Jay Peak developers Ariel Quiros, left, and Bill Stenger were indicted Wednesday. Photos by Glenn Russell for VTDigger
A federal grand jury has criminally charged former Jay Peak developers Bill Stenger and Ariel Quiros in a 14-count indictment.
Federal prosecutors allege Quiros, Stenger and two other business partners committed criminal fraud in the development of a proposed biomedical facility in Newport.
Bill Kelly, an adviser for Quiros, and Jong Weon (Alex) Choi, who ran AnC Bio Korea, were also charged criminally for fraud associated with the AnC Bio Vermont project. Kelly has pleaded not guilty.
All four defendants are charged with conspiracy to commit wire fraud and concealing the truth about AnC Bio Korea, which was at the center of an investor fraud scheme in South Korea. The Vermont project was a carbon copy of the Korean company.
Korean officials detained Choi in early 2013 and again for most of 2014 as part of an investigation related to his operation of AnC Bio Korea. In 2016, he was convicted of financial fraud in Korea associated with the company, according to the indictment.
U.S. Attorney Christina Nolan told reporters at a press conference Wednesday afternoon that the developers sold AnC Bio Vermont “as a way to bring much needed jobs to the Northeast Kingdom.”
“But the defendants lied and they cheated, according to the grand jury’s indictment,” Nolan said. “The AnC Vermont project was not in fact designed to create a number of jobs or the amount of revenue for the Northeast Kingdom that the defendants claimed. Rather, the project was designed to siphon millions of dollars to the control of Quiros and Choi, who were secretly business partners and in charge of the project.”
Nolan said it’s important for Vermonters to know that “when a fraud happens in a small state, we are going to see criminal accountability.”
U.S. Attorney for Vermont Christina Nolan announces the federal criminal charges against the developers of the AnC Vermont project. Photo by Mike Dougherty/VTDigger
The U.S. attorney’s criminal charges come three years after the Securities and Exchange Commission brought 52 civil counts of securities fraud against Quiros and Stenger for misleading more than 800 investors in eight projects associated with Jay Peak Resort, including the biomedical facility. In April 2016, the two men were accused of misusing $200 million; Quiros was charged with stealing $50 million.
VTDigger began reporting on allegations of fraud at Jay Peak Resort in 2014 and wrote an expose in 2015 about the proposed biomedical facility in Vermont. In December 2016, VTDigger traveled to South Korea to investigate Choi’s scheme to defraud investors in AnC Bio Korea.
The former Jay Peak CEO and frontman for $400 million in developments at the ski area and the Newport biomedical facility, convinced 169 investors to put up $93 million in capital investments and administrative fees. AnC Bio Vermont was never built and about $67 million was returned to investors caught up in the fraud through a settlement with Raymond James Financial Services in 2017.
Stenger, 70, who was led into the Burlington courtroom in handcuffs, pleaded not guilty to the charges and was released on $100,000 bail. His attorney, Brooks MacArthur, said he would vigorously defend this “man who spent his life working for the Northeast Kingdom and the people of Vermont.”
The former Jay Peak president will not be allowed to travel outside the country and had to hand over his passport. He was told to avoid all contact with witnesses in the case but he can continue working with longtime assistant Elizabeth Button and Michael Goldberg, the court-appointed receiver in civil proceedings.
The court was told that Stenger, who appeared drawn and whose voice was tremulous, has been taking medication for high blood pressure and is seeing a cardiologist.
Quiros, 63, who was arraigned later in the day, also wearing handcuffs, pleaded not guilty and faced similar conditions of release. Alex Choi, another business partner in AnC Bio Vermont named as a defendant, remains at-large. A fourth alleged conspirator, Bill Kelly, a former adviser to Quiros, also pleaded not guilty.
Prosecutors say the defendants misrepresented the financial viability of AnC Korea, which was a failed business. “The marketing materials falsely stated that AnC Korea had the capacity to support the AnC Vermont project,” prosecutors wrote. “Quiros and Choi knew that AnC Korea was desperate for operational funds, as it had no substantial revenue stream and substantial debts. Moreover, AnC Korea had made no progress in research and development for years.”
They are also accused of covering up “by trick, scheme and device” and “knowingly and willfully concealing” Quiros’ transfer of $21 million from the AnC Bio Vermont project to a holding company for purposes unrelated to the biomedical project. They used nine different corporations to move money around during the period in which the fraud was perpetrated from 2012 to 2016.
The state-run Vermont EB-5 Regional Center oversaw AnC Bio Vermont and seven other projects associated with the Jay Peak Resort developments in the Northeast Kingdom, including Burke Mountain ski area. Govs. Jim Douglas, a Republican, and Peter Shumlin, a Democrat, and Sen. Patrick Leahy, D-Vt., all played a role in helping to bring the Korean company to Vermont.
U.S. Attorney Nolan said state officials were “lied to over and over again” by Stenger and Quiros.
The four men are charged with making materially false and fraudulent representations and promises, including interstate and federal wire fraud in five of the counts cited by federal prosecutors.
Quiros is separately accused of knowingly using illegally obtained funds to pay a $6 million bill to the Internal Revenue Service. The Miami businessman is also charged with using unlawful funds of $46,465 from a business account to buy a Jeep Rubicon.
