This is the second of a three-part investigation. Read the first story here:
A ski resort, a dream and greed: How a $350M fraud happened in Vermont’s poorest region
To those who were watching carefully in 2012, the cracks in Ariel Quiros’ scheme were beginning to show.
The first public sign of trouble at Jay Peak ski resort came from Douglas Hulme, a British broker who had been given exclusive marketing rights for the resort’s first EB-5 projects.
Hulme released a statement denouncing the grandiose claims of Quiros, the resort’s owner, and his CEO Bill Stenger, saying his firm no longer had confidence in “the accuracy of representations made by Jay Peak.”
The two business partners had been taking in millions for four years in a chain of transactions that investigators would later describe as something like a Ponzi scheme. Though Hulme’s statement got the public’s attention, Quiros and Stenger had weathered awkward questions about their finances several times since the partnership began.
Stenger, Quiros shrug off financial questions as doubts mount
The summer that Quiros bought Jay Peak, its chief financial officer tried to obtain account statements for the money earmarked for the resort’s expansion that Quiros moved to an account at Raymond James in Florida. After several months of frustration, Mike Dupont flagged a lack of cash management controls and said it seemed EB-5 investor funds were unaccounted for. He resigned in protest.
Years later in a Securities and Exchange Commission deposition, Stenger dismissed Dupont as “a depressive character” who was having a “hissy fit.”
The next year, the resort’s controller, John Carpenter, emailed Stenger to point out that there had been “so much co-mingling of the funds… that this has become quite a mess.” And officials at a state economic development organization who had loaned money to Jay Peak ran into a “confusing” delay as they sought the resort’s audited financial statements.
Stenger blamed the departed CFO and stalled until Quiros finally put the questions to rest by paying off the loan with $3 million of investor money.
Before going public, Hulme had asked Stenger for the resort’s financial records, including statements from the secretive Florida accounts. Hulme also wanted written assurances that Jay Peak was following all federal and state laws and not using investors’ money as collateral for loans.
Stenger knew that investors’ money had been used as collateral in an arrangement known as a margin loan, but he attempted to reassure his longtime marketer. Stenger promised Hulme that the investors’ money was safe “to the very best of my knowledge.”
The assurance fell short of convincing Hulme everything was above board. He resigned as marketer in February 2012.
Hulme declined to explain his departure to journalists, but his attorney privately disclosed to a Vermont state official that the split was caused by concerns about Jay Peak’s finances and legal compliance.
Stenger worked overtime to limit the damage.
Stenger told a local newspaper that Hulme’s announcement was simply a conflict between a business and vendor. “We have rock-solid financials on each of the projects,” Stenger said, according to the Newport Daily Express.
Jay Peak’s own internal auditors had noted, however, that the high-speed pursuit of foreign money opened the company up to the risk of proceeding incorrectly in critical matters. They also noted other problems, such as the lack of fraud assessments, CPAs in the resort’s accounting office or a formal ethics policy.
While problems mounted, Quiros enjoyed growing wealth.
In December 2011, Quiros and his wife, Okcha, purchased a condo on Fifth Avenue in New York City for $4.8 million using money that investigators traced back to investor funds for Jay Peak ski resort in Vermont.
Less than two years later, they bought another condo at Trump Place for $2.5 million. Investigators would also conclude that Quiros used $6 million of stolen investor money to cover his 2014 IRS tax liability.
At least one investor was so spooked by Hulme’s decision to cut ties with the project that she dropped out. When another investor asked for audits for each project, Stenger replied that Jay Peak did not have them because they had already provided so much information to the U.S. Citizenship and Immigration Service: “There is no doubt that the investors funds have been spent in full on the projects.”
Quiros digs a deeper hole with bogus new project AnC Bio
The public spat with their chief marketer, Hulme, threatened to balloon into a larger problem that could not be easily explained away. But state and federal officials were still on board with the Jay Peak vision and lined up for a massive news conference that fall.
