Jay Peak in Ponzi-like Scam

The Securities and Exchange Commission announced today that it has filed fraud charges against two owners of Jay Peak Resort, a ski area near the Canadian border in Vermont. The state of Vermont has filed similar civil charges.

The SEC alleges that owners Ariel Quiros, of Miami, and Bill Stenger, of Newport, Vermont, misappropriated more than $200 million of investor money intended for the construction of ski resort facilities and a biomedical research facility.

“In Ponzi-like fashion, money from investors in later projects was misappropriated to fund deficits in earlier projects,” the press release reads.

“This is obviously a very difficult day for Vermont and for the many people, myself included, who are so invested in growing jobs and economic opportunity in the Northeast Kingdom,” said Gov. Peter Shumlin, D-Vermont.

The governor revealed Thursday that the owners of Jay Peak and Q Burke ski resorts allegedly swindled investors in a huge fraud scheme.

Authorities called what happened a massive fraud– a scheme that involved outright theft. It was all part of a huge development project that promised hundreds of jobs in the most economically depressed part of the state.

It started with the expansion at Jay Peak in Jay. Plans involved redeveloping downtown Newport and adding a new biotech facility there, plus a major expansion with hotel and condos at Burke Mountain– $350 million in all, raised from foreign investors. Now, authorities say most of that money was misused.

Governor Shumlin is defending his administration’s oversight. The administration insists that without the country’s best-regulated program in the country, they may never have gotten to the bottom of the alleged scheme. But after Thursday’s revelations, convincing investors to bring their green to the Green Mountain State won’t be easier.

The Northeast Kingdom’s development fairy tale is becoming a nightmare. Wednesday, federal officials seized control of Jay Peak and Q Burke resort operations. One day later, state leaders accused developers Bill Stenger and Ariel Quiros of building their mountain empires on a web of lies they call a “Ponzi-like” scheme.

“The fraud allegedly began on Day One,” Shumlin said.

Federal and state officials say the company played a shell game with $200 million invested by wealthy foreigners in exchange for green cards under the federal EB-5 program.

State officials became suspicious more than a year ago as Stenger and Quiros sought approval for a hotel and research facility. Closer inspection allegedly revealed problems throughout their entire portfolio.

“We saw anomalies and unusual transactions that raised regulatory concerns,” said Susan Donegan, the commissioner of the Vermont Department of Financial Regulation.

They say Quiros pocketed another $50 million for himself, using it for his Jay Peak buy-in, to pay personal property taxes and to buy a $2 million condo in Trump Tower in New York City.

Federal and state officials filed civil complaints Wednesday.

“The defendants, if found liable, will face no jail time,” said Bill Sorrell, D-Vt. Attorney General.

But that could change soon, as U.S. Attorney for Vermont Eric Miller says he’s considering charges that could carry a prison sentence, but, for now, the development duo face only substantial financial penalties.

Shumlin told the media he does not expect job losses, given a Kansas City company will take over operations, but says a planned bio-research lab and downtown redevelopment project in Newport won’t move forward.

“My commitment as governor is to do everything that I can to protect these Vermonters’ jobs and the investors who are victims of these allegations,” Shumlin said.

The governor says Vermont’s EB-5 program remains one of the strongest and best-regulated in the country. But the crown jewel, which he marveled over in press conferences and State of the State speeches, has lost its shine.

Stenger had planned on using his own money to fund an airport expansion in Newport. With much of his assets frozen, it seems unlikely he would push forward with that effort.

So far, Ariel Quiros and Bill Stenger have not commented on the fraud allegations.