5 projects nearly a year before state officials had their first inkling that something illegal was afoot. And documents on file at the Securities and Exchange Commission indicate that the agency had strong forensic evidence of a massive fraud well before the changes in state regulatory oversight that Gov. Peter Shumlin now credits for taking down the “Ponzi-like” scheme.

On May 22, 2014, at about 10:30 in the morning at SEC offices in Miami, Florida, federal lawyers grilled Ariel Quiros about a series of financial transactions detailing alleged misappropriation of funds from the foreign investors.

The 245-page transcript of their day-long interview reveals pieces of the evidence the SEC would later use to file dozens of federal civil charges against Quiros, the owner of Jay Peak, and Bill Stenger, the resort CEO that federal authorities say facilitated the scam.

SEC lawyers conducted that deposition seven months before a memorandum of understanding that shifted the state’s financial oversight of Quiros’ and Stenger’s dealings away from the Agency of Commerce and Community Development, and over to the Department of Financial Regulation. And the interview occurred more than a year before state officials imposed restrictions on Quiros’ EB-5 projects designed to prevent continued misappropriation of investor funds.

The transcript also offers a glimpse into the mind of a man trying to remain composed as authorities unraveled the threads of an alleged scheme that saw Quiros misappropriate $200 million of investor money, and allegedly steal $50 million for himself. And it shows Quiros dodge, deflect and demur as SEC lawyers confront him with hard evidence indicating he illegally used investor funds to finance his purchase of Jay Peak, all the way back in 2008.

The seven-hour exchange between Quiros, his lawyer, and four people from the SEC spotlight a federal investigation that had clearly been underway well before the May 2014 deposition.

“So I’m understanding what you’re saying. I think now I clearly understand,” Quiros says at one point during the interview. “What everybody’s trying to get at it is that I used other people’s money to buy Jay Peak, and that is one hellacious false statement, very false statement.”

That was Quiros’ response to investigators after being presented with documents that allegedly show $1.5 million in investor funds wired first to an account controlled by Quiros, then used by Quiros to help finance his purchase of Jay Peak.

Federal authorities now say that transaction was part of more than $20 million in investor money that should have gone to hotel projects that Quiros instead used to underwrite his purchase of Jay Peak. And they say it was the precipitating event in a “Ponzi-like” fraud that saw Quiros and Stenger use new investors’ money to backfill old debts created by Quiros’ initial misappropriation.

“So now we have $1.6 million of investor funds that came in. And then we have that $1.5 million wire that you executed that was out from the Q Resorts account [to finance the purchase of Jay Peak],” Brian James, senior counsel with the Division of Enforcement of the U. S. Securities and Exchange Commission, says to Quiros during the interview. “So essentially what this appears to show is that $1.5 million that went out came from that $1.6 million that came in from the Phase II investor funds. Do you see that?”

Quiros’ response relies on the same tactic he employs during much of the deposition: When confronted with evidence of alleged wrongdoing, he apologies for not having a ready explanation, but promises one will be forthcoming.

“I clearly understand what you’re trying to get at. Whatever funds were consumed were my funds, number one. I cannot give you an explanation,” Quiros says to James. “But you keep on referring to investors’ funds. I did not use investor funds. Whatever funds I took into my account, I had full control, and it was my funds, my corporate funds. So I cannot address it to you, because you’re asking me this particular question, and I cannot answer you. So it doesn’t sound so good because I cannot explain it to you. But I will get you the answer.”

The SEC investigators apparently weren’t sharing their information with anyone in the state of Vermont.

The seven-hour exchange between Quiros, his lawyer, and four people from the SEC spotlight a federal investigation that had clearly been underway well before the May 2014 deposition. The interview also includes evidence that Quiros had misappropriated $18 million in investor funds as recently as February of 2014 to pay off margin loans taken out in Quiros’ name.

The SEC investigators apparently weren’t sharing their information with anyone in the state of Vermont. And it would be another seven months before the Shumlin administration shifted oversight of the state’s EB-5 program away from the Agency of Commerce and Community Development, which had apparently been unaware of the alleged fraud that had been occurring under its watch for the past six years.

“It occurred to me and others that it seemed inappropriate that we were asking our hardworking folks at ACCD to promote Vermont’s regional EB-5 center … at the same time they were supposed to be giving investors assurances we were scrutinizing projects as much as allowed,” Shumlin said last Thursday, minutes after announcing the filing of state and federal civil charges against Quiros and Stenger.

It would take another few months before the changes in oversight resulted in state-level officials becoming aware that something nefarious was amiss in the Northeast Kingdom.

“By March 1 of 2015, we had a pretty good sense that there was something going on that we needed a lot more information about, in part because we weren’t getting the level of cooperation that we certainly had hoped from the project principals,” says Commissioner of Financial Regulation Susan Donegan, who spearheaded the state’s investigation. “As a regulator, if you don’t get cooperation, your Spidey sense goes up a little bit.”

Commissioner of Financial Regulation Susan Donegan says it wasn’t until after her department launched its probe in earnest that she learned, sometime in the spring of 2015, that the SEC had its own investigation ongoing.

Donegan says it wasn’t until after her department launched its probe in earnest that she learned, sometime in the spring of 2015, that the SEC had its own investigation ongoing. Anne Galloway at VTDigger, whose extensive investigative reporting was the first to bring to light glaring symptoms and evidence of the alleged EB-5 fraud, was the first to report publicly on the SEC probe, in June of 2015.