Bill Kelly, left, and Alex Choi at a ribbon cutting for ANC Bio in 2015. Photo by Anne Galloway/VTDigger
Stenger faces 10 criminal charge. The indictment accuses Stenger of knowingly and willfully made “a materially false, fictitious, and fraudulent statement and representation” to the federal government that he had stopped marketing AnC Vermont to prospective investors. The former Jay Peak president also lied to federal authorities about a third-party analysis of sales projections for the AnC Bio Vermont business plan. He also made false statements about a timeline for selling products from the biomedical facility “that omitted uncertainty about the FDA approval process.”
The four defendants are also accused of falsifying job numbers for the EB-5 projects. Each investment of $500,000 was to generate 10 direct or indirect jobs. Federal prosecutors say Stenger, Quiros, Kelly and Choi “created deceptions about both construction jobs and operational jobs.”
A complicated scheme
The biomedical facility was part of a complicated scheme, federal regulators say, and the criminal complaint filed Wednesday provides more detail about how the developers’ plan to hoodwink investors, the state and the U.S. Citizenship and Immigration Services worked.
In a sleight of hand financial deal that started the Jay Peak Ponzi scheme, Quiros used EB-5 investor funds to buy the Jay Peak Resort in 2008. He and Stenger then solicited investors for other projects whose money was used to backfill the $24.5 million stolen from the first set of investors.
Despite the fact that the business partners had brought in more than $100 million in a few years after the purchase of the resort, shortfalls began to emerge in 2011. The first two projects, the Tram Haus Lodge and the Hotel Jay and waterpark, had cost overruns. And Quiros was allegedly using EB-5 money to pay his personal expenses.
At that point, the four businessmen agreed going forward to use Jay Construction Management as the vehicle to commingle EB-5 investor monies for six additional projects at Jay Peak.
The state-run Vermont EB-5 Regional Center gave approval to the Newport biomedical facility in October 2012. The center was responsible for overseeing the project and as prosecutors put it, Quiros and Stenger “agreed to promote the project honestly and fairly.”
The Jay Peak developers, however, did anything but promote AnC Bio Vermont with honesty and fairness, according to the indictment. Almost immediately after obtaining state approval for the project, the defendants realized that in order to make a version of AnC Korea viable in Vermont, they would need to redesign the facility. Prosecutors said, however, that “final designs for the facility were never completed.”
Nolan said the defendants had no plan to actually build the facility, nor did they have a viable business plan for the promised cardio stem cell therapy, clean room and artificial organ manufacturing operations laid out in an offering memorandum provided to investors, the state and the federal government. They knowingly deceived federal and state officials.
“Put simply, the defendants devised and stood by a bogus business plan,” Nolan said. She lauded officials from the IRS, the FDA and the FBI who helped the U.S. Attorney’s Office peel back the layers of fraud that enveloped the AnC Bio scheme.
The indictment says the defendants met in Korea in November 2012 to finalize plans for the project and during that visit, Quiros and Choi “documented their plan to split $34 million.”
“They also documented that Kelly was to receive $4 million and Stenger was to receive $1 million in connection with the ‘management fee,’” prosecutors wrote.
A few months later, Quiros, Kelly and Stenger began shifting $2.6 million a month to Jay Construction Management for fees and equipment, the indictment alleges. By October 2014, the three defendants had put $47 million into the kitty. The three men used about $18.2 million of that sum to pay down a Raymond James loan balance.
In addition, prosecutors say Quiros set up a $100 million loan to build a hotel and other facilities at Burke Mountain ski area. In 2013, the Miami businessman used AnC Bio investor funds as collateral for the loan.
Stenger and Quiros funneled $250,000 in AnC Bio Vermont investor administrative fees into the purchase of a parcel in downtown Newport known as the Spates Block.
Quiros, Kelly and Stenger “concealed” the misuse of funds from investors, the state and the federal government, the indictment alleges.
The three defendants made “false and misleading statements to the SEC” about AnC Bio Vermont in an attempt “to convince the SEC to end its investigation.”
USCIS asked for evidence during a review of the project in 2013 before it approved green card submissions for investors in AnC Bio Vermont in June 2014. Prosecutors say the defendants made misrepresentations in submissions to the federal agency.
By mid-2013, the SEC was investigating Stenger and Quiros. The Vermont EB-5 Regional Center also began asking the developers questions about the biomedical facility in late 2013, not long after Shumlin had appeared in a promotional video for Stenger, asserting that the Jay Peak projects had been audited by the state. The projects were never audited by the center or anyone else, according to documents.
The state suspended the Burke and AnC Bio Vermont projects in June 2014 and, records show that under pressure from Shumlin the projects were reinstated in April 2015 with some restrictions.
Quiros allegedly siphoned off another $15 million in 2015 from AnC Bio Vermont for an account at Citibank that was used as collateral for more loans. He “secretly embezzled” another $980,000 in AnC Bio Vermont investor funds from a Citibank account held under his GSI company.
https://vtdigger.org/2019/05/22/federal-grand-jury-indicts-jay-peak-developers/
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