Gov. Peter Shumlin doubled down on Vermont's troubled EB-5 foreign investor program Wednesday despite last week's stunning federal takedown of two ski resorts in the Northeast Kingdom amid allegations of fraud against owners Bill Stenger and Ariel Quiros.
Despite the scale of the scandal, one of the biggest cases of EB-5 fraud allegations in U.S. history, Shumlin said all the Vermonters he knows were behind the projects prior to last week's revelations.
"We all had huge enthusiasm for this effort, and anyone who tries to rewrite history on that is just not being truthful," Shumlin said. "You cannot and should not run from the fact that this was viewed by any reasonable person as a real opportunity for Vermont."
Stenger and Quiros are accused of misappropriating about $200 million of the roughly $400 million raised from foreign investors to build the Hotel Jay and other projects at Jay Peak, and the Q Burke hotel. Some $50 million went directly into Quiros' pocket for an apartment in New York, personal expenses, and to buy Jay Peak and Q Burke resorts without investors' knowledge, the government alleges.
Under the EB-5 program, foreign nationals who invest $500,000 in a project being built in an economically depressed region of the country have the opportunity for U.S. residency if a required number of jobs are created.
Both resorts were put into receivership as part of the action by the U.S. Securities and Exchange Commission.
Stenger sent an email to the Burlington Free Press on Wednesday afternoon to say he remains at Jay Peak and is helping the receiver team "each day." The receiver, Michael Goldberg, could not be reached for comment Wednesday evening on Stenger's role at Jay Peak.
"I'm confident I will be cleared of wrongdoing," Stenger wrote.
"I trusted that all funds raised were being used correctly and and legally," Stenger continued. "I didn't think anything wrong was going on."
Stenger wrote that he was "heartbroken" for his family, his community and the investors in his projects.
"I have and will cooperate fully with federal and state authorities to bring about stability and proper financial outcomes for the resorts and the partnerships," Stenger wrote.
Quiros also has proclaimed his innocence and has called on the SEC, which froze his assets, to unfreeze all but $50 million. Quiros claims to have more than $200 million in assets.
The businessmen are facing state and federal civil claims, and a criminal investigation is ongoing.
Wednesday in the governor's ceremonial office at the Statehouse in Montpelier, Shumlin talked to the Burlington Free Press about the scandal — which has tarnished the reputation of the state-run EB-5 program in Vermont.
Shumlin brought with him two top administration officials involved with overseeing the project: Susan Donegan, commissioner of the Department of Financial Regulation, and Pat Moulton, secretary of the Agency of Commerce and Community Development. The governor's spokesman, legal counsel and chief of staff also attended.
A 'deep dive'
Donegan said she went into a "deep dive" on the Jay Peak and Q Burke projects, and AnC Bio, a proposed biomedical research facility in Newport, in January 2015, after Shumlin asked her department in summer 2014 to form a partnership with the Agency of Commerce and Community Development. Commerce oversees the EB-5 program in Vermont.
Shumlin said he decided to involve the Department of Financial Regulation after investors in the Tram Haus Lodge project at Jay Peak began complaining about the terms of their relationship to the hotel being changed without their knowledge. The investors were converted unilaterally from equity holders to debt holders by Stenger.
"I called in Susan (Donegan) and her team based on the unhappiness we were hearing," Shumlin said. Commerce and Community Development lacked "statutory authority to go in and subpoena bank accounts," he added. "The Department of Financial Regulation has that authority."
Donegan, who heads that department, said that when her staff began looking into the ski resorts and AnC Bio that January, they learned the SEC already had interviewed Quiros and Stenger.
"That's our federal counterpart," Donegan said. "We said, 'Hmm, we think we should contact them.'"
When Donegan called the SEC, she recalled, they were "fairly circumspect" in what details they would share. Later, the two agencies did begin exchanging information in what Donegan described as parallel, but not joint, investigations.
As the documents began to roll in from brokerage accounts across the country in response to Donegan's subpoenas — ultimately about 300,000 pages — her team began to piece together the complex web of brokerage accounts she described as the "spaghetti map" in a news conference last week announcing the allegations of fraud.
There were some 100 accounts at 10 financial institutions, Donegan said, comprising the heart of the alleged fraud.
"We saw a lot of companies. We could not understand why there were created other than as a nameholder on an account," she said.
Donegan's investigators found evidence not only of money stashed in a dizzying array of accounts for no apparent reason, but also the "tricky business" of using margin accounts to borrow against funds to make investments.
"It's not an unheard-of investment strategy, but for the kinds of funds being raised, you wouldn't put it at risk like that, and you certainly wouldn't do it if you weren't disclosing that investment strategy," Donegan said. "This is not the strategy we would have expected to see with these kinds of funds."
She said investors in Stenger's and Quiros' projects were unaware of how their money was being used. Donegan declined to say whether she immediately asked Stenger and Quiros what they were doing.
Asked why she allowed investors to come into projects even as the investigation was ongoing, Donegan said the unraveling the investments was painstaking and had an uncertain outcome.
"We hadn't finished our investigation," Donegan said. "Until you're done, you don't know what the full and true and end answer is going to be. There might be something in the last phase of your investigation that changes your mind. So you don't want to disrupt the market until you are really sure. We weren't really sure. We had suspicions."
In September 2015, Donegan told her team to "take stock and see what we have."
"We said, 'This is what we've got: We've got fraud,'" Donegan said.
A half-finished hotel
Gov. Shumlin pointed out that all of the money being raised by Bill Stenger for Q Burke Hotel and AnC Bio were being placed into escrow accounts to protect them. He said the hotel was about half-finished when Donegan allowed Stenger to resume raising money for the project in July 2015.
"We had an ongoing project. It was best for all involved, including investors, to have that project finished," Shumlin said. "A half-finished hotel does no good."
Secretary of Commerce Pat Moulton said her department has been getting calls from nervous investors on other projects sponsored by Vermont's EB-5 Regional Center, asking why the state didn't discover the alleged fraud earlier.
"We make it clear we are the only regional center in the country with securities oversight, and better oversight than you will find in any other regional center in the United States," Moulton said. "I believe that to be true."
Shumlin said there are "a number of people we all want to protect" in the coming months, but "first are the Vermonters who have good jobs at Jay Peak, at the resorts. There are hundreds of them."
The governor added that his focus will be on working with receivers "and anyone else who will help, to help out Newport, who got kicked in the teeth because they've got a hole in the ground and a biotech project that's never going to happen. To help Jay Peak continue to be a vibrant and strong business, and to get Q Burke open. That's my goal."
Second, said Shumlin, come the investors, who need to keep their green cards, if they have them, and have their assets continue to perform "positively."
"I know it's vogue now for every politician from all parties to beat themselves for supporting these projects," Shumlin said. "We have to remember there's real assets there: the water park, the mountain. Jobs were created. We got to keep those people working. With all the tragedy of this, there's been some real success. We can't forget that."
- Vermont EB5 Regional Center
- 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
- State of Vermont vs Bill Stenger & Ariel Quiros
- UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Ariel Quiros & Bill Stenger
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