Quiros introduced a new project — the most brazen phase of the fraud — to bring a biomedical company to the small city of Newport, which sits on a lake spanning the Canadian border. The project, known as AnC Bio, had murky origins in South Korea and would benefit one of Quiros’ longtime associates, Alex Choi.
“I TRULY CAN’T BELIEVE IT ALL STARTED ON A NAPKIN,” Quiros wrote to his son-in-law and business associate Joel Burstein as they tallied their plans. He warned Burstein to stick with their protocol — “NO TALKING” — and ignore attacks from people who were jealous.
By the end of the year, the New York Times featured Jay Peak in a glowing article about the region’s transformation. The article repeated a false claim that Vermont state officials “monitor and audit” the EB-5 projects.
Furthermore, the article said Quiros and Stenger were “putting up $90 million themselves” — an important factor to sway investors who wanted the developers to have a stake in the project. It was false.
Stenger loved the published package: “This piece will help us so much with potential investors.”
The promises piled up. AnC Bio would turn Newport into a technology hub, strategically situated between Boston and Montreal. A new hotel and conference center would accommodate the scientists and entrepreneurs trekking north, and well-paid biotech workers would usher in a new era of prosperity for the city.
“The proposed project is a win-win situation for the investors, the community and AnC Bio Vermont,” wrote Sen. Patrick Leahy, Vermont’s influential senior senator, in a letter of support. “Keep up the good work.”
Stenger and Quiros bought commemorative shovels for the AnC Bio groundbreaking.
Investigators later determined that the AnC Bio project was bogus.
“They spent $270 on these stupid shovels to do a groundbreaking that they all should have known was going nowhere,” said Michael Pieciak of the Vermont Department of Financial Regulation.
SEC and Vermont officials start asking questions
The SEC launched an investigation into the Jay Peak projects in May 2013. Vermont’s state government would follow a year and a half later, initially tasking Pieciak’s team of financial experts with helping AnC Bio to clear regulatory hurdles.
Pieciak remembers asking about a particular arrangement on Quiros’ accounts that would use the EB-5 investor money as collateral for a loan — something that should not have been necessary. Quiros’ lawyers waved away the question, saying it was a savvy move by Quiros but not explaining how. The first red flag.
The state investigators ran into questions and excuses at every turn and finally stopped trying to help AnC Bio. Instead, their project became a collaboration with the SEC to trace every penny of the Jay Peak investments.
“We had to run all of those traps until we were confident to say, yeah, this is a highly complex Ponzi scheme and not someone being loose with the way in which they manage their accounts,” Pieciak said.
Contacted by the SEC, Burstein’s supervisors at Raymond James began getting suspicious. By June 2014, Burstein, who had divorced from Quiros’ daughter, asked Quiros to take his business elsewhere.
“I’ll be happy to never speak with him again!” Burstein wrote to his Raymond James colleagues of his former father-in-law. “All in all, I think we’ll all be happier. Good riddance!”
It took several months for Quiros to remove his money from the institution that had made his intricate financial dealings possible, which kept Quiros in contact with Burstein.
“ALL IS GOING VERY WELL WITH THE INVESTIGATION AS EXPECTED,” Quiros wrote to Burstein in September 2014, after he had been interrogated at the SEC office in Miami. “AS I HAVE ALWAYS MENTION .IT’S A LEARNING CURVE FOR THEM.” He promised to send new instructions for fund transfers.
As rumors of the investigation leaked out, Stenger told anyone who asked that it was a “review,” even though the SEC had told him directly that it was an investigation into securities law violations at Jay Peak. “We don’t expect anything to come of it,” Stenger told the Free Press.
The SEC has never publicly disclosed what sparked their investigation in 2013, but Pieciak, the Vermont investigator who collaborated with the SEC, believes Douglas Hulme had something to do with it.
Quiros believed that Hulme was to blame, and told the SEC so.
“When this SEC gets over with, I’m going to go after that man, I promise you,” Quiros told federal investigators. “I will kill that man for what he did.”
This was the second of our three-part investigation.