Archive for April, 2016

Massive Fraud Alleged at Jay Peak Inc.

Posted on April 15th, 2016 by Brian Garcia

The Securities and Exchange Commission and Vermont on Thursday filed civil fraud charges against Jay Peak, Inc. owners Ariel Quiros and Bill Stenger accusing them of misusing more than $200 million from EB-5 investors.  Long the darling of the EB-5 industry, the SEC and Vermont allege the fraud by the two owners started in 2008 with the purchase of the Jay Peak ski resort.  Quiros also owns the nearby Q Burke resort which was seized by the authorities.

‘‘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. ‘‘As alleged in our complaint, the 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.’’

Investors were told they were investing in one of several projects connected to Jay Peak, the SEC said.  ‘‘Instead, in Ponzi-like fashion, money from investors in later projects was misappropriated to fund deficits in earlier projects,’’ the SEC said.

“Quiros orchestrated and Stenger facilitated an intricate web of transfers between the various Defendants and Relief Defendants to disguise the fact that the majority of the seven projects were either over budget or experiencing shortfalls,” reads the complaint. “These shortfalls were due in large part to Quiros pilfering tens of millions of dollars of investor money for his own use.”

The federal complaint states one of the projects, the AnC Bio research facility, has from the beginning been “rampant with fraud” and is now years behind schedule.  Federal investigators allege Quiros and Stenger made “bogus claims” to investors by saying they had applied for Food and Drug Administration approval for the facility’s biomedical products, such as artificial organs and a liver replacement device.  In reality, according to the allegations, the businessmen had failed to submit any products for FDA approval.  “Quiros has secretly used most of the money raised for the research facility’s construction to pay off and pay down a margin loan and to misappropriate approximately $30 million for his own use,” the complaint states.

A federal judge granted the SEC’s request to temporarily freeze Quiros’ assets and prohibit Quiros and Stenger from participating in projects associated with the EB-5 program while the litigation is pending. A receiver has been appointed to oversee the Jay Peak and Q Burke resorts.

The SEC and Vermont allege that Quiros misappropriated an additional $50 million of investor funds for his personal use, including more than $2 million to buy an apartment in Trump Place in New York, millions of dollars to pay personal income taxes and other expenses and more than $20 million to buy Jay Peak and the Q Burke ski resorts.

The Vermont Department of Financial Regulation alleges that an unrestricted pool of money was transferred between projects indiscriminately and ‘‘was used as a personal piggy bank,’’ said DFR Commissioner Susan Donegan.

Quiros with the help of Stenger bought the Jay Peak resort in 2008 and embarked on years long development relying on EB-5 investments totaling $350 million used to upgrade the resort, building hotels, a golf course and water park. Quiros and Stenger embarked on a series of other developments in Vermont also relying on EB-5 investors to finance the developments.

Vermont Governor Peter Shumlin said ‘‘We all feel betrayed. It’s a dark day for Vermont.”