State officials say the year-long gap between the launch of the federal investigation, and its state counterpart, doesn’t undercut the state’s role in ferreting out the alleged fraud.

Attorney General Bill Sorrell said last Thursday that, but for Donegan’s work, not only might the state not have caught on, but the federal charges may not have materialized either.

Shumlin’s chief of staff, Darren Springer, reiterated Monday the importance of the state’s role in bringing down the alleged scheme. Shumlin noted last week that he inherited the previous oversight structure from former governor James Douglas.

“This is administration that caught the alleged fraud,” Springer said Monday. “I think as the attorney general said at the press conference, without DFR’s work, it was unlikely that there would have been a state complaint and he said possibly even a federal complaint.”

State officials say the year-long gap between the launch of the federal investigation, and its state counterpart, doesn't undercut the state's role in ferreting out the alleged fraud.

The SEC has not responded to requests for comment about why it didn’t share with state regulators the evidence it had compiled, or why Quiros and Stenger were allowed to continue raising money from foreign investors even after the SEC had compiled compelling evidence of wrongdoing.

Quiros, the Miami businessman the SEC says orchestrated the fraud, is something of a mystery man. Known as a person of few words who tended to avoid attention at public events touting EB-5 projects, Quiros was in fact the sole owner of the Q Resorts empire through which the alleged fraud occurred.

Quiros is far more talkative in his May 22 interview with the SEC, volunteering unprompted the story of an upbringing that included summer-time visits to his father’s land in the Northeast Kingdom.

The youngest of four boys raised in Harlem, Quiros tells the SEC that he earned a soccer scholarship to Trinity Pawling, “which is the number-one prep school here in the United States for boys" before joining the U.S. Army after graduation.

Quiros says it was through his Army assignment in the demilitarized zone in South Korea that he developed the business ties, and language skills, he would later leverage for the EB-5 projects, notably AnC Bio. Quiros says he never had any deep expertise in the businesses in which he was involved.

"Since day one of my only business, I was kind of a dealmaker, an arbitrage, an arbitrator." - Ariel Quiros, May 22, 2014

“So since day one of my only business, I was kind of a dealmaker, an arbitrage, an arbitrator,” Quiros says. “I was always trying to make the Koreans understand what the Americans are trying to think and … vice versa. And that’s really where I started my business career.”

Quiros extolls to SEC lawyers the “one-window system” he implemented at Q Resorts that saw him and Stenger – illegally, authorities say – transfer hundreds of millions of investor funds into accounts controlled solely by Quiros.

In another portion of the interview, when confronted with evidence that he’d used another $8.6 million in investor funds to acquire Jay Peak, James, the SEC lawyer, asks Quiros if he has “any recollection of information as to why this was done.”

“I don’t recollect. I don’t know. I don’t know. I don’t know,” Quiros responds. “But I’ll get you the answer, that’s for sure … but it has a good story. Whatever it is I guarantee it’s a very good – whatever it is I’ll get the right answer. That’s for sure.”

In other parts of the interview, Quiros marvels at the extent of the SEC’s research into his business dealings.

Quiros says state officials all but begged him to buy Jay Peak, and that he wouldn’t have gotten into the venture but for their pleadings.

“It is very, very unbelievable the hours that you must’ve spent to get all this put together this way for whatever,” Quiros says. “With all due respect. I’m not saying it in a bad way.”

And Quiros asks the lawyers to bear with him as he processes the interview experience.

“I’d like to add something. I’d just like you people to know that this is the first time in my life I’ve ever done this, so it’s an experience and a half,” Quiros says. “I’m going to try to do my best, but I want to show full transparency. I want to show that there’s nothing that I have hidden, make that very clear, and that everything that I have has been exposed. And I’ve done my very big efforts to do it.”

When confronted with various pieces of evidence, he often says the transactions in question must have been the work of Jay Peak chief financial officer George Gulisano, a fellow Miami businessman, or William Kelly, another hand-picked member of his Q Resorts executive staff.

Quiros says state officials all but begged him to buy Jay Peak, and that he wouldn’t have gotten into the venture but for their pleadings.

“And I was so scared, because I’m very disciplined. I know when something is wrong. I feel it and I, whoa. As a soldier living in Korea, I know if something is very wrong. So I said, ‘Whoa, no.’ And then I spoke with [Gov. James Douglas]. They introduced me to governor, and they introduced me to all the selectmen … I don’t want to get caught in a trap. And, oh my lord, what do I do? But everybody, please Quiros, please Quiros, please Quiros, buy Jay Peak, buy Jay Peak, buy Jay Peak.’ It was every day, every day.”

http://digital.vpr.net/post/documents-show-feds-were-quiros-long-state-launched-probe#stream/0

Mentions

• Jay Peak - AnC Bio Vermont
• Jay Peak - Q Burke Mountain Resort, Hotel and Conference Center L.P.
• U.S. Citizenship and Immigration Services
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION
• Peter Shumlin
• Ariel Quiros
• Bill Stenger

Litigation Cases

• State of Vermont vs Bill Stenger & Ariel Quiros
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Ariel Quiros & Bill Stenger

States

• Vermont